The EU free trade agreement — dead or just resting?

11 December 2023

A version of this article was first published by The DCN in December 2023.

In a media release dated 30 October, Trade Minister Don Farrell confirmed that negotiations with the European Union (EU) had reached an impasse with attempts to conclude negotiations on the free trade agreement (FTA) with the EU in the margins of the G7 meetings in Osaka having failed.

The Minister said while negotiations would continue, there would be no EU FTA concluded unless Australia believed that the EU FTA was comprehensive and in Australia’s best interests.

Even after all the negotiations between Australia and the EU, it appears that Australia believed it would not secure adequate additional access for Australian agricultural products into the EU. Further, it also appeared that the EU demands on the grant of ‘geographical indicators’ to its products were excessive and would cause untoward damage to Australian products already using those indicators.

Although New Zealand has secured an FTA with the EU, that FTA has been criticised for failing to secure enough additional access for NZ agricultural products and conceding too many indicators to the EU.

Just resting

Some issues regarding the negotiations for the EU FTA include, for instance, negotiations had commenced in July 2018 and took place on a regular basis thereafter both in person and virtually during the covid pandemic. Face-to-face negotiations continued once pandemic restrictions allowed travel to take place.

Also, the negotiations were pursued actively by both countries, both between officers of the respective trade agencies and at a ministerial level. While there was a brief interruption to negotiations following Australia cancelling its submarine contract with France, there is no question that the countries did not allocate enough resources to the negotiations.

The news of the impasse in negotiations should not adversely affect our trade with the EU which should continue as it currently exists. The EU is already Australia’s third largest two-way trading partner and second largest source of foreign investment.

Several parties had expressed the hope that even if a comprehensive FTA could not be secured, Australia should press towards a deal on other issues which had largely been agreed, including improved access for services, investment, and trade facilitation. While there has not been a specific response on that proposal, Australia’s position has always been that it would only enter comprehensive FTAs covering goods, services and investment as has previously been the case.

No timetable has been announced for any further negotiations with the EU but given the importance of the EU as a trading partner, there is no doubt that efforts will continue and that hopefully the parties can reach common ground to support the EU FTA. However, those who have been awaiting the completion of negotiations and commencement of the EU FTA will need to manage their expectations.

China back on the agenda?

Ironically, at the same time as negotiations appear to have stalled with the EU, there are signs that the Australian trade relationship with China may be improving, both politically and in economic terms.

Recently, China and Australia secured agreement for China to ‘review’ its high import tariffs on Australian wine and barley, which Australia had referred to the dispute settlement process at the World Trade Organization (WTO). In August 2023, there was a joint announcement by Australia and China that an agreement had been reached to resolve the dispute and the 80.5% tariffs on barley would be removed with effect from 5 August 2023. Subsequently, the dispute at the WTO was discontinued.

More recently, China has also announced a five-month review of its significant tariffs on imports of Australian wine imposed in August 2020 (in some cases up to 200%). Australian wine exporters are hoping that the review will also lead to a reduction or removal of those tariffs which have reduced Australian wine exports to China from $1 billion to $10 million annually. In this case, the parties have agreed that the dispute settlement process at the WTO would be put on hold pending the outcome of the Chinese review.

The agreements regarding the Chinese tariffs on barley and wine have not resolved all trade disputes at the WTO. The dispute initiated by China in relation to dumping and countervailing duties imposed by Australia on certain Chinese exports of railway wheels, wind towers and deeply drawn stainless steel sinks continues. Australia is also a third party to other disputes commenced against China by the EU in relation to restrictions on the import of certain products and in relation to the alleged deficiencies in Chinese intellectual property protections.

The Australian political relationship with China is also showing signs of improvement reflected by recent meetings of senior political officials, including Prime Minister Anthony Albanese’s visit in November, which was the first visit to China by an Australian prime minister in seven years. At the same time, the relationship between China and the United States (US) may be open to improvement with the hope that the Chinese premier and the US president will meet on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit meeting in San Francisco commencing on 15 November 2023.

While that appears encouraging, it is not expected to resolve many of the issues currently existing between China and the US. It also certainly will not reverse any of the measures which the US has adopted to reduce its reliance on products from China and other overseas countries, including the funding for the Inflation Reduction Act to assist the expansion of manufacturing capacity in the US. Australia has also introduced initiatives intended to assist its own domestic manufacturing.

Where to for now?

While the news of the impasse in the Australian negotiations with the EU is disappointing, it does reflect that Australia is prepared to maintain its position on the need for real and comprehensive benefits before it will commit to an FTA.

A similar strength of purpose has also been reflected in Australia’s relationship with China and Australia’s refusal to merely relent to Chinese pressure. These may seem to be small things, but they are important and perhaps international relationships with China may be enhanced as a result.

Australia’s FTA agenda will not cease. With New Zealand and the ASEAN nations, Australia has recently concluded negotiations on a second protocol to the ASEAN-Australia-New Zealand FTA which represents a significant review of the current FTA. Implementation of that FTA now needs to be undertaken by the parties to the FTA. Australia also continues to negotiate the full FTA with India and the other pillars of the Indo-Pacific Economic Framework Agreement.

Ultimately, FTAs, their completion and implementation are difficult exercises involving political, economic, social and legal issues. Patience is needed and continued faith placed with our negotiators from the Department of Foreign Affairs and Trade who work so well to advance and protect Australia’s interests.

Contact us

If you would like to discuss any aspects of negotiations between Australia and the EU on a free trade agreement, or assistance in addressing any current trade or supply chain issues your business is facing, please contact a member of our Customs & Trade team.

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