EU and UK soon to be in a post-Brexit rush over free trade agreement with Australia

Signing ceremony of the Strategic Partnership Agreement (SPA) and the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, by Jean-Claude Juncker, Justin Trudeau, Donald Tusk and Robert Fico (seated, from left to right). © European Union , 2016 / Source: EC – Audiovisual Service / Photo: Jennifer Jacquemart. Date: 30/10/2016 Reference: P-032764/00-14 Location: Brussels – Council/Justus Lipsius.

Last week, trade was one of the hottest topics on the European economic scene. The European Union and Australia made substantial progress towards the conclusion of a free trade agreement which has been on the table for years.

EU Trade Commissioner Cecilia Malmström and Australia’s Minister for Trade, Investment and Tourism, Steven Ciobo, announced they concluded discussions on the scope of a potential bilateral free trade agreement. At the same time, while moving forward with free trade deals with economic powers on the globe, the EU would be also considering to change its policy with the UK.

The European bloc would be indeed eyeing to exclude the UK from those trade talks amid concerns that “sensitive information” may be used by an almost ex-member.

Background

The EU and Australia are two long-standing economic partners and already cooperate closely on trade policy issues, including in the multilateral area. The two economic superpowers conduct their trade and economic relations under the EU-Australia Partnership Framework of October 2008. The prospect of an EU-Australia free trade agreement was mentioned for the first in the EU “Trade for All” strategy paper of 2015, backed by all EU Member States.

In November 2015 the President of the European Council Tusk, Australian Prime Minister Malcolm Turnbull and the President of the European Commission Jean-Claude Juncker announced that the bloc agreed to begin negotiations towards a Free Trade Agreement with Australia. “We believe that an FTA will support sustainable growth and investment, open up new commercial opportunities and promote innovation and employment in Australia and the EU”, said the three leaders back then from the G20 in Antalya, Turkey.

Objective reinforced

Last week, on April 6, EU Trade Commissioner Cecilia Malmström announced that she would soon ask the EU’s member states for permission to launch formal negotiations and for the European Commission’s negotiating directives. “I am looking forward to receiving a mandate from Member States so that the EU could start negotiating soon with a very important friend & partner”, Commissioner Malmström tweeted right after her phone conversation with Australia’s Trade Minister Ciobo.

Mr. Ciobo said last week “handshake” was a “key step” toward the launch of negotiations. “An Australia-EU FTA has the potential to drive economic growth by opening up new export opportunities, enhancing investment flows, and removing trade barriers for businesses,” he said. “This initiative is an important element of the Turnbull Government’s ambitious trade agenda”, he added.

The European Commission said the preliminary discussions, conducted over the past year between the EU and Australia, aimed to define areas to be covered as well as the level of ambition for a future agreement. The Commission is currently conducting its assessment of the potential impact that such a trade deal could have for the EU, taking into account the new opportunities the agreement could create for EU businesses, as well as sensitivities in the farming sector.

A different story

However, last week wasn’t just the right moment for the EU to open its doors to a new trade partner, but to also to shut the door in front of an almost ex-member. The Financial Times on Friday reported a news that is now circulating very fast, that Brussels would allegedly be considering to exclude the UK from negotiations and from updates on current EU free trade deals amid concerns that London could take own advantage of those “sensitive information”.

According to the Financial Times, after a briefing last month by Michel Barnier, the EU’s chief Brexit negotiator, the European Commission warned that there needed to be a “discussion about the treatment of sensitive information in the context of certain trade negotiations, to which the UK would continue to have access to while it remained a full member of the union”. The warning would reportedly be a specific remark towards a possible agreement with Australia, which would be something that the UK to would be quite keen on achieving after having left the European Union.

The “Australian rush”

Indeed last week, just hours before the announcement by the EU was published, Liam Fox, British international trade secretary, told an Australian parliamentary committee that the UK government wants to accelerate talks for a free trade deal with Australia, and wants to work with Canberra after the UK’s exit from the EU. The Guardian quoted Mr. Fox as saying the UK will do preparatory work on the new bilateral trade pact with Australia before leaving the EU in spring 2019.

“Whilst the UK is not able to conclude FTAs whilst still a member of the EU, we can do preparatory work with other countries on our future trading relationships,” the minister said. “With Australia, we aim to ensure the expeditious transition to formal FTA negotiations once the UK has completed its negotiations to exit the EU”, he added.

Pros and cons

The road towards the signature of a free trade agreement with Australia wouldn’t be so easy for the UK though, despite the status of former colony. According to the Guardian, some Australian business organisations have warned the Turnbull government should be very careful when considering how to proceed, given all the complexities the UK will be managing after leaving the European Union.

The Minerals Council of Australia reportedly said that the Australian government needs to “assess the potential gains that would come from an FTA with the UK compared to the trade and investment arrangements that will prevail immediately following Brexit”. It also cautioned the government to “balance the opportunity” of striking a new FTA with the UK with other priorities, including Australia negotiating its own FTA with the EU, the Guardian reported.

Future competitors?

The Australian case can be seen as a very first hint on how the EU and the UK may turn into competitors in the future, when it comes to same interests on a global scale. Australia is definitely an interesting commercial partner for the EU, but it can become a crucial one for the UK after breaking with the EU.

It is almost sure that Theresa May’s government will begin talks with countries that are historically connected with Great Britain, and Australia is by all means one of those. The idea that the EU may get there first is something that could surely carry some risks for the UK’s future interests.

The EU is Australia’s third largest trading partner. Annual bilateral trade amounts to more than €45.5 billion, with a positive trade balance of more than €19 billion on the EU side. EU companies supply commercial services worth nearly €20 billion to Australia and hold investment in the country worth more than €145 billion.