Deal or No Deal?: UK government split over proposed trade deal with Australia

June 10, 2021

3 min read

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What's going on here?

On Friday 21st May, the Secretary of State for International Trade, Liz Truss, formally made an offer to her counterpart, Dan Tehan, to begin negotiations for a new trade deal.

What does this mean?

The main flashpoint of the negotiations has occurred because of fears that the proposed trade deal could destroy UK farming. Negotiations between the countries have yet to establish whether tariff liberalisation will occur over a 10 or 15-year period. Either way, the government claims this will allow UK farmers enough time to prepare for any incoming competition. Currently, Australia pays 20% tariffs on all exports of beef to the UK. Under the deal, this would reduce to 0% over the proposed period. The government expects that the trade deal will grow the UK economy by 0.02% over 15 years.

From 2019-2020, trade in goods and services between the two countries was valued at £20.1bn. Australia’s main exports to the UK were metals, wine, and machines whereas its main imports from the UK were cars, medicines, and alcoholic drinks. 0.15% of all Australian beef exports go to the UK, although in the event of a deal, some large Australian beef exporters predict that sales could increase ten-fold in the UK.

What's the big picture effect?

Supporters believe this trade deal marks an important step in global Britain’s new path whereas opponents highlight that the deal risks undermining the country’s international position and domestic stability.

For supporters of the deal, the introduction of more cheaply produced Australian goods into the UK market will boost competition leading to lower prices for consumers and an overall increase in productivity. A traditionally inefficient sector will be incentivised to find new ways of increasing productivity, a task for which farmers, particularly the younger generation, are more than ready to address. Moreover, surplus cash that is saved by consumers, due to cheaper Australian food products, can be redirected to other more productive industries, thus boosting those sectors. The whole point of Brexit was to allow Britain to strike these types of trade deals. Signing this trade deal, and if negotiations with Canada continue positively, could also pave the way for the UK to enter the CPTPP – a free trade agreement between 11 countries around the Pacific Rim.

Opponents of the deal point to several problems. Firstly, by rushing into a trade deal with Australia, the UK risks subsequently tying itself to a template trade deal. This is because other nations or trading blocs (particularly the USA and Argentina), will force the UK to offer similar trading terms in future negotiations. As such, while food exports from Australia may not be a problem now, the genetically modified food from other less-regulated markets will inevitably penetrate the British market. For farmers, the introduction of these goods also poses a competitive threat as huge agri-businesses in the USA and South America, due to economies of scale, can afford to sell their products far more cheaply. In addition to Britain’s food security, the deal also threatens the country’s political stability due to SNP pressure on Alistair Jack, the Secretary of State for Scotland, to resign if the deal goes ahead. This is not worth the 0.02% expected growth in the economy as a result of the deal. 

A point worth considering is how law firms might be instructed to advise in the event of a trade deal. Lawyers will be drafted in to assist in negotiations and the implementation of any trade agreement. Additionally, a law firm might be required to help Australian companies decide which types of beef they could export into the UK and any other potential regulatory issues that might arise in the process. 

It is a critical juncture for the UK, and the country cannot afford to be protectionist now that it is striking it alone on the world stage.

Report written by Andri Boda

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