The prospect of a duty-free trade deal with Australia has alarmed UK farmers and some MPs, including the Tories. Much is at stake in what would be the first major post-Brexit trade deal. Here we look at the main issues.
What is a Free Trade Agreement?
A free trade policy means that goods and services move across borders unhindered and at the price set by the producer without government support. However, most economists would agree that a free trade policy – a policy that prevents the government from discriminating against imports by imposing tariffs and quotas or interfering with exports by offering subsidies – should not be applied. crudely and signify that a country abandons all control and taxation of imports and exports. To keep it simple, a deal with Australia, as with other countries, will focus on goods, which are easier to monitor, rather than the more complex and nuanced services sector (which covers areas like law , advertising and banking). It will still take complex negotiations to decide how to implement an agreement, most likely over several years.
Could a free trade deal with Australia hurt UK farmers and businesses?
The impact on farmers is likely to be limited in the short term, after four decades of EU membership which has kept tariffs – or import taxes – and quotas in place on Australian produce. This effectively limited the flow of Australian agricultural exports to a trickle.
In 2019-20, trade in goods and services between Australia and the UK was valued at £20 billion, making the UK Canberra’s ninth largest trading partner. Only a small proportion was food and drink, which was worth £425m to Australia in 2020. The UK imported £384m worth of Australian food and drink, according to the analysis of HMRC figures by the Food and Drink Federation (FDF).
Only 0.15% of all Australian beef exports go to the UK. Australian mutton and lamb have made bigger inroads on UK supermarket shelves and accounted for 14% of UK consumption last year, worth £46million. Wine worth £280million has arrived in the UK.
In most cases, Australian exports complement UK production rather than compete with it. Australia’s main merchandise exports to the UK are gold, wine, lead, pearls and precious stones. The main UK merchandise exports to Australia are cars, pharmaceuticals and Scotch whisky.
However, the Financial Times has reported that Australia’s top beef exporter expects a 10-fold increase in sales in the UK if a deal is struck. Australian beef is intensively produced and cheaper than its British equivalent. UK farmers appear to reject the idea that meat produced in the UK to higher standards will find a market in Australia, and potentially at a higher price.
What are the proponents of a free trade agreement saying?
Free trade was championed in the late 18th century to end tariffs and quotas that economists believed held back economic growth. The repeal of the Corn Laws in 1846 symbolized the abandonment of the protection of domestic industries against foreign competition. Agriculture was at the center of the debate then, and it is still essential to the signing of an agreement today.
Liz Truss’ Trade Department says a free trade agreement (FTA) could boost UK exports to Australia by up to £900m. It does not focus on agriculture, but on Lancashire’s recently rejuvenated textile industry and the other 13,400 small and medium-sized businesses that account for 85% of UK exports to the bottom.
These are close ties that could be deepened following an FTA, says Truss. For example, in 2019 the UK was the second largest direct investor in Australia and the second largest recipient of Australian Foreign Direct Investment. Further investment should be expected following a deal, she said.
Could this be the model for other transactions?
This is the heart of the cabinet’s row over a deal with Australia – that it will set the pattern for similar deals with South Africa, Brazil and especially the United States, all of which are interested in the deal. export of cheap meat to the UK.
Critics of unfettered free trade agreements that cover agriculture say they will undermine the livelihoods of hundreds of farmers, many of whom can survive only on tariff protection and state subsidies. Farmers tend to inherit their land and buildings tax-free and enjoy protections against foreign competition in the form of tariffs and quotas. Without protection, they will leave the land and leave it uncultivated, says the National Farmers Union.
What does this mean for consumers?
The main benefit for UK consumers could be cheaper food and wine and the potential for improved trade relations with Australia, leading to further investment. But the Commerce Department says a deal will only boost GDP by £500m spread over the next 15 years, or around 0.025% of GDP, showing how small the likely direct benefit will be.
Could this lead to bigger calls for Scottish independence?
Scottish and Welsh farmers are among the most vulnerable to free trade deals with countries that produce cheap meat. The Scottish National Party has called for farmers to be protected in any FTA and said ignoring this call would be another reason for Scots to reject the union.