Indo-Pacific trade

June 18, 2021

UK-Australia FTA: first in the region, positive in principle

The UK and Australia have just concluded an ‘in principle’ agreement for a free trade agreement. Efforts by UK farmers lobbying the Johnson government not to give Australia greater market access for red meat seem to have been overcome.

Beef, wine and cars. The details of the agreement that have been released so far are largely positive for Australian export interests. Access for Australian agricultural exports is a particular bright spot.

According to a statement released by Trade Minister Dan Tehan, Australian beef will be granted a 35,000-tonne tariff-free quote from year one, increasing to 110,000 tonnes over ten years. After a five-year period in which the quota will be replaced by a rising safeguard threshold, Australian beef will have unlimited duty-free access to the UK. Sheepmeat, wine, sugar and dairy products will also benefit from significant duty-free access.

In return, UK FMCG (fast-moving consumer goods), alcohol and auto exporters appear set to improve their access to the Australian market.

Work and holidays. There is less detail about investment and services trade commitments, although Minister Tehan did refer to mutual recognition of qualifications. An increase from 30 to 35 in the maximum eligible age for working holiday-makers was also announced, as well as an extension of the maximum duration of that visa from two to three years. Additional working visas will also be made available for agricultural workers.

Cheers, Australia. Many analysts were surprised at the quantum of access that Australia has reportedly been granted under the agreement. These outcomes likely reflect the relatively strong position that Australian negotiators have had since the beginning of the negotiations. Politically and economically, the UK needs this agreement more than Australia does. Australia already has multiple agreements with China, Japan, South Korea, ASEAN members, as well as with the US. The UK has only ‘continuity’ agreements (that carry over the terms of the EU agreements it was part of) at this stage. Australia completing a low-ambition deal would have had a larger political cost – with the Australian farm sector – than no deal at all. However, no deal would have been a massive blow to UK trade minister Elizabeth Truss and the Johnson government’s trade credibility.

A step toward CPTPP. The UK has formally commenced the accession process for joining CPTPP, and that will be much more difficult than an agreement with Australia. Although continuity agreements exist with a number of CPTPP parties, the agreement with Australia will be a good template for the UK as it moves toward negotiations with a broader range of parties. That may be more of a challenge. The UK’s prospective FTA partners expect more than a political agreement; they want genuine liberalisation. Seasoned negotiators throughout Asia-Pacific will be just as willing as their Australian counterparts to dig in until they get real improvements – or walk away from the table.

Both the AU/UK agreement and CPTPP interest underline the UK’s politically driven approach to trade right now, promising a ‘global Britain’ to its voters.

A step away from US/UK FTA. On the other side of the globe, the UK and US are holding off on further negotiations on their trade deal until after the US mid-terms next year. This may work for both sides. If the UK politics of a deal with Australia are difficult, they would be almost unmanageable with the US, land of “chlorinated chicken”.

It is expected that the details of the Australia/UK agreement released so far – and therefore approved for circulation by both sides – will survive the final stages of negotiations. It is hoped the agreement can be finalised and signed soon.

APEC’s 2021 rebalancing act

APEC’s hopes for a less challenging year (after Chile’s cancellation of Leaders’ Week in 2019, and the pandemic hitting in 2020), are looking up with New Zealand as host in 2021.

Welcome statement. The statement from the APEC Trade Ministers’ meeting last week is exactly the kind of sentiment that many trade policy observers have been looking for since the pandemic hit. It plumped for using open trade as means of fighting the pandemic, reinforcing the importance of the rules-based trading system with a particular emphasis on the WTO’s 12th Ministerial Conference later this year, as well as implementation of the WTO trade facilitation agreement and advances in digital trade.

FTAAP is back? But the statement also included something many had forgotten: FTAAP (the Free Trade Area of the Asia Pacific). First conceived in the heady and idealistic trade-liberalising era of the Bush administration in 2006, FTAAP was eventually endorsed by APEC leaders in 2016. Its ambition is high: a free trade area comprising all APEC economies (yes, that includes both China and the US), with greater liberalisation than the WTO Doha round.

The statement notes the call from the APEC Business Advisory Council (ABAC) to “ensure FTAAP remains the organising principle for regional economic integration”; this isn’t a commitment towards anything new, but at least there is some idealism left in a world of trade policy that is increasingly dominated by geopolitics. And it’s still a good idea.

US supply chains and regional trade

The Biden administration has released its ‘100-day Review’ into ‘Building Resilient Supply Chains’. The report was commissioned earlier this year with a focus on four key product groups: semiconductors, large-capacity batteries, critical minerals and pharmaceuticals.

Domestic threats, international opportunities. The report identifies potential threats to supply chains: insufficient domestic capacity, ‘misaligned’ incentives in the private sector, industrial policies among competitors, concentration in some supply chains, and lack of international coordination. It contains two recommendations clearly relevant to international trade policy.

The first is “Strengthen international trade rules, including trade enforcement mechanisms.” The key mechanism is the establishment of a ‘trade strike force’ under USTR. However, it’s not entirely clear what the trade strike force is or what powers it will be given.

The second is to “Work with allies and partners to decrease vulnerabilities in the global supply chains.” The report recommends a new ‘Presidential Forum’ to cover supply chain issues as well as working through the Quad and G7. It also recommends using the US Development Finance Corporation (its development lending institution) to support supply chain resilience.

Implications for Australia. One of the recommendations also states that the ‘strike force’ will examine how existing US trade agreements as well as future trade agreements and measures can help strengthen the United States and collective supply chain resilience. Precisely what this might look like isn’t clear.

However, the overall message is one of having the US’ strategic trading partners move closer into its orbit. This, as Australia and many other countries in the region have shown, is easier said than done. The US had a significant policy opportunity to encourage greater cooperation in its supply chains with strategic partners during the Obama administration; back then it was called the Trans Pacific Partnership, now the CPTPP.

Article Three in the media

Jon Berry spoke with ABC News on the UK-Australia FTA, in particular Australian beef exports to the UK going forward;

Kristen Bondietti was a panel member for Global Victoria’s virtual trade mission on Vietnam;

Khalil Manaf Hegarty presented at a webinar with Indonesian think-tank INDEF on agricultural commodity certification in Indonesia and ASEAN.

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