UK-Australia Free Trade Agreement

The UK and Australia signed a free trade agreement (FTA) in December 2021. This followed an ‘Agreement in Principle’ in June 2021, where most of the deal had been agreed.

This is the first ‘new’ UK trade deal signed since Brexit; the UK’s other trade agreements have largely rolled-over previous EU deals. The UK has also applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a free trade agreement between 11 Pacific Rim countries, including Australia. The Government believes the agreement with Australia will help its bid to join CPTPP.

What’s in the agreement?

The agreement contains 32 chapters covering a wide range of issues.

It will remove most tariffs on trade between the UK and Australia when it comes into force. The UK market for some agricultural goods will be opened to Australia more gradually.

Other provisions cover trade in services, digital trade, public procurement and intellectual property. UK citizens aged under 35 will be able to travel and work in Australia more easily. There are provisions covering technical barriers to trade, and sanitary & phytosanitary (SPS) measures relating to food safety and animal and plant health. There are chapters on small business, the environment, and animal welfare and antimicrobial resistance.

Investor-State Dispute Settlement (ISDS) provisions, which allow foreign investors to take legal action against governments, are not in the agreement.

Limited economic effect

The Government’s Impact Assessment estimates that the long-run effect of the agreement will be to increase UK GDP by 0.08% or £2.3 billion a year by 2035.   Twenty economic sectors are estimated to see an increase in output because of the agreement. It is estimated to have an adverse effect on three sectors, however: agriculture, forestry and fishing; semi-processed foods; and manufacture of other transport equipment (although the effect on this last sector is extremely small). The Impact Assessment notes all these estimates are subject to considerable uncertainty.

The small economic effect of the agreement is unsurprising as Australia accounts for a small proportion of UK trade. The UK exported £9.8 billion of goods and services to Australia in 2021 (1.6% of all UK exports) and imported £4.6 billion from Australia (0.7% of all UK imports). In addition, barriers to trade with Australia are already relatively low for many products.

The Government’s case for the agreement

The Government described the agreement as “historic” and said it sets “new global standards in digital and services and [in] creating new work and travel opportunities for Brits and Aussies.” The Government has also said the agreement is “expected to unlock £10.4 billion of additional trade, boosting our economy and increasing wages across the UK.”

The Government has listed ten key benefits of the agreement. These include:

• Unprecedented access to the Australian market for British services and investors
• Tariff-free trade for all British exports
• Greater opportunities to work and travel in Australia for British people aged 18 to 35
• More opportunities for UK businesses to trade digitally with Australia
• Lower prices for UK consumers and businesses
• Greater access for UK companies to the Australian public procurement market

Concerns about impact on UK agriculture

The main issue raised by the agreement is its impact on UK agriculture. The Government’s Impact Assessment estimated there would be a negative impact on the agri-food sector. Australia is a large, competitive exporter of agricultural goods. The UK farming sector is concerned the agreement gives greater market access to Australian producers who may be able to undercut the UK industry. The National Farmers’ Union (NFU) said “there is little in this deal to benefit British farmers.”

The Government said these concerns are misplaced for several reasons:

• Market access for Australian producers will be phased in gradually for several sensitive products, such as beef and sheep meat. There will be a quota system limiting the volume of tariff-free imports of certain products from Australia for periods of up to 10 years. A similar system of ‘product-specific safeguards’ will operate for beef and sheep meat for a further five years. The agreement also contains a “general bilateral safeguard” designed to protect UK industry from serious injury.
• UK consumers strongly prefer British produce.
• Increased imports are likely to displace imports from other countries rather than UK production.
• Australian producers are likely to focus on more profitable and geographically closer markets in Asia.
• The agreement creates greater export opportunities for UK agriculture.
• Australia currently accounts for a tiny proportion of UK imports of beef.

The farming industry has responded to the Government’s arguments, saying:

• While the safeguards are welcome in principle, they will allow immediate access for large volumes of product above current levels. The general bilateral safeguard requires proof that serious injury has been directly caused by increased Australian imports. This will be hard to prove.
• Trading patterns can change and if Australia were to sell less to the Asian market, it might start exporting more to the UK.
• While acknowledging consumers’ preference for UK produce, consumers are not always provided with this information, for example in processed food, food consumed in cafes and restaurants or takeaways.
• With some exceptions, the agreement is unlikely to boost export opportunities due to the relatively small scale of the Australian market and the fact many of its tariffs on agricultural goods are already low.

The issue of environmental, animal welfare and food safety standards has also been raised. It is important to distinguish between two aspects of standards: those which products must meet before they can be imported into the UK and wider questions of differences in animal welfare and environmental practices permitted in Australia and the UK.

On the former, the Government’s report under section 42 of the Agriculture Act concluded the FTA did not require changes to the UK’s import rules or changes to statutory protections in the areas of human, animal or plant life or health, animal welfare or the environment.

In addition, this report said the UK and devolved governments’ right to regulate was not constrained by the agreement. This view was informed by advice from the Food Standards Agency and Food Standards Scotland and by the Trade and Agriculture Commission (TAC) – the independent advisory body created to examine the impact of trade agreements on UK statutory protections relating to trade in agricultural products.

Some, however, have expressed wider concerns about standards. Farming, environmental and animal welfare groups are concerned that some Australian products are produced to lower animal welfare and environmental standards than in the UK. The NFU said it sees “almost nothing in the deal that will prevent an increase in imports of food produced well below the production standards required of UK farmers”.

The Environment, Food and Rural Affairs (EFRA) Committee’s report on the agreement concluded it was unlikely that food produced to lower animal welfare standards would be imported into the UK. The TAC found “in most cases, the concerns [about standards ] were a little bit exaggerated for one reason or another”. The TAC did find, however, there was likely to be an increase in imports of products from Australia produced using pesticides that would not be permitted in the UK.

Calls to link increased access to the UK market to adherence to “core standards” on the environment and animal welfare have not been taken up by the Government.

Environmental provisions

The agreement includes a chapter on the environment, setting out the UK and Australia’s shared commitment to mutually supportive trade and environment policies. The chapter ensures that neither country can fail to domestically enforce environmental laws to gain an unfair competitive advantage.

The FTA refers to the Paris Agreement but has been criticised for the lack of an explicit reference to limiting the global average temperature increase to 1.5ºC.   

The increase in trade arising from the agreement is likely to affect the environment. The Government estimates that overall greenhouse gas emissions associated with UK-based production are likely to be largely unchanged. However, the estimates indicate there would be an increase in emissions associated with the transport of goods traded with Australia.

The Northern Ireland Protocol

Under the terms of the Northern Ireland Protocol, trading arrangements for the movement of goods differ between Northern Ireland and the rest of the UK. The interaction between the Protocol and the FTA is highly complex.

In short, the position appears to be that exports from Northern Ireland to Australia will benefit from the FTA in the same way as exports from the rest of the UK. For goods entering Northern Ireland, tariffs may not be reduced or eliminated in the same way as in the rest of the UK, depending on the circumstances. This analysis is based on the Protocol as it currently stands. The Government wants to see changes to the Protocol and is bringing forward legislation to amend it.

Views of devolved administrations

The Northern Ireland Executive commented that the agreement brought opportunities for some sectors but was concerned about the impact on agriculture and the adequacy of the safeguards. The Executive also pointed out that the Government’s Impact Assessment showed a negative effect on Northern Ireland under some assumptions. The Scottish and Welsh Governments both highlighted risks to the agriculture sector, while acknowledging benefits in some areas from the deal.

Select Committee inquiries

The EFRA Committee has published a report, Australia FTA: Food and Agriculture. The International Trade Committee and the International Agreements Committee are also scrutinising the FTA.

What happens next?

The Government formally laid the agreement before Parliament under the Constitutional Reform and Governance (CRAG) Act 2010 on 15 June 2022. This Act provides for a minimum of a further 21 sitting days, expiring on 20 July, before the UK can ratify the agreement. While there is no requirement for a vote or debate on the agreement, the Government said it would seek to accommodate a request for a debate from the relevant select committees, subject to parliamentary time.

Legislation to implement the agreement must also be passed.