Brexit: UK could offer Australia a tariff-free trade deal

• Australia-UK trade deal on the cusp of being signed off
• The Australian trade deal could help spur post-pandemic recovery in Britain
• British farming industry warn that the tariff-free deal could endanger livelihoods
• UK Prime Minister Boris Johnson insists that the agreement won’t undercut UK farmers

It’s been five months since the Brexit transition period ended, and the UK now appears to be on the cusp of signing its first trade agreement as an independent state.

Britain has been eager to forge new economic ties and “capitalise on the massive opportunities presented by post-Brexit trade“, and it seems that this is now becoming imminent.

The UK and Australia, which have been engaged in post-Brexit trade negotiations since June 2020 – have reached a consensus on most of the elements of a comprehensive trade deal.

Last month, both countries released a joint statement, which wrote: “We are confident that any outstanding issues will be resolved, and will now enter a sprint to agree on the remaining details to reach an agreement in principle.”

An Australia-UK trade deal would mark a landmark moment for Britain and the country’s succession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), a free trade agreement (FTA) between 11 Pacific Rim countries.

Trade between the group represents 13% of global gross domestic product (GDP), and the UK government believes accession will deliver a plethora of economic and geopolitical benefits to Britain.

GOV.au valued two-way trade between Australia and the UK at GBP 20.1BN (AUD 36.7BN) in 2019-20, meaning Australia was Britain’s third-largest services trading partner, which is expected to increase if the two countries strike a new deal.

According to the latest reports, an FTA with Australia could increase UK exports to the “Land Down Under” by up to GBP 900M per year and open the door for other opportunities by improving access to Asian markets, which have a fast-growing meat market.

UK International Trade Secretary Liz Truss will speak with her Australian counterpart, Dan Tehan, on Friday, May 21st, as they race to seal the terms of the FTA deal within three weeks – in time for the G7 summit.

What are the key issues in the UK-Australia trade deal?

Britain and Australia agreed to intensify talks after UK Prime Minister Boris Johnson chaired a “crunch” meeting with Cabinet ministers on Thursday to discuss red lines on agriculture and the potential impact the trade deal will have on the domestic farming industry.

The Cabinet is reportedly split on the deal, with some ministers concerned over whether a zero-tariff agreement will result in larger Australian producers undercutting British farmers.

Ms Truss and former Brexit negotiator Lord David Frost are pushing for full liberalisation of the trade agreement, which would see the total removal of tariffs and quotas. However, other Cabinet colleagues, including UK Environment Secretary George Eustice and Cabinet Office Minister Michael Gove, fear this could upset British farmers.

While a zero-tariff trade deal would benefit consumers, the National Farmers’ Union (NFU) have warned that it could damage farmers’ livelihoods and cause “irreparable damage” to the industry.

Although Mr Johnson insists that the deal would present UK farmers with a “massive opportunity”, other ministers fear that it could put British farmers out of business.

With Scottish farmers expected to be hit the hardest, the move could also boost support for Scottish independence, which is already being pushed by the Scottish National Party (SNP).

Despite concerns, Mr Johnson appears to have sided with Lord Frost and UK Trade Secretary Liz Truss, who is keen to strike as many free trade agreements with non-EU nations as possible post-Brexit.

However, the UK Prime Minister has called for unity on the issue, which is viewed as a priority by Red Wall Tory voters.

UK Home Secretary Priti Patel insists ministers have been working tirelessly to secure the best outcome for Britain and the farming industry and ensure suitable support measures are in place following COVID-19 national lockdown disruption and Brexit.

The UK Prime Minister also said that he would phase out import taxes over a 10-15-year transition period to give the agricultural sector time to adjust if a deal is struck.

What is the current UK-AU trade deal? 

As it stands, metals, gold, pearls, alcohol and machines form the most significant imports into the UK from Australia. At the same time, Britain’s main exports to its Commonwealth neighbour are cars, alcohol and pharmaceuticals.

Currently, meat exports and imports between Australia and Britain are relatively low. Still, the NFU believes that pitting small British farmers against large Australian cattle producers could severely impact domestic farming.

According to HMRC figures, in 2020, 12% of sheepmeat imports and 0.15% of beef imports to the UK came from Australia, valued at GBP 45.8M.

However, an FTA could see beef exports to Britain increase tenfold, which has become a significant concern for UK beef and lamb producers.

NFU president Minette Batters said removing tariffs on these products would “jeopardise the domestic farming industry and cause the demise of British farms throughout the country irrespective of whether free market access is given immediately or in fifteen years.”

Meanwhile, NFU Chief Executive Scott Walker warned that a zero-tariff agreement “would set a dangerous precedent as other countries such as New Zealand, South America and certain African nations would clamour for similar arrangements.” 

Scotland and Wales have also urged Mr Johnson to ensure the deal with Australia does not undercut British farmers.

A Downing Street spokesperson responded: “We want a deal that is good for the British public, and any agreement would have protection for the agriculture industry.”

Will a free trade agreement between Britain and Australia harm British farmers?

While eliminating tariffs with Australia would increase competition for British farmers, the impact is expected to be limited, at least in the short term, as beef exports to the UK are expected to remain low even after a trade deal has been struck.

Australia has already admitted that its agricultural exports are maxed out by Asian demand. Even if exports of these goods to the UK increase tenfold over the next decade, Aussie beef would still represent less than 10% of Britain’s total beef imports.

Furthermore, the National Beef Association (NBA) said that the UK has to source 25% of its beef from other countries, suggesting that a flood of “Aussie meat” isn’t going to have any major repercussions on British farmers.

Adding to that, increased competition and freer trade tend to filter out inefficiencies and enhance overall productivity as farmers will be forced to adopt new strategies, use land productively and invest in new markets. 

The UK government has also lamented Britain’s poor productivity and is eager to “level up” the country post-Brexit. While snags in supply chains have caused disruption post-Brexit, forming new international alliances will generate greater economic dynamism.