Doubtless accompanied by a deluge of triumphalist headlines from government-friendly newspapers, the UK will soon complete a first fully new trade deal since leaving the EU. The UK-Australia free trade agreement has been pencilled in for signing during the G7 summit hosted in Cornwall next month, and when something like this appears in such a schedule it is bound to happen.
We can expect to hear about how Australian wine will become cheaper to import, though whether that 10 pence a bottle saving is actually passed on to grateful consumers we can’t know.
Certainly in aggregate the deal won’t be particularly important to the UK economy. Even the UK government’s most optimistic projection suggests an increase in GDP of 0.02 per cent, and the supposedly more pessimistic forecast of 0.01 per cent is based on a reduction of barriers to trade never previously achieved in such a deal by any country.
Assuming no overall economic impact seems fair, not least as the deal will tackle few known barriers to trading with Australia for UK firms. A free trade agreement can’t bring Australia physically closer, and allow business folk to go there on day trips as they did in pre-Covid times to Europe or even North America.
The story is similar for the Australian economy. Australian businesses are particularly interested in trade deals with the UK and EU to increase the amount of beef and lamb they are able to sell in Europe, but that is not economically transformational given three quarters of their red meat sales go to Asian countries.
Still, it makes good sense for a country where the majority of exports are primary commodities such as coal, iron ore and red meat to guarantee market access. Since 2016 Australia has always wanted to be the first country to complete a UK trade deal, thinking this would give it the best chance of getting such guarantees while offering little in return. Dressing this up as deepening a political partnership would help. The demonstrable appetite of the UK government, and particularly Liz Truss, for announcements, regardless of substance, seems to confirm the wisdom of its strategy.
As this suggests, trade deals are no longer primarily about the economics. Back in the 1950s when the average UK tariff for manufactured goods was over 20 per cent, reductions made a lot of economic sense—delivering the classic gains of free trade, cheaper prices for the consumer and domestic production moving to sectors of greater competitiveness. Those days are long gone, with most goods arriving in the UK from abroad tariff-free.
Modern free trade agreements are more about deepening existing partnerships, confirming the rules for trade in areas like intellectual property, seeking marginal improvements in market access for goods and services and reducing non-tariff barriers caused by differing regulations. Between two countries like the US and Australia, with an already well-established trade partnership and mature legal systems, it will be more of a confirmation than a new opportunity.
Such a partnership on this basis is entirely fine. In global terms we’re both relatively open to trade, and a bilateral agreement is essentially a precondition for the UK joining the currently seven-country Comprehensive and Progressive Trans Pacific Partnership, to which Australia is already a party. Truss announced an intention to join earlier in the year, though again this may be more about politics than economics.
None of this means we should simply roll over. Australia will certainly seek to achieve offensive interests without giving away too much. The UK should do the same, particularly as this will be the first UK free trade agreement not based on an EU template.
This will be a precedent for all UK trade agreements, watched carefully by other countries. If the UK fails to push our interests just to get a deal by the time of the G7 summit, just as we caved in to the EU on key issues like fish and the level playing field, that will be noticed.
Food imports are one obvious area of concern. We know that UK farmers have to meet particular regulations, and that consumers express concerns about food produced in ways that involve poorer levels of animal welfare or greater use of antibiotics. When we allow preferential access to our market for beef and lamb we can do so on the basis of shared norms. Yet there are concerns that the UK government will allow unconditional entry.
This missed opportunity will give farmers reason to fear that the cumulative effect of further trade deals with countries which produce food to less exacting requirements, and therefore cheaper, will be disastrous. While we can’t be certain, it seems likely that this is at the heart of government rows over the deal, with Liz Truss seeking relatively light conditions to close the deal compared to current and former Defra ministers George Eustace and Michael Gove, who were more concerned about the impact on UK farmers. The principle of tariff reduction is agreed, the conditions to be determined.
Climate change is another area which really has to be reflected in modern trade agreements. At a minimum, we should expect both parties to commit to compatible schemes of carbon pricing so domestic efforts to reduce emissions are not undercut by the pollution which stems from producing imports. As with animal welfare, there is a concern that Australia does not agree, and the UK government will concede to get the deal in June.
Worryingly, Department for International Trade has also reputedly been saying that some minor irritations that businesses face in Australia can be tackled later and don’t have to be in the initial deal. Similarly, in the services sector there are concerns that working out what exactly could help UK business is being left to another day, or another deal.
That would make us lose the moment when such issues are most likely to be tackled. Such concerns are exacerbated by the obsessive secrecy which means we don’t actually know what government is negotiating, and the parliamentary procedures which don’t allow MPs a vote on a final deal anyway.
Most likely we will get the UK-Australia free trade agreement in June, and behind the triumphant announcements will soon lie disappointment, just as the previous deal with the EU has led to numerous problems and complaints. Setting rigid deadlines does tend to give the other side the upper hand to say, “no, we can’t do that in time.”
Our first post-Brexit deal is our best opportunity to set a post-Brexit path. Sacrificing content for an announcement would, however, sum up what we know of this government’s approach to many issues: prioritising politics over content that truly addresses problems.
