Australia has walked away from negotiating a Free Trade Agreement (FTA) with the European Union (EU).
Australia’s Trade Minister, Don Farrell, rejected the deal estimated to be worth $100 billion (US$64.8 billion) because of disagreements about the access of Australian agricultural products to the European market.
He also rejected a European demand to rename locally grown products to protect geographical indicators, which are often used to name European products like champagne.
Senator Farrell confirmed on Oct. 30 that, “Unfortunately, we have not been able to make progress” and expressed the hope that negotiations will continue and that “one day, we will sign a deal that benefits both Australia and our European friends.”
There is no doubt that the EU is an important trading partner of Australia and a lucrative export market.
In 2021, the EU was Australia’s second-largest source of foreign investment, amounting to €22.2 billion.
In 2022, it was Australia’s third largest trading partner after China and Japan. Total trade in goods was valued at €56.4 billion.
Cooperation was further enhanced in 2017, when they agreed on a Framework Agreement, which entered into force on Oct. 21, 2022.
Article 15:2 of the Agreement imposes an obligation on the parties “to prevent and remove non-tariff-related obstacles,” for example, the elimination of quotas, or quantitative restrictions on imported goods from the other party. Article 50 encourages both parties to cooperate in agriculture and rural development, including geographical indications.
Can Australian Farmers Compete With EU Farmers?
Australian negotiators also expected (or hoped) that compliance requirements would be simplified, thereby lowering transaction costs, and increasing the sector’s overall competitiveness.However, it is precisely this expectation—the removal of tariffs on agricultural products—that proved an insurmountable obstacle.
The collapse of the trade talks follows advice from the National Farmers Federation, which warned that the signing of the FTA would be disadvantageous for Australian farmers and that it “would have hardwired protectionism into our trading relationship with Europe for another generation” and “locked our farmers in at a disadvantage to competitors in New Zealand, Canada, and South America.”
Similarly, Meat and Livestock Australia, said the EU’s maintenance of “outdated, inequitable and restrictive quotas and high tariffs,” and demanded the Australian government address “the red meat sector’s disproportionally low volume access” to the EU market.
In the end, Mr. Farrell, heeding these views, refused to sign the FTA, and explained that “Any deal must include practical benefits for Australian businesses, including improved market access for our farmers and producers.”
Indeed, access of Australian agricultural products to the EU market, whilst a potentially appealing prospect, could be bad for Australia’s agricultural sector.
This is because the removal of Australian tariffs on European produce or vice versa, could well result in European products flooding the Australian market, undercutting the price charged for the locally grown products, and undermining the profitability of Australian producers.
This outcome is not fanciful: European agricultural products are often valued because of their assumed high quality and brand recognition and, as such, they could easily appeal to Australian consumers, thereby adversely affecting the market share of local products.
Another challenge relates to the ability (or even willingness) of Australian producers to comply with the stringent EU product specifications and standards, which could well be a costly exercise.
The proposed EU-Australia FTA should not come at the expense of one of the major sectors of the Australian economy. Further, a balanced FTA works best if the economic strength of both trading parties is comparable—a situation that does not currently exist.
