1. Introduction

1.1
On 8 December 2016, the Minister for Trade, Tourism and Investment, the Hon Steven Ciobo MP, referred the inquiry to the Joint Standing Committee on Foreign Affairs, Defence and Trade (JSCFADT). On 8 December 2016, the JSCFADT referred the inquiry to its Trade Sub-Committee to undertake. The terms of reference of the inquiry were to:
…report on Australia’s trade and investment relationship with the United Kingdom with particular reference to:
the nature of Australia’s current trade and investment relationship with the UK;
possible implications for Australia’s trade and investment relationships with the UK and the European Union consequent to the UK’s exit from the European Union;
barriers and impediments to trade and investment with the UK;
opportunities to expand trade and investment links;
the merits and risks of a possible bilateral free trade agreement with the UK, and potential features of such an agreement;
the role of Australian governments (State, Territory and Federal) in identifying trade and investment opportunities in the UK, and assisting Australian exporters to access these opportunities; and
any other related matters.

Conduct of the inquiry

1.2
The Committee invited relevant governments, companies and organisations to make a submission. At the time of publication the Committee had published 72 submissions. These submissions are available from the Committee’s website.1 The full list of submissions will be published in the Committee’s final report.
1.3
At the time of publication, 13 public hearings had been conducted in Canberra, Adelaide, Melbourne and Sydney. Transcripts of these hearings are available from the Committee’s website.2 The full list of public hearings will be published in the Committee’s final report.
1.4
The Committee thanks those submitters and witnesses who have provided evidence to the inquiry to date.

Geographical scope of the inquiry

1.5
The primary focus of this inquiry has been directed towards the United Kingdom, which is made up of the four home nations of England, Wales, Scotland and Northern Ireland. As the UK is a member of the European Union and part of the EU Customs Union with a common external trade policy with all members of the EU, it is necessary for the purpose of this inquiry to also consider the Australia’s trade and investment relationship with the EU.

Overview of the inquiry

1.6
Australia has a significant relationship with the United Kingdom (UK), underpinned by a shared heritage going back to the landing of the First Fleet in 1788, common values, and closely aligned strategic outlook and interests. Australia and the UK are regular dialogue partners at the highest levels across government and according to the Department of Foreign Affairs and Trade are like-minded on many global issues, including international security, open markets and trade liberalisation. Australia and the UK have effective cooperation in the G20 economic forum. Both nations also benefit from strong people-to-people links and there are regular high-level visits in each direction.3
Australia's trade, investment and cultural links with the United Kingdom are well established and longstanding, underscored by commonalities in systems of law and governance and a shared heritage as members of the Commonwealth.4
1.7
Australia and the UK already share extensive trade and investment ties. The UK is the second largest destination for Australian overseas investment, the second largest investor in Australia and Australia’s fifth largest trading partner.5
The UK and Australian Governments share an ambition to broaden and deepen trade and investment links, including by concluding a comprehensive and ambitious bilateral free trade agreement (FTA), once the UK has exited the European Union (EU).6
1.8
Australia’s trade relationship largely operates through the context of the UK’s membership of the European Union.
The investment relationship, however, is significant, bilateral and is at present the cornerstone of our economic engagement.7
1.9
This has largely been the case since 1973, with the British entry into the European Economic Community having the practical consequence of significant diminishment of traditional Australian exports markets (such as beef, sheepmeat and dairy) as the UK’s primary trade relationships were re-focused towards Europe.
1.10
The European Union encompasses both a Customs Union (defined by World Trade Organization rules) and a Single Market (an EU concept), as defined by Alan Swinbank, the Emeritus Professor of Agricultural Economics at the University of Reading in the UK.
The Customs Union covers trade in all products (including agricultural commodities and food and drink), with a common external tariff. Within the Single Market either a common set of regulatory provisions, or the principle of mutual recognition, largely apply (covering food safety, pesticide residues, etc.). Consequently products can circulate freely within the EU. The UK’s Government has said that in leaving the EU the UK will also leave the Customs Union and Single Market.8
1.11
The British public voted 51.9 per cent to 48.1 per cent in favour of the UK leaving the European Union, or commonly referred to as 'Brexit', at a referendum on 23 June 2016. This led to the British Government triggering Article 50 of the Treaty of Lisbon on 29 March 2017 to signal its intention to leave. As a result the British Government is looking to broaden its trade opportunities beyond Europe as it negotiates the UK’s formal exit from the EU expected during early 2019.
Establishing the terms of the UK's exit from the EU provides the UK with new opportunities to determine its trade and regulatory settings and to conclude trade and investment agreements with other countries, including Australia.9
1.12
Evidence to this inquiry into Australia’s trade and investment relationship with the UK so far has highlighted the complexity of the trade and investment road ahead for the British and Australian governments, businesses and education institutions to grow trade and investment opportunities.
1.13
In response to the Brexit vote, the governments of Australia and the United Kingdom agreed in September 2016 to strengthen an already close economic relationship by establishing a bilateral trade working group to scope out the parameters of a future Australia-UK Free Trade Agreement after the UK leaves the EU.

Importance of trade

1.14
Global trade is vitally important to the growth of the Australian economy. More than 65,000 Australian businesses are identified as exporters in any given year, according to the Department of Industry, Innovation and Science. Goods feature prominently in Australia’s export basket and over a third of exporters are concentrated in just four industry divisions – mining, manufacturing, wholesale trade, and information media and telecommunications. Exporters account for 8 to 14 per cent of all businesses in these industries.10

Australia’s trade with the UK

1.15
With two-way trade in goods and services between Australia and the UK worth more than $27 billion, the UK has long been a significant trade and investment partner for Australia. The inquiry will investigate the opportunities to expand these trade and investment links, and the merits of a possible bilateral free trade agreement with the UK, especially as both countries navigate a new trading path with each other.
1.16
This inquiry will include an examination of the possible implications for Australia’s trade and investment relationships with the UK and the EU, depending on how and when the UK negotiates its exit from the EU.
1.17
The inquiry will also look at the significant UK investment in Australia and Australian investment in the UK. According to the Australian Government, in 2015 UK businesses have direct investments worth $76 billion in Australia, rising to nearly $500 billion when portfolio and other investments are included. Australia had direct investments of $81 billion in the UK and $353 billion overall in 2015.
1.18
Tourism remains another important export for Australia with more than 700,000 British visitors coming to Australia in 2016, who collectively spent almost $4 billion in Australia. In 2015-16, the UK Office for National Statistics reported more than 600,000 Australians visited the UK.11

Interim report

1.19
This interim report represents a scoping study of the views of many participants and observers from across Australia and overseas of the trade and investment relationship between Australia and the UK and also with the EU.
1.20
The interim report is structured into five sections:
a chapter providing an overview and describing Australia’s current trade and investment relationship with the United Kingdom (Chapter 2);
a chapter outlining which sectors hold the most trade and investment opportunities and with the most potential to grow trade(Chapter 3);
a chapter outlining the implications of ‘Brexit’ for Australia’s trade with both the UK and the European Union (Chapter 4);
a chapter outlining the barriers and impediments to trade and investment (Chapter 5); and
a concluding chapter addressing the role of government in identifying and assisting Australian exporters to access opportunities in the UK (Chapter 6).
1.21
The evidence gathered so far clearly indicates that Australia and the UK each have the potential to realise significant gains by negotiating freer trade arrangements than currently apply to many goods through the current trade framework with the EU.
1.22
It is also appears possible that following ‘Brexit’, Australia and the UK will be able to negotiate more liberal trading arrangements in goods and services more quickly than may be possible with the EU and its 27 remaining Member States. This is due to modern Australia’s shared heritage, language and cultural affinity with the UK already underscored by many similarities in systems of law, governance and business practice.
1.23
For Australia the most obvious opportunities are in agricultural produce such as wine, beef, sheepmeat, cane sugar, rice, butter and cheese where Australia can supply many goods on better terms than the UK is currently receiving within the EU’s Single Market. Further growth should come in the services sector including in tourism and education, along with professional, technical, financial and other business services. The gains in each of these sectors appear to be in the order of many millions of dollars if the UK market fully opens itself up to Australian produce and the Australian people behind a range of service providers.
1.24
The Committee notes, however, the evidence from some submitters and witnesses detailing potential obstacles to expanded free trade between Australia and the United Kingdom once ‘Brexit’ takes effect. These relate to issues arising from regional and cultural considerations on the British side (such as the minutiae of the UK’s ongoing overall relationship with the Republic of Ireland) as well as technical considerations relating to international trade, and the knock-on effects of placing the primacy of Australia-UK trade relations ahead of European concerns (for example, the need for a “hard border” between the UK and the Republic of Ireland if unlimited, tariff-free free trade of Australian beef and dairy goods is permitted after ‘Brexit’.)
1.25
As the UK’s withdrawal from the EU will not take effect until March 2019 (a timeframe which may in fact be extended) and given continuing negotiations between the UK and the EU will determine the conditions and parameters which apply following ‘Brexit’, it is inappropriate to make final recommendations in the context of this interim report.

Committee position

1.26
The Committee presents this interim report as a summary of its findings to date on the barriers and challenges facing Australia’s future trade and investment relationship with the UK. Evidence to this inquiry suggests that the ongoing negotiations between the UK and EU on ‘Brexit’ will determine the future parameters of Australia’s relationship with the UK. The Committee will present its final report and recommendations in the lead up to the conclusion of ‘Brexit’ negotiations.


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