This chapter explores the ‘Brexit’ state of play following the 2016 referendum on the United Kingdom remaining in the European Union, the views of governments, exporters and academic experts on the preferred timing of a free trade agreement with the UK, the possible impact of ‘Brexit’ on Australia’s trade with the UK in goods and services such as red meat, wine, sugar, education, gold and lead. The chapter concludes with the concerns of Australian governments and businesses of more restrictive conditions for Australian workers and visa holders to work in the UK.
The Swinburne University of Technology has warned that the United Kingdom’s decision to depart from the European Union has presented “great uncertainty and unique challenges and potentially serious, complex consequences for the European region”.
However, Australia should be encouraged that Britain has signalled that it is willing to enter into new trade partnerships following its departure from the EU, and Australia is well positioned to redefine and expand the Anglo-Australian trade and investment relationships.
Given Australia’s pursuit of free trade agreements with major trading partners over the past decade including the United States, China, Japan and South Korea, the exploration of free trade agreements with both the European Union and a post-Brexit United Kingdom offers policy consistency in seeking sound outcomes that are mutually beneficial to all stakeholders.
From the Committee’s perspective, the timing of the UK’s departure from the EU is entirely coincidental to the scoping work and ongoing development toward a free trade agreement between Australia and the EU.
Evidence to this inquiry suggests Australia’s trade negotiations with the EU are gaining momentum. The Committee notes the recent developments in the Australian Government’s trade negotiations following recent visits by the Minister for Agriculture and the conclusion of the agreement on the Australian-European Union Free Trade Agreement Scoping Study by the Minister for Trade. The Committee is of the view that the Australian Government should continue its trade negotiations with the EU, as a priority.
‘Brexit’ state of play
The UK held a referendum on 23 June 2016 to answer the question: "should the United Kingdom remain a member of the European Union, or leave the European Union?" By a margin of 51.9 per cent to 48.1 per cent, the UK voted to leave the EU.
The European Commission submitted that on 29 June 2016 the Heads of State or Government of 27 Member States, as well as the Presidents of the European Council and the European Commission, regret the outcome of the referendum on EU membership in the UK but “respects the will expressed by a majority of the British people”.
There is a need to organise the withdrawal of the UK from the EU in an orderly fashion. Article 50 of the Treaty on European Union (TEU) provides the legal basis for this process.
Article 50 of the Treaty of Lisbon provides the legislative framework to negotiate Britain’s withdrawal from the EU. Under Article 50, Member States must notify formally the EU of their intent to withdraw. The UK will remain a full member of the EU for two years from the time it formally notified the EU on 29 March 2017 of its intention to leave. This time may be extended upon the agreement of all EU member states.
The UK will have up to two years after triggering Article 50 to negotiate the terms of its exit. If the UK and the EU do not reach an agreement within this period, the UK will be forced to leave the EU with no provisions in place – unless all remaining member states agree to extend negotiations. Such an outcome, whereby the UK leaves the EU without a trade agreement in place, is colloquially referred to as a “hard Brexit”.
Australia will not know the full implications of ‘Brexit’, according to DFAT, until the details of the agreement between the UK and Europe emerge.
Brexit could present challenges, not just for the UK but also for Australia’s ongoing relationship with the UK. However, it could also open up new opportunities for Australia.
On 17 January 2017, British Prime Minister Theresa May set out a 12-point plan for the UK’s future relationship with the EU. The plan indicated the UK would not seek membership of the EU single market and customs union. Instead, the British Government would pursue the greatest possible access to the single market, on a reciprocal basis, through a new, comprehensive, bold and ambitious FTA with the EU. This would also allow the UK to negotiate its own bilateral trade agreements with other countries. The Brexit White Paper, which was released on 3 February 2017, adopted the same 12-point structure as Prime Minister’s earlier speech.
The European Commission’s Deputy Chief Negotiator with the UK, Dr Sabine Weyand, reiterated until the Treaties cease to apply to a Member State that has notified the European Council of its intention to withdraw from the Union, in accordance with Article 50 of the Treaty on European Union, that “Member State remains a member of the EU with all rights and obligations”.
EU law thus continues to apply in full to the UK and in the UK until it is no longer a Member State. The UK will continue to be bound in particular by the exclusive EU competence for trade policy in Article 207 of the Treaty on the Functioning of the EU (TFEU).
Dr Weyand submitted that in the future, the EU hopes to have the UK as a close partner.
Any agreement concerning the future relationship between the EU and the UK, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations.
It seems “doubtful” to the Emeritus Professor of Agricultural Economics at the University of Reading, Alan Swinbank, that the new trade relationship that the UK Government has said it wants to conclude with EU27 can be agreed within the two-year window by March 2019.
Consequently there is talk of ‘transitional arrangements’; but these too would take time to negotiate. The simplest outcome would be for the UK to remain, temporarily, within the EU Customs Union, and the Single Market, pending negotiation of a new trading relationship; but such an outcome would be deeply unpopular with the Brexiteers and may well be unacceptable to the Government.
Thus it seems to me that there is a real possibility that in March 2019 the UK will leave the EU without any new trade deal in place (neither permanent, nor temporary): i.e. a ‘hard’ Brexit.
Professor Swinbank doubted the overall framework of an agreement between the EU and the UK was going to hinge on agricultural issues.
Much as I emphasise the importance of the Northern Irish border and trade in agricultural products over it, there are lots of other issues at stake. One of the dangers at the moment is the negotiations are heading towards a brick wall because of rather strong positions on either side of the negotiations, and trade, although important, is not going to be the dominant force.
Irish farmers clearly have quite a big influence in Ireland, because Ireland is such an agriculturally dependent economy, and, in that sense, Irish farmers are more politically important than our British farmers.
Professor Winters believes British farmers won’t respond favourably to cheaper beef, lamb and dairy penetrating the British market.
They will be upset. Already there is some debate about what farm policy will be in the future. The government has made some short-term promises, but it's been moderately canny about what it's promising, say, for 10 years from now. Farmers in Britain have less political power than they have on the Continent and they tend to exercise it rather quietly. While one could be sure there is a lot of lobbying and while it's the case that farmers are well represented in constituencies that vote Conservative and therefore this government might feel that it needs to tread relatively carefully…In truth agriculture is a pretty small sector for the UK parliament.
Associate Professor Mark Melatos from the School of Economics at the University of Sydney expressed doubt in a private capacity of the UK’s ability and the EU to have sufficient incentive to force a negotiated ‘Brexit’ outcome.
It is not a simple matter for one party to unilaterally choose to exit a multilateral trade agreement
The “no deal” option often mentioned in discussions, in fact sounds like “breach of contract” and will have costly consequences for the UK.
As such, there appear to be only two possible broad outcomes to the Brexit process: negotiated exit or the status quo (i.e. remain)
A negotiated outcome, however, seems difficult to imagine because of the positions and asymmetric bargaining power of the parties involved.
The UK has committed to break its EU contract but it has little (or no) leverage and few (if any) outside options. The UK, therefore, is unlikely to be able to force an end to negotiations on its own terms.
The EU, on the other hand, does not want its EU contract with the UK broken. Not only does the EU have significant leverage in negotiations (e.g. access to the common market), it also does not want the precedent of a successful Brexit to be set. The EU, therefore, has little reason to facilitate a deal with the UK.
Associate Professor Melatos expects that the following may unfold:
The EU is likely to make a series of niggardly “take‐it‐or‐leave‐it” offers that the UK Government cannot plausibly sell to voters.
The 2‐year negotiation deadline is likely to be extended, probably more than once.
To avoid the “no deal” scenario, the UK needs to convince the EU that, at this point, UK‐remain is too costly an outcome for other EU members. It is not clear how the UK could achieve this.
The British Prime Minister also clearly stated the UK’s intention to leave the jurisdiction of the European Court of Justice and take control of its immigration policy. The British Government’s Home Secretary stated that immigration reform would aim to reduce net migration to a ‘sustainable’ level of “10,000s rather than 100,000s”.
According to the Minerals Council of Australia, the arrangements that will apply between the UK and its trading partners following the completion of ‘Brexit’ are uncertain because they are subject to negotiation with the EU, with the UK’s non-EU trading partners and in WTO forums. However, based on the UK Government’s statements, the MCA believes its plans include the following key elements:
Establish the UK’s own schedules of WTO commitments, based on existing EU commitments.
Negotiate an FTA with the EU.
Negotiate arrangements for continuity in the UK’s trading relationships with third countries covered by existing EU FTAs or preferential arrangements.
Negotiate FTAs with third countries not covered by existing EU agreements.
As part of the Brexit process, the UK Government has stated in its White Paper on February 2017 that it will leave the EU single market and customs union. In their place, it will aim to secure “the freest and most frictionless trade possible” between the EU and the UK through an “ambitious and comprehensive” free trade agreement and a new customs agreement.
Associate Professor Melatos warns trade agreements negotiated under uncertainty are “likely to be sub‐optimal” but this can be mitigated by making trade agreements “more flexible”.
Brexit is likely to increase global trade uncertainty in the following ways:
It will create a precedent for countries to leave TAs
As such, future TAs are likely to be designed to make exit explicitly more (or less!) difficult. Existing TAs may have to be retro‐fitted to account for the new risks associated with the potential exit of members.
These developments might discourage the creation of TAs – they will be more costly to negotiate and probably less valuable once implemented either due to: (i) reduced flexibility or (ii) insufficient integration
With respect to ‘Brexit’, a key focus for the HSBC Bank, a global trade bank headquartered in the UK, is to support customers as they navigate the complexities of the economic transition as the UK leaves the EU. HSBC welcomes the recent clarification of the UK Government’s position. In particular, the commitment to a “phased process of implementation as being necessary for economic and financial stability”.
HSBC acknowledged the UK Government’s commitment to a comprehensive trade deal in goods and services with the EU as the foundation for its future growth.
The UK has also confirmed its intention to pursue trade deals with other nations around the world. The UK’s trade agenda following its exit from the EU will include establishing the UK as an independent member of the WTO, preferential accords with the EU and the EU’s existing preferential trade partners, and establishing FTAs with new partners, including Australia.
Projected financial costs of ‘Brexit’
According to HSBC’s Trade Forecast – Australia Trade Report, the outcome of the EU referendum in the UK had “dented the confidence of UK exporters and could dampen growth prospects in the next few years, particularly in terms of investment into the UK”.
In the long-term, however, the UK could benefit from greater non-EU trade, as it looks to reduce barriers bilaterally with trading nations beyond the EU such as Australia. Negotiation of new trade and investment agreements can open the UK market to increased competition from abroad, while enabling the UK to capitalise internationally on its own strengths in areas such as services.
Academic expert on the EU Single Market, Dr Remy Davison, submitted the potential economic consequences of ‘Brexit’ by 2030 as modelled extensively by both private and public sector entities, including the UK Treasury, Price Waterhouse Coopers (PwC), Oxford Economics, the OECD and the National Institute of Economic and Social Research (NIESR).
Modelling scenarios envisaged three possible outcomes; these were:
UK withdrawal to the European Economic Area (EEA);
negotiation of a free trade agreement (FTA) between the EU and the UK; or
employing most-favoured nation (MFN) tariff schedules under extant World Trade Organization (WTO) arrangements.
Dr Davison explained the several issues in relation to each scenario.
Scenario (i) envisages Britain adopting the ‘least-worst’ or ‘Norway’ option of withdrawing to the European Economic Area (EEA), but retaining full access to the EU Single Market. Legally and politically, this option is unlikely. First, Britain would not simply be legally permitted to ‘withdraw’ to the EEA; it would need to apply for membership.
Scenario (ii) modelling is based upon a bilateral FTA between the UK and the EU, replicating most of the features of the EU Single Market, with the exception of freedom of movement of labour. This would include FTA access to services, as well as freedom of capital movement.
Once Brexit formally takes place, the UK will automatically lose all of the privileges associated with the bilateral and plurilateral FTAs to which it has current access, as these are EU-based agreements. These include the EU’s FTAs with Canada, Mexico, South Korea, India, the ACP and Switzerland, as well as the EU-Turkey Customs Union (CU).
Under Scenario (iii), the UK’s position in relation to the WTO is uncertain. The UK’s WTO tariffs are integrated with the EU’s Single Market under the rubric of the Common External Tariff (CET), Consequently, the UK would need to renegotiate its market access regimes with both developed and developing economies within the WTO.
Table 4.1: Quantitative economic estimates of the 2030 impact of 'Brexit' on the UK
(% of GDP)
CEP (2016a) static
(-3.4 to -4.3)
(-1.5 to -2.1)
CEP (2016a) dynamic
(-6.3 to -9.5)
(-4.6 to -7.8)
(-1.9 to -2.3)
(-0.1 to -3.1)
(-0.8 to +0.6)
(-2.7 to -7.7)
CEP (2016a) static
(-5.4 to -9.5)
(-2.7 to -3.7)
NIESR with productivity
(-1.5 to -3.9)
Economists for Brexit
Source: Dr Remy Davison, Submission 17, p. 5.
The UK’s obligations to the World Trade Organization
The Emeritus Professor of Agricultural Economics at the University of Reading, Alan Swinbank, submitted that he do not think there was any doubt that the UK as a founder member of the World Trade Organization (WTO) would remain a member after ‘Brexit’.
Professor Swinbank believed the UK will therefore be bound by all the WTO’s provisions, including for example the Agreement on Agriculture and the Agreement on the Application of Sanitary and Phytosanitary Measures.
The WTO’s most-favoured-nation (MFN) provisions ensure that the UK could not treat the EU (or an EU Member State, for example Ireland) more favourably than any other WTO Member (and vice versa), unless within the context of a UK-EU27 customs union or FTA. Moreover, the WTO’s rules on customs unions and FTAs would appear to preclude a sectorial agreement between the UK and other WTO Members (covering just agricultural goods for example, or motor cars)…
Professor Swinbank stated he was unsure what the UK’s Schedule of Commitments will look like following ‘Brexit’.
On tariffs I would like to think that other WTO Members would simply accept that the UK could inherit the EU’s bound tariffs: after-all, the UK authorities would have been applying them the day before Brexit. Unless the UK remained within a customs union with EU27, however, products imported into the UK would no longer have free circulation within EU27 (although they could transit the UK under customs control) potentially leading some WTO Members to complain that their rights had somehow been nullified or impaired.
Domestic support for UK farmers
The agricultural sector is unique in that it has its own WTO agreement, according to Professor Swinbank. The Agreement on Agriculture has specific rules governing “domestic support measures in favour of agricultural producers”.
Professor Swinbank believed the UK, after ‘Brexit’, could declare some of its farm policies to be:
‘green box’ measures, not subject to any expenditure limits, claiming that they have ‘no, or at most minimal, trade distorting effects or effects on production’ and meet a number of policy-specific criteria (other WTO Members could challenge this self-declaration in the Committee on Agriculture, or through the WTO’s Dispute Settlement procedure).
‘blue box’ measures are other measures declared as ‘direct payments under production limiting programmes’ again not subject to expenditure limits under current WTO rules.
‘amber box’ measures are all other support and subject to WTO limits.
The current Agreement on Agriculture has fairly generous de minimis provisions: product-specific support that does not exceed 5 per cent of the value of that product’s output that year is disregarded, as is non-product-specific support which does not exceed 5 per cent of the country’s total agricultural production, according to Professor Swinbank.
Implications for the Common Agricultural Policy
An issue of concern to Australian farmers with any UK/EU trade agreement, according to the NFF, is domestic support and, specifically, the future of the Common Agricultural Policy (CAP) farm subsidies in a post-Brexit era.
It is suggested that as part of Brexit, UK farmers will no longer receive the generous agricultural subsidies that are associated with EU membership. The current EU CAP provides UK farmers with up to 50 per cent of their annual income, with the average farmer in England receiving direct subsidies of £235 per hectare (A$412) each year.
Additional payments are available under agri-environmental and other schemes, with the NFF outlining total EU payments to UK farmers exceeding £2.8 billion or $4.9 billion in 2015.
It is estimated that payments such as these are roughly equivalent to 50 per cent of the total income from farming generated in the UK each year.
The CAP comprises three core elements, according to Australian academic and expert on the EU Single Market, Dr Remy Davison:
Direct ‘whole farm’ payments.
Producer price guarantees.
Despite considerable reform attempts throughout the last 25 years, Dr Davison noted the CAP still consumes at least 50 per cent of the EU General Budget.
Since its accession in 1973, the UK has been a net financial contributor to the CAP, as Britain’s farm sector is small, contributing less than 0.5 per cent of UK GDP. After Brexit, the UK government will no longer contribute to the CAP.
It was estimated in 2001 that the CAP accounted for 38 per cent of all world agricultural price distortions and 90 per cent of global agricultural export subsidy payments.
The British High Commissioner, HE Menna Rawlings CMG reiterated the British Government’s commitment to uphold cash inputs into the farming sector, as currently provided under the common agricultural policy, until 2022.
That is clear. Obviously we want to look afresh at how those relationships work. It is important for us for farmers to grow more, export more and maintain environmental protections, but it is very early days in terms of how we think about this. I think I am right in saying that it is an issue in terms of beef—in particular—imports into the UK but it is not our biggest import from Australia.
Chair of the British-based Economists for Free Trade, Professor Patrick Minford, submitted its members’ views on how damaging the UK’s commitment to the CAP had been on the UK economy.
The CAP involves the government in contributing to EU farm subsidies, only a small part of which returns to UK farmers: this money forms part of our EU budget contribution.
It is absolutely essential, whatever other decisions are taken, that the UK government withdraws totally and unconditionally from the CAP and all its associated tariffs on agricultural products. The key damage to the UK economy from the CAP comes from the massive raising of farmers’ prices by some 20 per cent, according to our and OECD estimates. The knock-on effect on the economy comes through increasing land and consumer prices, both of which have large indirect effects on both the structure of the economy and on consumer welfare.
The Economists for Free Trade calculated through their World Trade Model that any future trade policy retaining the CAP’s tariffs causes “substantial damage to the economy (between a 1 per cent and 4 per cent reduction in consumer welfare compared with the current situation), even if unaccompanied by UK tariffs on manufactured imports”.
This is because the rise in land prices induced by CAP tariffs greatly distorts the shape of the economy and because it raises consumer prices by around 7 per cent - about the same as the whole of current EU protection on both it and manufacturing.
The Economists for Free Trade have calculated through its World Trade Model that any policy retaining the CAP’s tariffs causes substantial damage to the economy (between a 1 per cent and 4 per cent reduction in consumer welfare compared with the current situation), even if unaccompanied by UK tariffs on manufactured imports.
This is because the rise in land prices induced by CAP tariffs greatly distorts the shape of the economy and because it raises consumer prices by around 7 per cent - about the same as the whole of current EU protection on both it and manufacturing.
The Emeritus Professor of Agricultural Economics at the University of Reading, Alan Swinbank, submitted that the EU’s Common Agricultural Policy (CAP) has changed significantly over past decades, initially prompted by the Uruguay Round of multilateral trade negotiations in which Australia and the Cairns Group played a part.
A succession of policy reforms have reduced many support prices in nominal terms, and inflation has further eroded their value in real terms. Farms however are eligible for direct income support (currently the tax-payer funded Basic Payment Scheme and its ‘Greening’ component, etc.), which the EU declares to be so-called ‘green box’ measures and thus exempt from reduction commitments. Export subsidies (refunds) are about to disappear.
However, Professor Swinbank stated one aspect of the ‘old’ CAP survives.
Despite these changes to the CAP’s domestic policy provisions, its import taxes are largely those established after the modest tariff reductions achieved in the Uruguay Round. Thus the EU’s most-favoured nation (MFN) bound tariffs on a number of agricultural products (e.g. sugar, dairy, beef, lamb) are obscenely high —often prohibitively so.
Professor Swinbank noted not all of the EU’s agricultural tariffs are high, however.
Many are much more modest. On sparkling wine — of export interest to Australia— the MFN tariff is bound at €32 per hectolitre for instance; and oilseeds pay no import duty.
Professor Swinbank highlighted the Organisation for Economic Co-operation and Development’s Producer Support Estimate calculations for the period 2013-15 indicates that 19 per cent of EU farmers’ gross farm receipts were dependent upon transfers from consumers and taxpayers, and suggests that 24 per cent of this took the form of market price support. In the main, it is the EU’s high import tariffs on agricultural products that generate this market price support.
In theory, when the UK leaves the EU, the NFF believes the CAP payments will “no longer be available to UK farmers”.
The suggestion is that the UK government will need to replace these payments with a similar subsidy, and this is an area of significant interest to the NFF, as this ongoing form of subsidy severely impacts on the competitiveness of Australian products in the market.
Impact of ‘Brexit’ on Ireland
The UK’s departure from the EU, commonly referred to as ‘Brexit’ is a major challenge for the EU, according to the Irish Government’s Department of Foreign Affairs & Trade, and it is also an issue which resonates beyond Europe’s borders and has ramifications for key global partners such as Australia.
However, given the close nature of our bilateral ties, the decision of the UK to leave the EU presents unprecedented political, economic and diplomatic challenges for Ireland. In response, Ireland has undertaken extensive internal analysis and external consultation to prepare for and meet those challenges.
Well in advance of the referendum in the UK, the Irish Government has been concretely engaged in scoping out the potential impacts of Brexit: its first national contingency plan was published on 24 June 2016.
The four headline challenges identified and have been prioritised by the Irish Government as the principal political issues that will need to be addressed in the ‘Brexit’ negotiations are:
mitigating the impact on the Irish economy;
protecting the peace process in Northern Ireland;
maintaining the Common Travel Area that Ireland shares with the UK; and
securing the future of the EU.
To succeed as an open economy and a welcoming society, Ireland remains a committed member of the EU, according to the Irish Government.
The foundation of Ireland's prosperity and the bedrock of our modern society is our membership of the EU. The EU has been a cornerstone of much of the social progress which Ireland has experienced over the last generation.
The Irish Government stated Ireland's membership of the EU's Single Market and the Customs Union is absolutely fundamental to its economic strategy, allowing companies in Ireland to freely access the European market, and making Ireland an attractive destination for investment.
EU membership also gives Ireland access to EU trade agreements with other major markets, and a capacity to engage in global free trade that we could not possibly have on our own.
Ireland will continue to pursue a liberal trading agenda within the EU and encourage more free trade agreements, including with Australia.
The UK’s decision on whether to prioritise Irish interests above trade agreements more broadly will materially affect the structure and value of any Australia-UK FTA given the ramifications of that decision for Australian beef and dairy exports.
Mitigating the impact of ‘Brexit’ on the Irish economy
Due to the small size of Ireland’s domestic market, the Irish Government states the exports of goods and services are therefore far more important to Ireland’s economy than for others, including larger EU partners.
In recent years, Ireland has been successful in diversifying exports across international markets – including to Australia. Merchandise exports from Ireland to Australia have doubled in the last three years and reached almost €1.5bn in 2016. Similarly, services exports have grown strongly, to over €2.6bn in 2015. Overall, Ireland has a very strong trading surplus with Australia, amounting to €3.2bn in 2015.
While Enterprise Ireland’s priority sectors in 2017 were digital health, fintech, HR technology, agricultural machinery and construction products and services and in development sectors include software solutions, construction, oil and gas, and agribusiness, changes to how Ireland trades with the UK market and as a gateway to the EU were significant.
However, our geographical connection and the particular nature of our trade with the UK, where supply chains have a high-level of interconnectedness and the island of Britain is a key transit point to continental Europe, means that certain key sectors in the Irish economy will be very heavily impacted by the UK’s departure from the EU. These include agriculture and food, and SMEs in more traditional sectors.
In the ‘Brexit’ negotiations, the Irish Government’s priorities for the economy are:
Maintain close trade between UK and EU/Ireland
Minimise regulatory burden for goods transiting UK
Improve business environment – more competitive, diversified markets, better infrastructure
Pursue trade and investment opportunities from ‘Brexit’
Protecting the Peace Process in Northern Ireland
The Good Friday Agreement of 1998, of which the Irish and British Governments are co-guarantors, remains the foundation of peace and reconciliation in Northern Ireland and brought an end to more than 30 years of violent conflict, which saw over 3,600 people killed and many thousands more injured.
British and Irish common membership of the EU was a significant enabling factor in securing peace, and the EU has also played an important role in consolidating that peace and supporting reconciliation.
The Irish Government warned that ‘Brexit’ presents particularly difficult challenges in respect of Northern Ireland and relations between north and south on the island of Ireland.
The Irish Government strongly believes that protecting the gains of the peace process and reflecting the unique circumstances of Northern Ireland throughout the Brexit negotiations are objectives clearly in the interests of Ireland, the EU27, and the UK.
The Irish Government highlighted the need to “avoid a hard border on the island of Ireland” as a key aspect of the peace process.
The fact that there is now an open border on the island of Ireland is one of the main achievements of the peace process and one that is vital for underpinning and sustaining the peace. Any physical manifestation of a border on the island would be a major threat to the peace process.
The Common Travel Area and border dividing Ireland
The UK has one land border with EU27, dividing the island of Ireland. This Common Travel Area is a highly sensitive border, according to Professor Swinbank, who expects both the UK Government and the Irish Government will be keen to ensure that ‘hard’ border controls are avoided: particularly the physical presence of customs officers or immigration officials.
This outcome could be very difficult to achieve given the very high tariffs that apply to many CAP products. The UK is a major market for Ireland’s livestock industry; and many food and drink manufacturing and retail businesses operate highly integrated operations either side of the border. In 2016, for example, 26 per cent of the pigs slaughtered in Northern Ireland’s bacon plants were imports (presumably from the Republic of Ireland).
Reflecting a unique shared history, a Common Travel Area (CTA) has existed between the islands of Ireland and Great Britain since 1922. The Irish Government submitted the CTA has been an important feature of life in Ireland and the UK for almost a century, and was in place long before Ireland and the UK joined the EEC together in 1973.
The CTA allows for free movement of people across the two islands. It also allows Irish and UK citizens to access various services and benefits in each country such as to reside, to work to access public services and to vote in certain elections. The CTA is particularly important in the context of the Northern Ireland peace process and relations on the island of Ireland.
Professor Swinbank expected a ‘hard’ border could be avoided if the UK and EU27 successfully conclude ‘an ambitious and comprehensive Free Trade Agreement and a new customs agreement’, with the UK’s MFN tariffs kept more-or-less in line with those applied by EU27, then.
In effect, the CAP’s border protection would be kept in all but name. Rules of origin might still be problematic —would EU farmers, for example, be content to allow sugar produced from imported raw cane sugars by the UK’s cane sugar refiner free access to the Irish market (bearing in mind that Ireland is not a sugar producer)?
Ireland seeking to secure the future of the EU
The Irish Government stated the EU and all of its Member States have been reflecting on how best to respond to the challenges it faces, not only in connection to ‘Brexit’, but also in relation to security threats, large-scale immigration and a shifting international balance.
Ireland is taking an active part in these discussions. We will continue to underline the EU’s core values, celebrate its political, economic and social achievements and work to ensure that all our citizens understand that our future peace and prosperity is best preserved and promoted through the EU. Further, Ireland believes that a strong and prosperous EU is also in the best interests of our global partners, such as Australia.
Timing of proposed FTA negotiations with the EU and UK
The British High Commissioner, HE Menna Rawlings CMG explained possible time frames of a free trade agreement with Australia hinge on negotiations with the EU first, following media reports of the UK’s Chancellor of the Exchequer stating his expectation that no new bilateral trade agreements would be introduced until 2022.
…in terms of transition periods, clearly this is still something under discussion, and we don't want a cliff edge when we actually exit the European Union in March 2019, but I think we'll have to look at this issue by issue. Our understanding is that there is not an expectation that there will be some form of unlimited transitional status, but in certain or more complex areas you might need a longer period of implementation. So, for example, immigration controls and custom systems might be something that will take time to develop and bed in. But the commitment on our side to keep moving forward on this as far as we can, scoping out the parameters of a future trade deal…
One is that we would like to go as fast as we can but obviously we can't actually negotiate a free trade agreement until we leave the EU. There is a natural caution there that is inevitable. What struck me, despite that, is how quickly both Australia and the UK got out of the blocks to get some sort of process going.
The British Consul General Mr Michael Ward added that an FTA is “not a static thing that sits on the shelf”.
…it's a dynamic government-to-government agreement, which has processes to allow you to update it and allows it to evolve. Otherwise, it's not really useful in the modern world.
Professor Philomena Murray and Dr Margherita Matera from the University of Melbourne and Dr Laura Allison-Reumann from the Nanyang Technological University have jointly recommended that the Australian Government develop its strategic priorities ahead of trade negotiations with the UK.
A well-prepared negotiating position by March 2019 or the date when the UK’s exit negotiations cease and the trade terms are made available.
Professor Murray, Dr Matera and Dr Allison-Reumann submitted that the UK’s decision to exit the EU will have significant implications for bilateral relations and for the terms of trade for Australia and the UK in the future.
As the UK and the EU commence negotiating the UK’s exit, Australia would be advised to use this period to prepare its position in order to negotiate a bilateral free trade agreement with the UK.
Trade and Investment Queensland submitted that Australia occupies a strong “first mover” position, given its significant experience in FTA negotiations relative to the UK.
Close cultural, economic and diplomatic relations have also provided an opportunity for Australia to act in an advisory capacity prior to commencing negotiations.
Professor Murray, Dr Matera and Dr Allison-Reumann identified that “Australia is in a position of strategic advantage, given that it has two years to prepare for these Australia-UK negotiations, and that it is not in a position of dependence on the UK as a result of its other trade partnerships, particularly in Asia”.
This will also be a period to closely monitor the UK’s negotiating positions on trade during the two-year EU Exit negotiation period.
Australia should not, however, let Brexit undermine or delay Australia’s negotiations with the EU on an FTA. Trade agreements with both the EU and the UK are crucial to Australia’s national interests, as Australia currently has no free trade agreement with the EU, or with any European countries.
The Australian Government needs to have a “confident impetus to prioritise Australia in upcoming negotiations”, according to Professor Murray, Dr Matera and Dr Allison-Reumann.
Australia and the UK share a common heritage. Australia’s institutions are British-influenced. They have common parliamentary traditions. They share the Commonwealth. There is extensive trade in goods and services between Australia and the UK. There is a wealth of personal ties.
Professor Murray, Dr Matera and Dr Allison-Reumann also warn that “historical nostalgia should not override trade realities” though.
The Global Public Affairs Director of Treasury Wine Estates (TWE), Ms Cecelia Burgman, said the wine industry wants priority on a free trade trade agreement with the UK ahead of the EU because it is such a significant export market.
From TWE's perspective, we would like to see the UK agreement prioritised over the EU. TWE is probably not dissimilar to most of the rest of the Australian wine industry when the UK is the priority market and receives more value and volume from us than other European markets. Similar to the rest of the Australian wine industry, the European markets where we are strongest are the northern European markets. Our route to market for a number of European countries at the moment is through the UK and then out to the Nordics in particular. We would see that as continuing, depending on tariff arrangements and the ability to move goods. Our priority would be for a free trade agreement with the UK, with securing beneficial tariff treatment preferably and then, hopefully, an FTA that also includes provision for the movement of goods between the UK and the EU as well.
The German Australian Business Council noted the strong desire by the UK government to establish a free trade agreement with Australia as soon as possible after ‘Brexit’ but believed Australia’s priority should be on the FTA with the EU.
We note, however, that the UK does not have the power to make such agreements at this stage (although preparatory discussions can be initiated). We should like to point out that the market in the EU27, after departure of the UK, will still be very much larger than that of the United Kingdom. We argue therefore that Australia should prioritise completion of the ongoing discussion with the European Union and not concentrate its trade negotiating resources on establishing an agreement with the UK. The UK’s resources are limited and will probably be focused on concluding agreements with the European Union and the United States.
Academics Dr Ben Wellings, Dr Annmarie Elijah and Professor Bruce Wilson submitted there are two political risks associated with the UK’s desire for a free trade agreement with Australia.
The first is that Australia’s good relationship with the EU is damaged by perceptions of alacrity on behalf of Australia to enter into such negotiations with the UK when negotiations on a trade agreement with the EU are just starting. The second is that Australia’s interests get caught up in the possibly unrealistic worldview of the Brexiteers and thus Australia becomes collateral damage of domestic British politics.
Dr Wellings, Dr Elijah and Professor Wilson believe that Australia should avoid getting “caught up in a messy divorce between the UK and the EU”.
Negotiations for an Australia-EU Free Trade Agreement are scheduled to begin in late 2017, just months after the Brexit process begins in earnest.
The EU is also a very strong partner with Australia in the efforts still to develop multilateral trade agreements. The Trade Facilitation Agreement has had consistently strong leadership from the EU and Australia, as has been the case also with the Trade in Services Agreement.
Dr Wellings, Dr Elijah and Professor Wilson Australia warn Australia must “avoid getting pulled along in the wake of – or dragged down in the undertow by – this political re-orientation driven by UK politics”.
In seeking to secure a free trade deal as soon as the UK has left the EU, Australia needs to avoid throwing the baby out with the bathwater and jeopardising relationships in Europe. Serious bilateral work with partners inside the EU (to take three examples: the Netherlands, Germany and France) now underpins a more constructive relationship between Australia and the EU.
Due to its complexities and relative high importance in both economies, Trade and Investment Queensland observed the agriculture sector will present a significant risk to a potential FTA with the UK due to competing domestic interests.
The UK landscape is further complicated given the differing perspectives of agribusiness across the devolved administrations (Wales, Scotland, Northern Ireland) towards the implications of leaving the EU Common Agricultural Policy.
Economists Dr Giovanni Di Lieto and Dr David Treisman recommended the Australian Government take a cautious approach and commence, monitor and evaluate future negotiating processes according to the economists’ guidelines.
Australia should not hasten to complete a bilateral free trade agreement (FTA) with the UK immediately after the Brexit process concludes, due to the highly uncertain geopolitical and economic climate that may unravel in the short term.
Associate Professor Melatos warns countries, such as Australia, will need to be “cautious” about committing to new trade agreements (TA).
The largest traders are best resourced to resolve these new uncertainties and, in any case, will set the new TA design standards post‐Brexit.
Small traders, like Australia, should be cautious signing up to new TAs until the new TA architecture has been clarified. TAs should only be concluded where the strength of the business case is impossible to ignore.
Associate Professor Melatos stated a trade agreements with the UK (ex‐EU) is unlikely to pass this business case test. A trade agreement with a EU (minus-UK) most likely would.
Dr Di Lieto and Dr Treisman submitted that the clear indication for the so called “hard Brexit” line demarcates the possible avenues for Australia’s separate trade and investment relations with the UK and EU.
Dr Di Lieto and Dr Treisman reiterated that no formal negotiation between Australia and the UK can be pursued until the conclusion of the UK’s withdrawal process from the EU, when the UK will finally become a separate customs entity, thus being entitled to negotiate international trade agreements.
Considering the present political climate and technical difficulties, it appears unlikely that the UK and EU will finalise an agreement before the two-year term set by Article 50 of the EU Treaty, or even before the advance of the Australia-EU free trade agreement.
The Minerals Council of Australia believed it was clear that the ‘Brexit’ process will involve the UK and its officials in a “large number of complex negotiations over the coming period, not just in trade but across a wide range of policy and regulatory areas”.
In trade, in addition to the WTO schedule unbundling process, and the negotiation of a UK-EU FTA, the UK Government has said it will look to establish continuity with countries covered by EU FTAs or preferential arrangements. The EU has an existing network of some 35 bilateral and regional trade agreements covering some 50 countries.
Professor Murray, Dr Matera and Dr Allison-Reumann also warned that the UK Government may focus on trade agreements with larger trade partners as a potential risk that Australia should work towards mitigating.
The UK may not prioritise Australia as it commences negotiations with a range of countries. In the coming years, the UK will be busy re-establishing its place in the world and renegotiating a range of deals, including within the WTO, with the EU, the United States, and China who constitute 44 per cent, 17 per cent, and 3.6 per cent of the UK’s total exports respectively. Australia will need strategies to ensure that it is part of the first wave of FTAs negotiated by the UK to counter this.
Professor Murray, Dr Matera and Dr Allison-Reumann expect the UK to be “inclined to finalise trade deals swiftly to minimise any trade disruptions”.
Australia must therefore be well-prepared to commence negotiations as soon as the UK’s exit from the EU is finalised. The Working Group will be an important forum for Australian Government officials to identify any contentious issues, develop a strategy on how Australia will proceed on these issues once negotiations commence, and demonstrate to the UK Government, the Australian Government’s preparedness to commence negotiations. In addition, the Government should emphasis the shared interests Australia has in concluding an FTA within a relatively short period of time.
Ford Australia would welcome the Australian Government working with the UK Government to reach a trade agreement as soon practicable to bring certainty and clarity of trading arrangements and “ensure a smooth transition to the new market dynamic”.
To unlock the value associated with a potential bilateral trade pact with the United Kingdom, Ford Australia encourages a timely pace in the conduct of any future negotiations to increase the trading opportunities for the member economies. Additionally, it recommends the full elimination of Australian tariffs on imported new vehicles and replacement service parts to be effective at entry into force of any negotiated agreement.
DFAT stated that Australia was looking to the EU and the UK to establish a new, mutually beneficial relationship that underpins growth and supports trade and investment:
At present, there are no significant trade barriers between the UK and other EU member states. The Australian Government is encouraging the UK and the EU to establish a future economic relationship that takes into account the interests of their neighbours and trading partners and does not unduly erect barriers to international trade.
Without a timely agreement between the UK and the EU, Dr Di Lieto and Dr Treisman are concerned the UK and EU will revert by default to the non-preferential multilateral system under the rules of the World Trade Organization (WTO).
Essentially, this means that by 2019 Australia, the UK and EU would all be levelled up within a multilateral regulatory framework of trade and investment relations. This three-way levelling would eliminate the Australia-UK trade and investment subordination to the European single market at the regulatory level, however without discernible improvements in economic outcomes.
Associate Professor Melatos recommends that it may be to Australia’s advantage not to rush into the trade negotiations with the UK. In order to maximise its return from any trade agreement with the UK post‐Brexit, Australia should:
Wait for uncertainties in global trade architecture to be (at least, partly) clarified, including clarification on the UK’s trading relationship with the EU.
Wait for the extent and nature of UK weaknesses to be (at least, partly) clarified.
Wait for the likely negative economic impact of ‘Brexit’ to become apparent
Likely lower economic growth due to reduced labour movement, reduced trade on less favourable terms, more contested role in financial services.
Design the most flexible TA (and investment agreement) consistent with this new reality of likely lower economic growth.
Piggy‐back off any UK trade negotiations with larger economies (including the EU) in order to ensure a more advantageous negotiating baseline.
The UK is unlikely to make significant trade and investment concessions to Australia if these preferences must then be extended (at much greater cost) to TAs with larger countries.
Professor Murray, Dr Matera and Dr Allison-Reumann highlight that currently, the major barrier to trade and investment with the UK and the EU is the absence of an FTA.
Until an FTA can be negotiated with the UK, Australia could consider the possibility of establishing some form of preferential access to the UK market once it leaves the EU, similar to that which Australia has with the other 27 EU member states. The need for market access with a form of preferential access for goods and services is of urgent consideration for Australia. It is also important that Australia retain its access to the UK for its services industries.
But Professor Murray, Dr Matera and Dr Allison-Reumann also caution against over-emphasising the UK to the detriment of other trade partners is another risk that Australia must mitigate against.
Whilst there are strong arguments for Australia to finalise trade agreements with the UK and the EU, Australia has diversified its trade links within Europe and beyond Europe and beyond traditional ties with Britain. For example, although Australia is market leader in wine in the UK, and has been for 10 years, the UK is the third most valuable wine export market, after China and the US (in first and second place respectively). As of January 2017, China saw an increase of 40 per cent to $520 million, the US a 3 per cent increase to $458 million, and the UK a 5 per cent decrease to $355 million (even though it is the largest partner in terms of volume of wine exported).
For the Australian mining industry according to the Mineral Council, finalising FTAs which are currently under negotiation with India and Indonesia are a higher priority than FTA negotiations with the UK.
This is because the opportunities for boosting mining and mining services exports to Asian economies are significantly greater than they are with respect to the UK.
According to the Minerals Council, it has been pointed out that where such third countries consider Brexit has diminished the value of their negotiated commitments with the UK, these countries will have the opportunity to seek compensation from the UK in sectoral commitments or changes to the text of agreements. The UK will also look to negotiate its own FTAs with countries that do not currently have trade agreements with the EU.
Given the complexity of the UK Government’s Brexit-related policy considerations and negotiations, and the pressures it will face in seeking to conclude these processes within Brexit’s two-year timeframe, Australia needs to consider where it fits in this crowded policy space, what interests it is seeking to advance, and how best to advance those interests.
The Mineral Council wants the Australian Government to assess the potential gains that would come from an FTA with the UK compared to the trade and investment arrangements that will prevail immediately following ‘Brexit’.
It also needs to consider how entering negotiations for an FTA with the UK would impact on other Australian trade priorities, including the negotiation of an FTA with the EU.
The NSW Government believed the UK’S decision to trigger article 50 and exit its relationship with the EU “may present a unique opportunity for Australia to secure better access to the UK market through negotiation of an FTA”.
NSW would strongly support the commencement of bilateral FTA negotiations between the UK and Australia. Prime Minister May has highlighted her commitment to engaging with other global markets through free trade agreements (FTAs) and has singled out Australia as a country with which an FTA would be sought.
Macquarie Group noted the Australian Government’s desire to commence negotiations on an Australia–UK FTA at the appropriate time.
Macquarie shares the view that there are opportunities to build stronger trade links with the UK and considers there are benefits in greater diversification of Australia’s trading relationships.
The German Australian Business Council (GABC) is a business network that was established in Germany 1997. The GABC, from a point of view of business certainty, described it as unfortunate that “little clarity is available, as the nature of the future conditions on economic activities of Australian companies in Germany (and in Europe) will depend on these all-Europe relationships”.
It shows, however, that any future trade and investment relationship between the UK and Australia needs also to consider that Australian companies active in Europe (whether just in the UK, or in other European jurisdictions as well) need similar rules and regulations on trade and investment in both the UK and the EU-27.
The GABC recommend that any agreement on trade and investment between the UK and Australia have “provisions similar – or at least not in contradiction – to those current regulating trade and investment between the UK and the EU-27 as well as the proposed free trade agreement with the EU” and as an example take a coordinated or even unified approach in respect of “determining the rules of origin of goods”.
Mutual Recognition Agreement between Australia and the UK
The UK leaving the EU may have trade implications between Australia and the UK, according to the Department of Industry, Innovation and Science, with exporters from both countries potentially facing increased costs in getting their goods assessed to meet the relevant standards.
Australia currently has a Mutual Recognition Agreement with the EU, the European Community-Australia Mutual Recognition Agreement (EC MRA), which helps to reduce barriers to trade by providing mutual recognition of conformity assessment, according to the Department of Industry, Innovation and Science. Australia also has a Mutual Recognition Agreement with the European Free Trade Area (EFTA MRA), which extends the EC MRA to all countries which form the European Economic Area.
Following the UK’s formal exit from the EU, the Department of Industry, Innovation and Science believe it is possible that the UK will remain a party to the existing EC MRA.
Alternatively, a new Mutual Recognition Agreement between Australia and the UK could be developed, however the Department believed an analysis of the costs and benefits of such an agreement should first be undertaken.
Before committing to a Mutual Recognition Agreement, the Department stated Australia would need to wait until the final arrangements for the UK’s withdrawal from the EU are fully understood.
Professor Murray, Dr Matera and Dr Allison-Reumann recommend that within an FTA with the UK, or pending the ratification of such an agreement, “consideration should be given to the negotiation of a form of Mutual Recognition Agreement for Australian goods that draws on that signed by Australia and the EU”.
There will need to be an agreement on the access of Australian companies to the UK, including the right of establishment of Australian banks, financial institutions and businesses. Although the Australian Government did not issue a document of concern along the lines of that emanating from the Japanese government in the wake of Brexit, there are key concerns common to both Australia and Japan that will require negotiation with the UK government.
The Government of Japan’s 2016 document lists some concerns that Australia would share with Japan, according to Professor Murray, Dr Matera and Dr Allison-Reumann, such as “maintenance of trade in goods with no burdens of customs duties and procedures; unfettered investment; maintenance of an environment in which services and financial transactions across Europe can be provided and carried out smoothly; access to workforces with the necessary skills; and harmonised regulations and standards between the UK and the EU.”
The Australian Government will need to seek assurances for Australian businesses currently based in the UK as well. Some of these companies are already contemplating moving their European base to countries such as Ireland and this has been publicly mooted by Foreign Minister Julie Bishop. Should they remain in the UK, there will need to be a detailed examination of the issue of passporting in the UK, with no loss of rights of access for Australian-owned companies.
Australia’s trade and investment relationship with the EU
DFAT stated ‘Brexit’ will not affect the priority that Australia attaches to working with the EU toward the timely launch of bilateral free trade negotiations, in line with the announcement by the Prime Minister, the Hon Malcolm Turnbull MP and European Council Presidents Donald Tusk and Jean-Claude Juncker on 15 November 2015.
The Australian British Chamber of Commerce supported Australia prioritising completion of a free trade agreement with the EU.
It should be noted that is in Australia’s best interests to still proactively and swiftly pursue a free trade arrangement with the EU. The discussion on this process has moved to the near completion of the scoping works and will hopefully lead to formal negotiations commencing in the later half of 2017.
This arrangement with the EU may well provide a basis for formal negotiations with the UK which cannot commence until after the 2019 exit from the EU.
The largest risk for Australia according to the Australian British Chamber of Commerce is the perceived political risk associated with the European Union, which has been open in its concern about Australia’s forward leaning posture on securing a FTA with the UK “when the UK are able to do so”.
There is a concern that the EU will be offended and as a result Australia may find it more difficult to secure a finalised arrangement with the EU. This risk can be mitigated if an arrangement can be struck with the EU prior to the UK’s departure. This could be possible given the scoping work is complete.
Dr Di Lieto and Dr Treisman recommended the Australian Government should prioritise the conclusion of a comprehensive FTA with the EU to “capitalise on historically optimal relations, and use it to hedge its subsequent negotiating position with the UK, which is likely to be on a weaker competitive stance with the EU than Australia”.
Australia should avoid trilateral and multilateral options, as the end game should be at separate bilateral levels with both the EK and EU, in order to eventually achieve more favourable trading terms than the UK can achieve with the EU and vice versa.
Board member of Australian Business in Europe –France, Ms Kelly Saunders, highlighted that the EU was an enormous market.
Without the UK we've got 27 countries and 430 million people. Growth here is accelerating...In respect of Australia, Australian business in the EU is often headquartered through the UK. We understand that around 48 per cent of the companies doing export services into the EU are based in the UK. This may need to change. Not many of ABIE's Australian corporate members are headquartered in France. We note this. So we think that there is a bit of a perception from Australian companies that English language and anglophone culture is enough for doing business in the EU.
Ms Saunders said a free trade agreement with the EU should be the priority for Australia
We have got a complimentary market with the EU. Their needs and our services are a good match, which is not the case with the UK. It is often quite competitive with Australia. In terms of bridging the gaps—we think that there's a lot that Australia needs to do in terms of work going into Europe to be better prepared. In terms of the future FTA, we support the German business council's submission, which is that the EU negotiation should happen first and that we would want any sort of agreement with the UK to have reasonable parity with any EU free trade agreement.
Of the existing member states, DFAT claimed the UK has been a strong supporter of an Australia-EU FTA and a vocal advocate for trade liberalisation globally. In terms of trade patterns, the UK has traditionally been an important conduit for investment between Australia and the EU – two-thirds of our FDI with the EU enters through the UK, while over half of EU FDI into Australia comes from the UK.
Businesses could, however, be expected to adapt to the new terms negotiated between the EU and the UK and structure their investments accordingly. The potential loss of ‘passporting’ access to the EU has been raised as a key issue for the financial services sector.
‘Passporting’ refers to a range of provisions across many different pieces of EU financial regulation, which allows firms in EU member states to provide financial services across the EU under a common set of rules and a single authorisation from their regulator.
Leading Australian investment bank Macquarie Group stated it does not anticipate any immediate impact to its business consequent to the UK’s exit from the EU and it will continue to have a significant business presence in both the UK and Europe.
By way of example, we have invested more than £10 billion in the last seven months, making us one of the largest investors in UK infrastructure post Brexit.
Macquarie Group continues to monitor the progress of the ‘Brexit’ negotiations and welcomes any initiatives the DFAT “may undertake to help Australian businesses in the UK remain informed”.
More broadly, we note recent comments by Australia’s High Commissioner to the UK about the scope to further build a trade relationship between Australia and the UK that sustains and supports growth for the economies of both countries.
Professor Murray, Dr Matera and Dr Allison-Reumann identified that in the lead up to the UK exit from the EU, and in its aftermath, it will be important for Australia to foster new and more enhanced trade partnerships with the EU and its other member states.
The EU is Australia's second largest trading partner and largest source of foreign investment. The successful conclusion of an FTA with the EU27 is thus vital for Australia.
Within Australia-EU trade, the UK is a significant contributor to Australia-EU trade and commercial figures. For example, in 2013, Australian businesses in the EU were mainly located in the United Kingdom (474 enterprises), followed by Germany (92 enterprises) and France (68 enterprises). However, this should not overshadow the fact that Australia’s total trade with the EU27 outweighs its trade with the UK by a ratio of almost 3:1.
The departure of the UK from the EU will have other consequences since the UK is one of the strongest free trade supporters within the EU, sharing many views on trade liberalisation with Australia, according to Professor Murray, Dr Matera and Dr Allison-Reumann.
Once it leaves the EU, Australia will need to foster its relations with the EU and its member states, and find support for trade liberalisation from among the remaining member states. Encouragingly, the EU has been particularly vocal on the benefits of free trade and fostering agreements with other countries.
As the European Commissioner for Trade, Cecilia Malmström stated in a speech in January 2017, ‘Trade is about openness’ and the EU will work with countries that share its belief in ‘the benefits of open trade and investment’
Impact of ‘Brexit’ on Australia’s trade with the UK and EU
DFAT stated the effect of the UK’s intention to leave the EU on the Australian economy and its financial sector had been limited so far.
Australia’s trade links are heavily oriented more towards Asia, and the Australian banks have limited direct exposure to the UK and Europe. As the UK leaves the EU, the Australian Government will be looking to strengthen further our close and effective partnership with the UK.
DFAT expects the UK’s departure from the EU customs union will allow it to negotiate new free trade agreements with other countries, including Australia.
The Prime Minister May has indicated that the UK would welcome new trade agreements with other countries, and has prominently identified Australia as a country with which the UK has already begun discussions on future trade ties (alongside New Zealand and India).
The Australian Government will continue to engage the UK while it concludes arrangements and its interest is for the UK to be an open market and a strong proponent of a robust global trading system.
Australian airline Qantas expected the UK’s recent decision to leave the EU will have “real and immediate consequences for many countries, including Australia”.
As the UK seeks new trade and investment partners outside of the EU, significant opportunity exists for Australia to capitalise on the benefits derived from an enhanced economic partnership. Air transport access will play an important role in this, and the Qantas Group is committed to playing its part in strengthening the close bilateral ties and trade flows precipitated by ‘Brexit’.
From an aviation standpoint, Emirates Airline Group submitted the double-digit growth in passenger traffic between the two countries in 2016 is “reflective of the healthy state of this significant bilateral relationship”.
‘Brexit’ will redefine the UK’s relationship with Europe and the rest of the world, including Australia. The long-term effect of Brexit, in particular on the tourism and freight transport sectors, will only be fully understood once the future arrangements that define the UK’s relationship with the EU are clarified and put in place.
However Emirates warned that ‘Brexit’ naturally raises real and immediate questions for many countries outside of the EU, like Australia.
- in particular what it means for opportunities to expand trade and investment links, as well as the UK’s continued air transport access to Europe and the rest of the world. Naturally, this concern is being felt within the UK as well. A recent ComRes survey of 152 UK Members of Parliament showed that 86 per cent predict that the UK’s access to air links will be more crucial than ever before following the UK’s exit from the EU.
Emirates noted some commentary suggests that the UK will look to strengthen ties with its traditional partners outside of Europe following ‘Brexit’, which may strengthen the already strong bilateral ties and trade flows between Australia and the UK.
We expect that this would have positive spill-over effects into the Australia-UK aviation market.
In addition to considering an FTA with the UK, the Minerals Council of Australia recommended the Australian Government devise a strategy for ensuring stability, continuity and certainty in the short term for Australian businesses which have interests in both the UK and the EU.
The Minerals Council’s view is that given that the UK already has relatively open markets, low barriers to trade in many if not most sectors, and a long-established trading and investment relationship with Australia, a two-stage approach might be preferable to early commencement of formal FTA negotiations.
The first stage according to the Minerals Council would involve identifying immediate priorities for Australian business links with the UK that need to be resolved due to Brexit. These priorities could include:
Working in the WTO to facilitate that body’s agreement to UK requests to establish its own schedules of MFN tariffs and other commitments on terms that do not disadvantage Australian exporters.
Resolving Brexit-induced uncertainties about migration regulation which could affect Australian businesses operating or investing in the UK and Australian citizens working or living in the UK.
Supporting policies which allow London and the UK more broadly to continue functioning as an important global financial hub and commercial and business centre.
Ensuring Australian businesses have access to well-regulated capital markets, financial services and commodities trading platforms in both the UK and the EU in the post-Brexit era.
The Mineral Council’s goal of this first stage should be to seek to avoid or minimise any ‘Brexit’-related instability or negative impacts on Australian business and people to people links with the UK.
Representing the pharmaceutical sector, Medicines Australia’s expressed concern about the implications of ‘Brexit’ since a number of its more than 50 member companies have either headquarters located in the UK, or have investments in manufacturing and associated supply chain components.
With the UK’s pending exit from the EU, there is currently substantial international scrutiny of the likely regulatory environment and incentives for large multinationals to remain, many of which are innovative pharmaceutical companies. Given that the UK is in the top ten of Australia’s largest trading partners, any changes that result from Brexit will have a flow on for companies in Australia that have ties to the UK.
The Australian Business in Europe (France), a Paris-based association of companies and professionals with Australian interests, submitted that Australian companies with subsidiaries currently headquartered in the UK will consider setting up in the EU in order to access EU business post ‘Brexit’.
ABIE France considers this an important evolution for Australian business, enabling a better understanding of European know-how, business culture and opportunities.
ABIE France warned of the limitations of a perception held by some Australian companies that “English is the only necessary business language in Europe”.
This significantly limits capability. Australian business must diversify and strengthen its European language and cultural capability in order to unlock opportunities and learning. Australia must recognise that Europe is an important market beyond financial terms. It is a highly sophisticated market offering an important alternative to “Anglo-Saxon” markets. Better engagement is important for the advancement of the Australia’s knowledge economy.
ABIE France outlined that ‘Brexit’ may bring opportunities as “France has advantages which are not well understood by many Australian businesses”.
The perception of France as a difficult place to do business (notably due to distance, time zones and complex employment and tax laws and bureaucracy) overshadows strong reasons why Australian companies are well served to explore opportunities in France.
Australia and France have complementary needs, skills and strengths. France is the world’s fifth largest economy. It has excellent infrastructure and a highly skilled workforce with strong innovation, particularly R&D, capacity. Paris remains one of the cheapest global cities. Certain sectors have tax advantages including favourable conditions for start-ups.
Professor Murray, Dr Matera and Dr Allison-Reumann submitted that there is the “chance that the UK’s exit from the EU will disrupt current business activities in Australia and the UK”, especially since the UK was ranked as one of the four most important markets by Australian businesses that participated in Australia’s International Business Survey 2016.
Approximately 1500 Australian companies are currently active in the UK. Many of these use the UK as a base for continental Europe. In Australia, around one third of all regional headquarters operations are European, and almost half of these are British. As a result of Britain’s exit from the EU, Australian companies may reconsider using the UK as a base or gateway to the EU, shifting their offices to other EU member states such as Ireland. It will be important for both the Australian and UK governments to support businesses that have already invested in the UK – or are actually based there - because they wished to have a springboard into the rest of the EU.
In the case of the WTO, the Minerals Council warns the separation of the UK’s obligations from the current EU schedules of commitments and concessions will require the consensus of interested WTO members that may become the subject of negotiations beyond any required between the UK and the EU.
The Minerals Council believes Australia has a broad interest in facilitating the UK’s unbundling of its WTO commitments to avoid uncertainty about its tariff arrangements and any potential disruption to the rules-based multilateral trading system.
However, the Australian Government will also need to ensure that this process does not disadvantage Australian exporters compared to current arrangements. There may also be opportunities here for improving Australia’s market access to the UK.
The Minerals Council expects the allocation of quotas and subsidies which are currently set on an EU-wide basis, are likely to be an issue of interest to Australia’s agriculture sector.
State and territory governments views on ‘Brexit’
The Government of Victoria warned in the short to medium term, as ‘Brexit’ is negotiated, that negative business and economic sentiment as well as market uncertainty may affect opportunities for Australian and Victorian companies in the UK and Europe. In addition, firms which may have invested in the UK as an access point to the EU may defer investment decisions in the short term and/or consider other EU locations for their investment for certainty of access to the European Single Market.
In the months following the UK’s referendum to leave the EU, the London Victorian Government Business Office had observed a slowdown in the decision making process of new investors looking to expand to Australia.
In an effort to assess the impact and scope of Brexit more thoroughly, companies appear to be pushing back timeframes for potential investments and are increasingly non-committal in their expansion plans. This, compounded by the drop in the pound sterling, is indicative of the current climate of uncertainty across the UK market.
Adding to the uncertain picture following ‘Brexit’ according to the Government of Victoria was the political outlook in Europe, with elections taking place in the Netherlands, France and Germany in 2017, in the context of “increasing protectionist sentiment”.
The Government of Victoria expressed concern at the prospect of the UK falling out of the EU’s regulatory umbrella causing uncertainty in the UK and Europe, including in areas such as medical technologies and pharmaceuticals. Medicines regulation (including authorisation), European conformity (CE) marking (required for instance for the selling of medical devices in the European Economic Area) and the impact on clinical trials, are examples of the kind of detail that will need to be resolved through the ‘Brexit’ process.
Australia and Victoria are well positioned to present as an attractive partner to both EU and the UK firms for global clinical trials should Brexit result in firms needing to look for partners outside of Europe.
Several Victorian companies with a presence/subsidiary in the UK use, or have planned to use, their UK base as a platform for entry to the EU market.
Depending on the outcome and scope of Brexit, the UK's withdrawal could affect their success and/or expansion plans in the region.
The NSW Government has identified a range of risks and also opportunities that the UK’s ‘Brexit’ from the EU may bring.
The NSW Government admitted that ‘Brexit’ has potential to affect NSW's trade and investment interests with both the EU and UK. In 2015, the EU as a whole was ranked the 2nd highest source of foreign direct investment into Australia. NSW's 2015-16 merchandise exports to the EU were three times higher than those to the UK at $1.8 billion.
In a worst case scenario, ‘Brexit’ could result in market instability in the UK and EU, accompanied by capital flight. The risk of this appears lower, however, in light of UK economic performance following the referendum result. The UK economy has proved remarkably resilient. In 2016 the UK economy grew faster than any other G7 economy, buoyed primarily by strong household consumption. In February 2017, the Bank of England raised its GDP growth forecast for the UK from 1.4 per cent (the forecast in November 2016) to 2 per cent. In addition, the UK has reaffirmed it will remain a pro-trade and globally-engaged economy and will secure the freest possible commercial ties with Europe.
While the NSW Government believed the prospect of market instability has receded, there is wide consensus among economists that ‘Brexit’ will result in loss of GDP through reduced trade.
Estimates of the impact vary. The countries of the EU will also suffer losses but to a smaller degree than the UK. Lower overall economic performance will lead to reduced demand for goods and services from NSW.
The NSW Government stated ‘Brexit’s’ impact on financial services will remain unclear until negotiations on the terms of the UK’s departure from the EU are completed.
It is possible Brexit will result in the centre of the European financial services sector shifting to the mainland, notably Frankfurt. Many UK-based financial services firms have begun rebalancing their UK operations towards mainland Europe. This could affect NSW's strong financial services exports to the UK.
The NSW Government also anticipated that Brexit will offer opportunities for the NSW economy.
Uncertainty over Brexit may prompt a rebalancing towards Asia's growth markets, presenting an opportunity for NSW to attract greater investment. Anecdotally, a trend toward rebalancing is already apparent. NSW Trade & Investment reports a marked increase in the number of UK firms connecting with it over the 2016-17 period.
The NSW Government believed because the cultural and historical ties between NSW and the UK are so “deeply-rooted” that NSW is “well-placed to capitalise on opportunities in the UK”.
The largest cohort of overseas-born residents in NSW comes from the UK (approximately 300,000 in 2015). Our system of government and law largely mirrors that of the UK: this, alongside a common language and similar customs, provides UK investors with confidence and familiarity with our market.
In uncertain times, NSW Government believed its stable regulatory and governance environment will also be a boon for UK investors possibly seeking to use NSW as a base to access Asia’s growth markets.
NSW enjoys a AAA sovereign credit rating, and has benefited from a commitment to business-friendly policies: these are reflected in Sydney's consistently high rating for ease of doing business. Moreover, NSW is Australia’s largest and most diverse economy.
Other business attributes of NSW the NSW Government highlighted were its three major seaports (Port Botany, Port Kembla and Newcastle) and Sydney's international airport render “NSW uniquely connected to markets in east, south and west Asia”.
Importance of the UK as a global trading and financial hub
HSBC Bank Australia estimates approximately 1,500 Australian companies are active in the UK, with many using the country as a base for Europe.
We believe the UK will continue to be an attractive destination for Australian investment and will continue to hold many advantages as a location for European regional headquarters, even after Brexit takes effect. London will remain a global financial centre and will continue to be an attractive base for Australian companies for reasons including language, time zone, legal and education systems.
HSBC Bank Australia expected the UK Government’s promotion of infrastructure and renewable energy projects, especially in regional areas, to drive closer collaboration between British and Australian companies and other partnerships.
There is further potential for increased investment by Australian companies as the UK Government intensifies its focus and creates opportunities in areas including infrastructure, the green economy and regional development, including the Northern Powerhouse and Midlands Engine.
The UK is also highly important to Australia’s mineral and resources exporters because of its role as a global trading hub for gold and metals.
The London bullion market facilitates wholesale over-the-counter trading of gold and silver among members of the London Bullion Market Association (LBMA). LBMA members include most gold-holding central banks, private sector investors, mining companies, producers, refiners and fabricators.
The UK is also home to the London Metal Exchange (LME), one of the world’s major centres for trading in industrial metals and provides futures and options contracts for aluminium, copper, lead, nickel, tin, zinc, gold and silver, cobalt and molybdenum.
Beyond these minerals trading hubs, the City of London is one of the world’s most significant financial centres.
Capital market activities and other services provided by UK-based banks, financial firms and financial market institutions are important for globally-focussed businesses such as Australian mining companies. These services include capital raisings and debt issuance and listing on the London Stock Exchange.
The UK’s membership of the European Union has meant that both its own financial services firms and foreign financial services firms based in the UK have been able to provide services and access to the wider European market. This has been through the ‘passporting’ regime whereby financial institutions in an EU member are issued with a ‘passport’ by their home country regulators which authorises them to provide cross-border services or establish branches in other EU member states.
With the UK’s decision to leave the EU, the future of these arrangements remains to be negotiated between the UK Government and the EU as part of the Brexit process. This has created significant uncertainty about the future role of the City of London with some analysts predicting that Brexit may deprive UK-based financial institutions of free access to EU clients and markets, leading these financial services firms to relocate operations from the UK to EU countries.
The Regional Chief Executive Officer of Macquarie Group’s Business in Europe, the Middle East and Africa, Mr David Fass, said how ‘Brexit’ impacts on ‘passporting’ was significant.
…passporting is an important element of what has attracted many people to London. But we have travelled around to visit many of the central bankers and many of the regulators in many of the other 27 jurisdictions over the last year, and we have been made to feel very welcome and that we would be a welcome applicant for a new banking licence or banking licences, whether they be in Ireland or in Paris or in Luxembourg or in Frankfurt or wherever they happen to be. And we are in the process now of trying to figure out which jurisdiction we want to start that application process in and how many people we will need to have in a continental office that will allow us to continue to pursue our businesses there.
Mr Fass said that Macquarie Group have also been talking with the UK Government about what its plans are and what type of dialogue it is involved in with the EU 27.
…we have obviously a very important watching brief over what ultimate decisions are made. But we feel positive about our relationship with the UK and we feel confident that we will be able to establish a similarly strong relationship with the European Union regulators and central bankers in the 27 EU countries post the actual Brexit event, in whatever form that might take.
The Government of Victoria highlighted the potential loss of the UK’s so-called ‘passporting’ rights, which would affect the UK’s attractiveness as a European base for financial services. According to the UK’s Financial Conduct Authority (FCA), with a passport, a financial services entity’s authorisation to do business in one EU member state and under certain EU directives, in the countries of the European Economic Area more broadly is recognised by all member states as an authorisation to do business in their territory as well. This negates the need to obtain separate authorisations from other member states.
According to the FCA, nearly 5,500 companies registered in Britain rely on passporting rights to do business in other European countries.
Australian academic and expert on the EU Single Market, Dr Remy Davison, explained why Britain’s attraction as a destination for foreign direct investment (FDI) and foreign portfolio investment (FPI) may wane after ‘Brexit’.
Its competitive advantages as an FDI host include access to the City of London’s financial markets and services; the regional headquartering of many of the world’s major firms in London; English’s status as an international language; and the fact that the vast majority of commercial contracts are written in English. Advantages that will be diminished by Brexit include the question of access to the EU Single Market; and Britain’s application of the EU’s common market legal regime, which ensures harmonized commercial policies, such as competition policy.
The German Australian Business Council described the UK as Europe’s largest hub for financial services and “all of Australia’s largest financial institutions have operations in London”.
Fewer have operations in other member states of the European Union. The concept of ‘passporting’ under which financial institutions regulated in one EU member state are able to operate in other member states enables these financial institutions to operate freely in other EU member states. Should this freedom be lost, we believe that this would be detrimental to the interests of Australian financial institutions.
The GABC recommends European companies with significant operations in the UK should be able to take advantage of provisions regarding trade and investment between Australia and the UK in a manner similar to domestic British companies.
Agricultural trade with the UK
Agribusiness Australia warned it is clearly too early to determine the implications of ‘Brexit’ for Australian agribusiness with any certainty. However, it argued is reasonable to assume that there will be three major implications of this ‘Brexit’ decision which have potential flow-on effects for Australian agriculture. These are:
Agricultural trade between EU nations and the UK will no longer be free of any tariffs or restrictions.
The movement of people, especially workers, between the UK and the EU will face increased restrictions.
The large subsidy that UK farmers currently receive from the EU each year will cease, but may be at least partly replaced with subsidies from the UK Government.
On a basic analysis by Agribusiness Australia, the UK would no longer be a member of the EU, and agricultural exports from the UK to the EU (predominantly whisky and lamb) would therefore presumably face the same tariff rates that Australian agricultural imports to the EU face. This could result in a reduction in the value of UK agricultural exports to the EU, and a diversion of these exports to other markets.
The UK, meanwhile, would have greater autonomy in being able to set tariff rates on agricultural imports, and according to Agribusiness Australia could conceivably increase tariffs on agricultural imports from the EU to a level equivalent to current EU agricultural tariffs.
This would effectively increase the price of EU agricultural exports to the UK, with the potential result being a loss of market share by EU agricultural exporters, and a possible increase in UK agricultural production (due to increasing agricultural commodity prices), or at least an increase in UK agricultural imports from non-EU sources such as Australia.
With the UK exiting the EU, the National Farmers’ Federation sees some ramifications and significant opportunities for Australian agricultural exporters in the growth of value supply chains.
The NFF recognise that the EU will seek to retain preferential access for products to the UK market post‐Brexit at the current zero tariff rates. If tariffs were reintroduced in the trade between the EU and the UK, this could result in increased emphasis by both the EU and the UK to export agricultural goods to third country markets such as Australia.
The Department of Agriculture and Water Resources stated the exit of the UK from the EU (Brexit) is expected to have little impact on Australia's agricultural trade with the EU and UK until the UK has negotiated new tariff and quota arrangements.
According to the Department of Agriculture and Water Resources, an area of uncertainty for Australian agricultural exporters post-‘Brexit’ is how the current EU WTO import quotas, which include Australian country specific quotas for beef, sheepmeat, sugar, cheese and rice, will be dealt with under Brexit. It is also uncertain what the implications of Brexit will be for Australian exporters who ship product to the UK which then goes to the EU27.
During the Brexit process the department will work with the UK and EU to ensure that Australia's agricultural market access to both markets is maintained and, where possible, improved.
The First Assistant Secretary, Trade and Market Access Division, of the Department of Agriculture and Water Resources, Ms Louise van Meurs, said there are a range of issues that will impact on Australia's capacity to expand its trade and investment opportunities with the UK.
Foremost, the implications of the UK departure from the EU for Australia's agricultural industries are not yet clear and it will depend on any agreement that the UK and the EU reach on the terms of the UK exit and the policies the UK adopts in areas of current UK competence, including tariffs, agricultural policy and food standards…For example, will the existing EU quota be divided between the EU and the UK, or will another approach be adopted?
There are also uncertainties around the current export channels into the UK and the EU. What will be more or less commercially attractive if the UK is no longer part of the EU? This will be particularly important if the UK is faced with tariffs and other barriers to trade with the EU. There is significant intra-EU trade and it is not clear what share of Australian agriculture exports to the UK is consumed domestically and what share is transhipped to other European markets, so the trade flows are unclear.
Australian wine exports to the UK
Accounting for one third of all Australian wine exports, the UK is Australia’s number one export destination by volume with 236 million litres of wine exported in 2016. Australia is the second largest source of wine behind Italy, by volume. The Winemakers’ Federation of Australia warned any changes in the UK market will significantly impact Australia’s wine trade with the UK and the EU. Wine imports into the EU and therefore the UK are subject to import duties.
The UK is Australia’s third largest market for wine and any market developments are of great consequence to our industry profitability. One of the critical issues facing the industry following the decision by the United Kingdom to leave the EU revolves around tariffs.
At the economic level, the world economies are seeing considerable volatility in the global markets and the Winemakers’ Federation of Australia believed this uncertainty could impact consumer and business confidence.
The Winemakers’ Federation argued the only way to minimise disruption to the wine trade was to ensure that in future there is tariff and quota free access for Australian wine into the UK and from the UK to the EU once the UK leaves the EU.
Of the major non-EU wine producers supplying the UK, all but Argentina and New Zealand currently benefit from bilateral wine agreements with the EU, but the terms of the various agreements differ.
Once the UK leaves the EU, these bilateral wine agreements with the EU will no longer apply to the UK market and therefore will need to be either rolled over or replaced by the UK.
While the UK Government cannot formally enter into negotiations with non-EU countries while still it is still a member of the EU, the Winemakers’ Federation believed there is nothing stopping the wine industry doing so, and the Wine and Spirits Trade Association (WSTA) and WFA have already been active on this front. At recent international meetings of the International Federation of Wine and Spirits (FIVS) and the World Wine Trade Group (WWTG), the WSTA has agreed to work with the Australian wine industry and other trading partners’ industry groups to develop model agreements to ensure that the UK exiting the EU does not disrupt the trade flow of wine and spirits into and out of the UK.
Such agreements can then be adopted by Government, secure in the knowledge that the technical standards have been agreed by both importers and exporters.
As a further mechanism to facilitate international trade, the UK should according to the Winemakers’ Federation look to use existing mechanisms wherever possible. For wine, the Winemakers’ Federation believed the WWTG has proved itself to be a successful trade facilitator, which the UK should “join immediately on leaving the EU”.
From an Australian perspective, ensuring UK businesses continue to have access to and to trade into the EU market once the UK leaves the EU is vital. Although the UK is our principal market in Europe, the UK acts as a distribution and production (bottling and packaging) hub for many of our companies selling into mainland Europe.
The Winemakers’ Federation intention will be to assess and monitor the following ‘Brexit’ implications over the coming months:
Impact on demand for Australian wine - from a weakening UK economy and drop in GDP which may result in a reduced demand for wine.
Exchange rate - if the British Pound weakens against the Australian dollar, then the price competitiveness of Australian wine could be impacted depending on currency cross rates and major competitors in the market.
Alcohol and health campaigns - the UK government has taken a stronger anti-alcohol position than the rest of Europe. The UK Chief Medical Officer proposed new alcohol consumption guidelines in 2016 that significantly reduced recommended levels for men. The WFA warns there is a risk, without the balancing aspect of European regulation, that the UK government may take a stronger populist anti-alcohol approach.
Trade agreements - following the exit from the EU, the UK will no longer be subject to the Common Customs Tariffs and any tariffs will be established only after trade agreement negotiations. If no preferential agreement is negotiated with the EU after the exit, then all wine imports will be treated equally. Australia currently has preferential access to the European market due to the 1994 Agreement between Australia and the European Community on Trade in Wine that harmonised winemaking practices as well as protected geographical indications and traditional expressions. The Wine Agreement was renegotiated and signed in Brussels on 1 December 2008 and is a formal international agreement that regulates the trade in wine between Australia and the EU. The 2008 Wine Agreement came into force on 1 September 2010 superseding the 1994 Wine Agreement.
Intellectual property - trade mark owners have sought protection at an EU level rather than State by State. Following the UKs exit from the EU, EU trademark law may no longer apply in the UK and businesses will need to reassess how they protect their marks in the UK and in the EU.
Imports and exports - currently the customs union and free movement principles ensure that most goods are traded and moved between states without tariffs customs duties and customs declarations generally irrespective of origin of goods. It is not clear what changes may occur as the ‘Brexit’ withdrawal proceeds.
Professor Kym Anderson an economist at the Wine Economics Research Centre (WERC) based at the University of Adelaide provided an economic brief ‘How will Brexit affect Australia’s wine exports’ he co-authored with Professor Glyn Wittwer from Victoria University to the inquiry into Australia’s trade with the UK.
The WERC’s Wine Policy Brief No. 17 made the following key points:
For wine markets, the initial impact of the UK leaving the EU Single Market is likely to come not only from tariff changes but also from slowed growth of UK incomes and devaluation of the pound.
Even if the UK were to sign new trade agreements with the WTO, EU27 and others, the time it would take to implement them and for markets to adjust ensures that the initial effects of Brexit on wine markets will be adverse over the next few years, so in this study we project wine market to 2025 assuming in that period only the UK’s WTO commitments are rectified.
WERC’s main modelling scenario suggests the UK consumer price of wine in 2025 will be one-fifth higher in local currency terms than it would be without Brexit, the volume of UK wine consumption will be 28 per cent lower, and the volume and value of UK imports will be one-quarter lower because of Brexit.
Thus even non-EU wine-exporters will sell less wine into the UK in 2025 because of Brexit.
Global wine trade in 2025 will be less by 240 million litres (1.9 per cent) or $1.8 billion (3.5 per cent) thanks to Brexit.
Australia’s wine exports to the UK in 2025 under Brexit will be 4 million litres (2.5 per cent) less, and the volume and value of its global exports of wine will be, respectively, 1 per cent and 3 per cent less.
Australia can respond by seeking an Australia-UK FTA, but probably would not want to finalize it before the UK settles on its new trade commitments with the WTO membership and then with the EU27, and probably also not before the Australia-EU trade negotiations that began in November 2015 are completed.
In the meantime, Australia should negotiate with the UK for an equivalent (or better) of the 2008 Wine Agreement it has with the EU28 on technical matters, and should encourage the UK to join the World Wine Trade Group.
Professors Anderson and Wittwer concluded in their Wine Policy Brief No. 17 from various economic modellings that Brexit will be costly to UK consumers of wine and of many other products assuming the UK initially “adopts the same tariff schedule in the WTO as the EU and that it takes several years before the uncertainly associated with the UK’s forthcoming trade arrangements with the EU27 and other trading partners is reduced”.
In the ‘large’ Brexit scenario, the volume of wine consumed in the UK in 2025 will be lower by more than one-quarter, and even in the ‘small’ scenario it will be lower by one-sixth. That will be a blow to many participants in UK wine bottling, transporting, storing, wholesaling and retailing businesses, in addition to restaurants and pubs.
Wine Policy Brief No. 17 expected wine consumers in countries other than the UK to be slightly better off during the Brexit transition, but only to the extent of an average reduction of 1.6 per cent in the local currency price of the wines they purchase and an expansion of around 1.0 per cent in the volume of wine they would consume in 2025 in the ‘large’ Brexit scenario (or about half those magnitudes in the ‘small’ Brexit case).
Overall, worldwide wine production and consumption are slightly less under the ‘large’ and ‘small’ Brexit scenarios…as one should expect with a rise in protectionism: gains to non-UK consumers are more than outweighed by losses to UK consumers and non-UK producers unless and until new trading relationships between the UK and major wine-exporting countries are agreed and implemented.
Of course Professors Anderson and Wittwer stressed the above Brexit simulations were just two of many scenarios that could be explored, and they relate only to the beginning of the Brexit transition.
Once commitments with the WTO membership are settled the UK will seek a free trade agreement (FTA) if not a customs union with the EU27, and then look to conclude FTAs with other trading partners including Australia but also Chile and South Africa. Even if the UK were able to sign new FTAs, get them ratified (with 27 national and several regional parliaments in the case of EU27), and begin implementing them before 2025, however, it would make very little difference to the above ‘large’ or ‘small’ scenario results (since wine tariffs are a minor contributor to them) unless those FTAs were to reverse before 2025 our assumed downturns in UK economic growth and the value of the pound.
The Wine Economics Research Centre recommended in its Wine Policy Brief No. 17 that Australia finalise the Australia-EU FTA before concluding an FTA with the UK.
2008 wine agreement between Australia and the EU
The Winemakers’ Federation highlighted the significant advantages from the 2008 Wine Agreement for Australian wine producers and exporters because all Australian winemaking techniques were now accepted.
There are much simpler requirements covering everything from labelling and blending rules to alcohol levels. Australian wine producers benefit from fewer changes and concessions to sell their wine in the EU.
The major benefits for Australian wine producers included:
European recognition of Australian winemaking techniques;
Simplified arrangements for the approval of winemaking techniques that may be developed in the future;
Simplified labelling requirements for Australian wine sold in European markets. Protection within Europe of Australia’s registered geographical indications (GIs);
Simplified certification requirements for Australian bottled wines entering European customs.
However, when the UK exits from the EU, the Winemakers’ Federation expects this agreement may no longer apply and may need to be renegotiated. The Winemakers’ Federation believes this may have a number of important implications.
First, the Wine Agreement overrides EU regulations, giving Australian exporters the advantages outlined above. If the UK merely adopts European wine law as it currently exists on their statute books, then these advantageous provisions will no longer apply. Second, many exporters send wine to the UK where it is then re-exported to other European countries. There is also a lot of wine that is currently exported in bulk to the UK, bottled and exported throughout Europe.
The Winemakers’ Federation outlined these transactions currently fall under the Wine Agreement and single market provisions of Europe.
The exit of the UK will require negotiations with both the EU and the UK to reduce transactional costs that may arise.
Transporting Australian wine within the UK and the EU Customs Union
The EU Customs Union provides a single mechanism for goods to enter and leave the territory of the EU and, once within the EU, allows goods to freely circulate on the basis of a single system. Although excise duties are levied nationally, the Excise Movement Control System (EMCS), which monitors the holding and movement of EU trade, is communal. Ideally, the UK will continue to have access to the EMCS in order to facilitate movements around the EU.
Whatever the basis of the UK’s trading relationship with the EU, the UK according to the Winemakers’ Federation will need clear, workable and well-tested mechanisms in place to enable cross-border trade from the moment of leaving the EU.
This may require the UK to introduce a customs border with the EU, with commensurate demand on IT and systems to check vehicles without undue delay.
However, on the plus side the Winemakers’ Federation believes, if the UK leaves the Customs Union then there may be opportunities to create a more integrated system which would also counter illicit trade and therefore reduce the requirement for controls further down the supply chain.
This might include moving away from traditional distinctions between “customs” and “excise” regimes, reviewing the need for guarantees for movements between trusted traders and greater reliance on self-assessment. The innovative use of technology such as QR codes and data sharing with HM Revenue and Customs will be central to this.
Red meat exports to the UK
‘Brexit’ provides an unprecedented opportunity for the Australian red meat industry to enhance its trading relationship with the UK.
Capitalising on import reform opportunities in a timely manner (i.e. a re-examination of the previously mentioned EU access arrangements) will help position the Australian red meat industry for more competitive access and set up an advantageous trading regime for years to come.
The decision to depart the EU will require the UK to develop a trading regime incorporating its own World Trade Organization (WTO) tariff schedule as well as adjusting its bilateral relations accordingly.
In both instances, a more liberalised UK import regime than is currently in place, would deliver substantial advantages not only to the Australian red meat industry but to UK importers, wholesalers, distributors, foodservice and retail operators as well as consumers – all of whom value Australia’s beef and sheepmeat products for their consistent and predictable quality.
The International Meat Trade Association (IMTA) in the UK, which represents British importers and exporters of beef, lamb, pork and poultry-meat who are predominantly based in the UK want continued access for Australian red meat into the UK at the same quantities during the ‘Brexit’ negotiations.
Many of IMTA members import beef and lamb from Australia. In terms of ‘Brexit’ the IMTA membership want at least the same volume and equivalent (duty reduced) access to import supplies as they currently have but “foresee opportunities for improved access within free trade deals”.
Our members would be very supportive of a UK-Australia free trade deal as they have been of the prospective EU-Australia free trade deal. There would be hope that a deal could be reached between the two parties relatively swiftly. We would not want to see any gap in access to imported supplies.
Despite ‘Brexit’, the IMTA membership are seeking the continued ability to import Australian red meat into EU ports such as Rotterdam or Hamburg and freely distribute cuts to the UK and also to other EU member states as a desired outcome for the IMTA.
…but there is concern about whether this will still be possible.
The IMTA was aware of some US meat exporters having also voiced their frustration at the use of the grainfed quota by other participating countries.
Many of our importers have been able to benefit from the growth of the market in the UK for grainfed beef and would not want to see this access lost.
With the UK being an importer of high quality food products, Australia’s red meat industry is ideally positioned to help meet future demand, providing the construct of the import regime is similarly supportive. Australia’s red meat industry’s aim is to continue to provide the UK with the choice of a range of superior imported beef, veal, lamb, mutton and goat meat products - via helping to fill a portion of the gap between UK domestic red meat production and projected consumer consumption requirements.
Australian red meat industry stated its priorities for enhanced trade into the UK therefore include:
facilitation of access to ensure existing trade to the UK continues in light of the disruptive political environment;
securing more liberalised access as the UK constructs its new post-Brexit import regime; and
advocating the swift commencement of an Australia-UK Free Trade Agreement (FTA) in order to procure long-term preferential access - which would be a substantial improvement on the current punitive arrangements.
Restoration of Australian sugar exports to the UK
Pending the terms of the UK’s exit from the EU and any new trade agreement that might be negotiated between Australia and the UK, the UK leaving the EU provides a significant opportunity according to the Australian Sugar Industry Alliance for the Australian sugar sector to renew historical trade arrangements supplying raw sugar to the UK refinery unrestricted by tariffs or quotas.
The impact of the UK’s exit from the EU will depend on the form this exit takes. But assuming the UK takes control over its trade and agricultural policies, it can be assumed that the UK sugar regime will be more open to raw cane sugar than the EU has traditionally been.
Historically, the UK sugar market has been more open to raw cane sugar than the rest of the EU primarily because the UK has not favoured beet sugar production over cane sugar production. With sugar beet grown in 19 EU member countries, the Common Agricultural Policy (CAP) includes a Europe‐wide sugar policy that favours beet sugar production over refined raw cane sugar production. The Australian Sugar Industry Alliance stated that the UK had consistently argued for a more balanced sugar regime in the EU that puts cane sugar and beet sugar on an equal footing.
Working with Tate & Lyle Sugars, the ASA sees real opportunity for the Australia sugar industry sector following the UK’s exit from the EU. Despite Tate & Lyle Sugar’s import demand for Australian raw sugar, current trade restrictions are “severely limiting UK as a gateway to EU markets”.
Agribusiness Australia argued industry data shows that many Australian firms favour trade with the UK due to institutional, historic and cultural proximity; even though many mainly use UK operations as a gateway into the EU Single Market.
It is therefore arguable that the EU will not be as attractive to Australian exporters without Britain in it. However, the scale and nature of the UK market could well be insufficient for the UK to remain attractive to Australian firms without this gateway function.
Agribusiness Australia believed Brexit will inevitably result in greater complexity with different tariffs, quotas, and non-tariff barrier reductions. It warned this may result in diversion of trade and investment into other EU member countries.
Alternatively, some Australian firms may choose to do trade either with the UK or the EU, instead of using the UK as a gateway into continental Europe, as they have traditionally.
This will ultimately result in reduced market access and scale; and consequent return on investment issues, and a reduction of outward trade and investment with the UK, rather than the EU.
Market access for minerals and energy
The arrangements that will apply for accessing the UK market following ‘Brexit’ are uncertain, but the Minerals Council stated the UK Government’s intention is to replicate the EU’s existing Most Favoured Nation (MFN) commitments in the form of UK schedules to relevant WTO agreements.
Given Australia does not yet have an FTA with the EU, the EU’s MFN tariff commitments are the most likely starting point for any Australia-UK FTA negotiation. However, if Australia and the EU finalise an FTA before Brexit, this could set a new benchmark given the UK Government’s desire for continuity in trading relationships with third countries covered by EU preferential arrangements.
Market access barriers for minerals and energy products are relatively low under the EU’s existing common external tariff. The EU applies zero tariffs on imports of many of the major minerals commodities which Australia produces. The EU’s MFN applied tariffs on iron ores and concentrates, coal, gold, liquefied natural gas, aluminium ores and concentrates, crude petroleum, copper ores and concentrates, and pearls, for example, are zero. However, there are a number of minerals products where the EU does impose tariffs ranging from around 2 to around 10 per cent. Tariffs at the higher end of this range are imposed on basic metals manufactures such as aluminium, ferro-alloys and a number of base metals such as titanium, zirconium and antimony.
While most of these products are not sizeable Australian exports to European countries, the Australian Government should seek the removal of these tariffs in FTAs with the EU and the UK. The EU has cut tariffs on these products to zero in the vast majority of tariff lines in almost all of its FTAs and other preferential trading arrangements with partner countries such as South Africa, Chile, Peru, Mexico, Korea and Turkey.
Regulation of dental products and medical devices
The Australian Dental Industry Association (ADIA) and the British Dental Industry Association (BDIA), which represent dental product manufacturers and suppliers in their respective countries, jointly submitted their concerns about the impact of regulatory changes to the medical devices sector outside of the EU.
As the medical devices sector is highly regulated the possible implications for Australia’s trade and investment relationships with the UK following the latter’s departure from the European Union (EU) will rely upon the development of the UK’s medical device regulatory system.
Brexit offers no new opportunities for enhanced trade and investment between Australia and the EU. There is the very real risk for there to be an increase in the technical barriers to trade that a future UK–Australia Free Trade Agreement may not be able to mitigate.
In Australia the Therapeutic Goods Administration (TGA) is Australia's regulatory authority for medical devices.
The TGA carries out a range of assessment and monitoring activities to ensure therapeutic goods available in Australia are of an acceptable standard with the aim of ensuring that the Australian community has access, within a reasonable time, to therapeutic advances.
The TGA’s subordinate regulations are to a large extent based upon the EU’s regulatory arrangements but Australia has complete jurisdictional autonomy over the regulatory standards that govern design, safety, supply and conformance testing of medical devices.
Although there are attempts to align, to the maximum extent possible, Australia’s regulatory standards with those of the EU this doesn’t always occur… Australia accepts attestations of conformity including test reports, certificates, authorisations and marks of conformity as required by legislation and regulations issued by certification bodies designated (in the context of the EU’s regulatory framework) in the EU.
In the UK it is the Medicines and Healthcare products Regulatory Agency (MHRA) that regulates medicines, medical devices and blood components for transfusion. At this point in time, the UK’s regulatory system is fully integrated with that of the EU with the MHRA presently obligated to adopt EU Medical Device Directives.
As a result of the UK regulatory system being fully integrated within the EU’s, and Australia’s regulatory system and conformity assessment system being based upon that of the EU, trade in dental products between Australia and the UK is relatively straight-forward. If there is a hard Brexit, this will be jeopardised as Australian market access to the UK may be made difficult as a result of potential differences between the medical device regulatory frameworks in Australia, the UK and the EU.
The ideal perspective from the position of the dental industry, according to associations in both Australia and the UK, would be for UK certification bodies to be still recognised in the EU.
A scenario where the UK developed its own medical device regulatory framework post-Brexit would be the worst-case scenario for Australia–UK trade. It would require Australian manufacturers to meet UK regulatory requirements without gaining access to the EU; however, this risk for UK dental product manufacturers is likely to be mitigated as it is believed they will seek to meet EU regulatory frameworks.
Highlighting the uncertainty ahead and the potential for a proposed UK–Australia Free Trade Agreement to support the trade in dental products, and medical devices more generally, is difficult to assess by both associations without confirmation of the UK’s regulatory system post-Brexit.
Education and research services
The Department of Education and Training submitted that it is “not anticipated that the UK’s decision to leave the EU will have a significant impact on the education and research relationship between Australia and the UK”.
Nonetheless, through the National Strategy and in collaboration with the Council for International Education, DET will continue to scan the geo-political environment to identify opportunities to expand bilateral education and research cooperation with the UK over the long-term.
But Universities Australia (UA) warned the UK’s 2016 decision to exit the EU will be likely to modify the nature of Australia’s relationship with both the UK and the EU.
However, both regions are highly valued partners for Australia’s universities and it’s important that policy makers work to ensure that the necessary framework is in place to allow continued and enhanced growth in academic and research collaboration, and student mobility, between our regions.
Professor Murray, Dr Matera and Dr Allison-Reumann called for discussions between governments regarding the ease of movement of academics, scientists, researchers and students.
The Australian Government would be advised to work closely with the Australian university sector and seek to deepen exchange arrangements and agreements for students in tertiary education.
Universities Australia also submitted that the uncertainty over ‘Brexit’ may impact on access to EU funding for Australian researchers with links to UK researchers.
The decision to leave the EU has created a degree of uncertainty for higher education and research collaboration between Australia and the UK as much of Australia’s access to European research and research funding is leveraged through collaborations in the UK under EU programs such as the flagship research program, Horizon 2020. Horizon 2020 is the biggest EU Research and Innovation program ever, with nearly €80 billion of funding available over seven years (2014 to 2020). Under Horizon 2020, the UK is ranked first in terms of its share of total participations and second in terms of its share of total funding received (receiving 15.3 per cent of total funding). As a major research partner for Australia, any adverse outcomes for the UK in relation to its participation in programs like Horizon 2020 have the potential for flow on implications for Australian research partners. This is not to say that new opportunities won’t present themselves.
UA noted that the UK Government had allocated £4.7 billion to enhance the UK’s position as a world leader in science and innovation.
The Government of Victoria hoped Australia may become a more attractive destination for students from the UK and EU as a result of ‘Brexit’. Currently, there is great student mobility within the EU and Australia can be an expensive choice by comparison.
Post-Brexit, UK and EU students could face higher tuition fees, stricter student visa requirements and mobility issues (currently covered by the Erasmus mobility program), which may mean that Australia is a more realistic option for a new stream of fee-paying students.
According to the Government of Victoria there are also concerns within the UK about the potential loss of EU funding for researchers, however this will remain uncertain until the outcomes of Brexit are known. Depending on how this issue plays out, the UK's incoming talent and industry engagement may be impacted, and there are also potential consequences for research partnerships between institutions.
These are all areas of opportunity for Victoria to expand and enhance relationships and programs with the UK and EU. In addition, where EU links provided preferential access for the UK to other EU institutions or partners, it is possible that Brexit could provide new opportunities for Australian research collaborations with the UK.
Academic expert on the EU Single Market, Dr Remy Davison, noted the UK Government has attempted to eliminate uncertainty and instability surrounding its legal regime via the transposition of the bulk of EU law via the ‘Great Repeal Bill’ (GRB) entering into British law after the UK formally departs the EU.
However, very little is currently known about the composition of the GRB, and the transition will be affected significantly by the degree to which the UK commercial legal regime remains harmonized with that of the common market law regime administered within the EU by the ECJ and the General Court.
Although English law has been the law of choice underpinning much of transnational trade and investment, according to the Law Council of Australia, ‘Brexit’ will likely increase the need for advice covering Australian, English and third country law.
For example, Australian lawyers can, working together with UK lawyers currently assist clients to set up companies in the UK. Such companies can currently trade without unnecessarily restrictive barriers in the European Union (EU) single market.
Australian lawyers are also presently able to work with UK lawyers to assist Australian companies based and operating in the EU, even though company law has never been harmonized in the EU. This is possible because the single market allows limited companies to be set up under the laws of England and Wales even if they are based, for example, in Germany, France or Italy.
The wider impact of ‘Brexit’ - including immediate uncertainty about its consequences for the UK, continental Europe and global trading partners - is likely to significantly alter the regulatory landscape for international businesses operating in the UK and Europe.
In effect, the Brexit process has introduced new risks that must be evaluated and effectively dealt with to keep current business arrangements on foot and to support new ventures. The continued availability of legal services covering the laws of multiple jurisdictions will be absolutely essential if these risks are to be managed effectively by businesses.
It is therefore a concern to the Law Council that, as a consequence of ‘Brexit’, Australian lawyers may no longer be in a position to recommend that their clients set up in the UK under the laws of England & Wales.
This would be due to uncertainties about post-Brexit trading rules and potentially substantial tariff structures when seeking to trading with the EU and its 440,000,000 consumers.
In the face of this uncertainty, and in order to effectively respond to whatever new trade and investment relationships are created post-Brexit, it is more important than ever that clients continue to have access to high quality legal services covering the laws of multiple jurisdictions.
The ‘Brexit’ decision also creates broader uncertainty about the future of the UK’s commercial law regime, according to the Minerals Council of Australia. Brexit raises questions about the UK’s application of the EU’s common market legal regime which ensures harmonized commercial policies in areas such as competition law, resulting in a period of commercial uncertainty particularly in relation to cross-border or international transactions.
These issues and uncertainties have the potential to disadvantage Australian businesses with direct or indirect exposure to UK financial services, capital markets and broader business law and regulation.
Immigration and visas for the UK
British Home Secretary Rt Hon Amber Rudd MP has publicly stated that Australia should not expect any special treatment in regards to Australians wanting visas to work in the UK. DFAT stated the Australian Government would continue to advocate strongly for the UK to maintain favourable terms for Australians wanting to live and work in the UK.
Given the strong people-to-people links between Australia and the UK and the significant contribution made by Australian workers to UK’s economic growth, we would be disappointed and concerned by more restrictive conditions for Australian workers and visa holders.
The Minerals Council has warned that changes to who UK visas are issued to loomed as an important issue and one of the uncertainties created by ‘Brexit’ which have the potential to impact Australian businesses, including mining companies, directly or indirectly.
These include any tightening of migration provisions or work rights in the UK for EU citizens or citizens of third countries in the UK.
Any tightening of visas will be of concern to a number of Australian mining companies have direct presences in the UK both in terms of corporate offices and interests in operational facilities.
The ability to engage or transfer Australian employees and, indeed, employees of other nationalities to those UK-based operations is important, particularly in the case of senior executives and employees with specialised skills and qualifications. So is the ability to engage UK employees who can be transferred or assigned to work in other EU nations and EU nationals who can work in the UK.
Australia’s High Commissioner to the UK, the Hon. Alexander Downer AC, indicated to The Independent newspaper on 21 January 2017 that Australia wishes to see greater access for its business executives to the UK as part of any free trade deal.
The Minerals Council agrees that streamlined migration arrangements and better access for key Australian personnel to work in the UK should be part of any Australia-UK FTA negotiation.
Professor Murray, Dr Matera and Dr Allison-Reumann highlight the question of immigration is shaping up as a difficult area of negotiation with Australia diplomats wanting greater access for Australian businesspeople working in the UK before agreeing on an FTA likely to be at odds with the British Government’s determination to include controlled immigration as part of its ‘Brexit’ negotiations.
In the immediate period, the Minerals Council believed it will be also important for the Australian Government to also take steps to ensure that existing arrangements and flexibilities, not only for movement of people between Australia and the UK but also between the UK and the EU, are retained following ‘Brexit’ so Australian businesses and investors in the UK and the EU are not adversely impacted by changes to migration rules.
Immigration Solutions Lawyers submitted the uncertainty regarding migration policy in the lead up to and in wake of ‘Brexit’ may result in an “increased interest in Australian immigration as UK passport holders turn their attention to Australia from Europe”.
In this context, it will be essential for Australian immigration policy to strike the right balance between maintaining mutually beneficial schemes with the UK and ensuring that migration to Australia helps facilitate economic growth and increased trade and investment opportunities.
The Government of Victoria described the UK as a key competing migration destination while also being a source of high calibre overseas talent for Victoria. Market research shows that economic and political push factors such as ‘Brexit’ result in tangible shifts in migration patterns for high calibre talent and entrepreneurs.
The economic uncertainty and potential migration barriers associated with the planned Brexit present an opportunity for Victoria to attract a greater number of highly skilled talent and entrepreneurs from both the UK (as British nationals consider relocation) and from the UK’s source countries (as barriers to enter the UK increase).
The Northern Territory Government has in recent years been active in promoting the Territory to potential employees in the UK across many sectors as it sought to fill workplace shortages.
It is considered that both the period leading up to and post Brexit could see an upsurge in interest regarding UK migration to Australia, and we would welcome an opportunity to work with the Federal Government to capitalise on this.
Considering the perceived impact of the free movement of people within the EU to work and live in the UK was a major consideration in the ‘Brexit’ referendum decision, Trade and Investment Queensland warned that changes to visa restrictions on Australians seeking work in the UK may continue. However, it believed the growth in the service sector provides positive prospects, if Australians can get “reasonable access to the market through freeing up of skilled visa requirements”.
With significantly increasing export in services from Australia to UK, movement of people is likely to be a critical element of a bilateral FTA. This could present a challenge for Queensland service exporters to the UK.
The UK’s pending departure from the European Union – ‘Brexit’ – poses uncertainty in terms of Australia’s trade relations with Britain and where potential new opportunities ‘Brexit’ may create are concerned.
Negotiating ‘Brexit’ also poses challenges for Australia’s trade relationships with the EU, given Australia and the EU have commenced a process to explore the negotiation of an Australia-EU Free Trade Agreement.
Article 50 of the Lisbon Treaty, which provides the legal framework for ‘Brexit’, was triggered by the UK in March 2017. This provides for two years for the UK’s exit from the EU to be negotiated. This deadline, according to evidence received by the Committee, may be extended – possibly more than once.
Australia will not know the implications of ‘Brexit’ until this UK-EU negotiation is finalised. Should Brexit occur without an agreement – a “hard Brexit” – the UK will not retain access to the EU Common Market or Customs Union.
The UK is prohibited, under Article 50, from negotiating trade deals with third party countries (such as Australia) until Brexit takes effect.
Agricultural issues – particularly concerning Ireland, the largest EU supplier of beef and dairy goods to the UK – are likely to be pivotal to the complexion of any UK-EU settlement and to later trade arrangements made by the UK with third party countries.
EU farm subsidies, which contribute up to 50 per cent of farm income – and what the UK replaces these with after Brexit – are a further potential obstacle to future trade between Australia and the UK.
There is no guarantee that markets for products currently restricted by EU tariffs and quotas – especially beef, dairy, wine, rice and sugar – will be more open to Australian exporters once the UK has left the EU.
Evidence to the Committee suggested the UK may simply revert to World Trade Organization rules rather than negotiate specific bilateral or multilateral trade deals, raising further uncertainty over the shape of Australia’s future trade dealings with the UK – particularly in these contested markets.