The Free Trade Agreement between Australia and the United Kingdom of Great Britain and Northern Ireland (AUKFTA) is a comprehensive and modern free trade agreement (FTA). Extending to 32 chapters, it tackles both traditional FTA concerns while incorporating a range of wider social and economic principles to be supported, with mechanisms for further cooperation on those matters in new areas, preserving at the same time policy and regulatory space for Parties in rapidly evolving sectors such as digital trade and financial services.
In many respects the AUKFTA closely follows the most significant trade agreement recently negotiated by Australia, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, in several instances it goes beyond the CPTPP, particularly in terms of specifying requirements for domestic legislation, regulation or processes in a number of chapters including trade in services, financial services, investment, digital trade, and competition and consumer protection.
This reflects that the AUKFTA is an agreement between two countries with robust legislative and regulatory systems running the full spectrum of public policy, providing the basis for specific legislative and regulatory measures as required. It is significant that there would be minimal legislative change required by Australia to comply with obligations in the AUKFTA.
Some aspects of the AUKFTA are notable: it contains relatively novel chapters dealing with development equity, trade and gender equality, and animal welfare, providing the opportunity to cooperate with a likeminded partner to progress these important policy areas.
The AUKFTA would also contribute to diversifying Australia’s trade. And, as noted by the Department of Foreign Affairs and Trade (DFAT), negotiating bilateral agreements that contain new requirements for liberalisation, and legislative and regulatory systems puts pressure on the multilateral system to further liberalise and broaden the range of issues with which the multilateral system engages.
The following section discusses some key issues in the AUKFTA, before the chapter revisits two cross-cutting matters discussed in Chapter 2 of this report: independent economic impact assessments and the substance of consultation. These are long-running issues about which the Committee has taken a substantial and sustained interest in the past.
Key outcomes in the AUKFTA
The tariff outcomes for Australian products in the AUKFTA are generally positive. The United Kingdom (UK) has moved to protect its beef and sheep meat producers with product specific safeguards, but this would not likely to have a significant impact on Australian exporters of those products because of the small quantity of those exports to the UK at present. Australian beef and sheep meat exporters were inclined to view the UK is a destination of high quality product, rather than bulk meat exports.
While the benefits of tariff reductions on Australian wine exports could be partially offset by an increase in the UK tax on high alcohol wines, the wine industry noted that this would impact all wine in this class.
There was some discussion during public hearings concerning the capacity of Australian industry generally to make use of the benefits of tariff reductions in the AUKFTA, and participants identified investment and the availability of workers as the greatest constraints on increased capacity.
Regulation of trade in goods
Chapters 3 to 7 of the AUKFTA would establish a regime for the regulation of trade in goods between Australia and the UK that is broadly consistent with World Trade Organization and CPTPP standards. There are small matters of difference, such as the bilateral safeguards measures, the differences in approach to assessing sanitary and phytosanitary risk, and the impact of the UK’s approach to geographical indications as a result of its withdrawal from the European Union. However, contributors to the inquiry did not identify significant concerns in relation to these matters.
In relation to services and investment, the AUKFTA represents a satisfactory balance between open, non-discriminatory treatment of service providers and investors from each Party, and the protection of and ability to extend regulation where each Party’s government believes there is a public interest to protect.
Noting there was some criticism of Australia’s regulatory approach to authorised deposit taking institutions in relation to the financial services chapter, the Committee believes Australia’s prudential regulatory approach has proven robust in times of international financial crisis and has wide public support in Australia. The Committee notes the AUKFTA specifically protects Australia’s regulatory environment, and the Committee supports this outcome.
The Committee also approves of the mechanisms used to reconcile the different approaches each Party has to personal data protection in the digital environment. While ensuring there are no arbitrary limitations placed on the cross-border transfer of information by electronic means, the digital trade chapter leaves space for Parties to regulate to achieve legitimate public policy objectives.
Other services matters and other substantive commitments
Chapter 6 of the report discussed an extensive range of AUKFTA chapters ranging from professional services, temporary entry for business persons and telecommunications, to intellectual property (IP), government procurement and innovation, amongst others. This chapter illustrates the breadth and scope of modern trade agreements.
The Committee recognises that some of the AUKFTA chapters covered here have brought into relief a series of issues that are broader in scope than the AUKFTA itself, notably how best to balance workforce shortages with the need train Australians for rewarding careers, and how to protect IP while encouraging innovation and enabling all people to share the benefits of that innovation.
In particular, the Committee notes while there are provisions in the AUKFTA intended to address labour shortages in agriculture, these provisions are, given the scale of the shortage of farm labour, necessarily only part of a much bigger effort on the part of the Australian Government to address this problem.
As with other trade agreements considered by the Committee in recent years, there was significant interest by stakeholders in the question of temporary foreign labour access arrangements, both with respect to the balanced management of workforce shortages (as opposed to the prospect of under-cutting local opportunities and conditions), and with respect to the question of appropriate skills assessment and other requirements.
On that basis, as noted at paragraph 6.190, the Committee believes there is value in tracking and assessing the outcomes with respect to temporary foreign labour access that have occurred under trade agreements settled in recent years, with particular reference to outcomes within the contractual service supplier category, and will seek an opportunity for the consideration of that data in 2023.
A significant outcome of the AUKFTA according to the Australian Government is commitments to advance Indigenous interests and delivering new opportunities for Indigenous exporters.
Provisions to advance Indigenous interests include reciprocal arrangements which would ensure royalties are paid to Australian artists where their work is resold in the UK of which the highest proportion of eligible resales occur among Indigenous art wholesalers.
Further provisions relating to Indigenous trade include commitments from the UK to recognise the importance of genetic resources, traditional knowledge, and cultural expression. This includes a commitment for both Parties to work with the World Intellectual Property Organization with respect to protection of traditional knowledge.
DFAT explained these provisions at the hearing on 20 September 2022:
… we've undertaken to make all reasonable efforts to join The Hague Agreement Concerning the International Deposit of Industrial Designs, which will ensure greater design protection, including for Indigenous fashion, decorative and industrial designers. We've also agreed to implement reciprocal arrangements to provide for royalties to be paid for Australian artists on resale in each other's art market. That's particularly important for Indigenous artists. Indigenous artists are one of the biggest uptake markets for artists' resale rights in Australia, so we believe that will be of benefit for Australian artists in the United Kingdom. We've also agreed to recognise the importance of genetic resources, traditional knowledge and traditional cultural expression …
At the same time, we do have specific exceptions to preserve Indigenous interests, including a broad carve-out in investment and cross-border trading services disciplines, as well as under our procurement commitments. There is a broad carve-out for Indigenous business.
Notably, the majority of these provisions pertain to art and not other Indigenous businesses. Such provisions could have been included under an Indigenous inclusion chapter which this agreement does not contain.
Like the chapter that precedes it, the chapter of this report dealing with other commitments (Chapter 7) is broad and addresses a range of issues of global importance such as the environment, development, and antimicrobial resistance. This chapter of the report also discussed some of the innovative and future-reaching chapters and provisions of the AUKFTA, such as those dealing with gender equality, animal welfare and modern slavery.
The Committee notes the views of participants in the inquiry with regard to enforcement of the labour provisions. While FTAs can be an important avenue for raising labour standards, countries like Australia and the UK enjoy high labour standards and have robustly enforced domestic labour laws. Importantly, the AUKFTA recognises the sovereign right of both countries to establish and enforce their own labour laws.
Possible extension of the AUKFTA
In Chapter 2 of this report, provisions in the AUKFTA that provide for its possible future extension to territories for whose international relations the UK is responsible, were discussed. The Committee notes that some of the territories to which territorial extension may be provided have been identified as significant international tax havens.
Chapter 2 of this report also discussed the request from the UK through side letters, and Australia’s agreement, to enter into discussions as soon as practicable on extending the provisions of the AUKFTA relating to trade in services and investment to Gibraltar, the Bailiwicks of Guernsey and Jersey, and the Isle of Man. The Committee is concerned to ensure any territorial extension of provisions in the AUKFTA does not facilitate taxation base erosion and profit shifting. The Committee is of the view that territorial extensions should be treated as amendments to the AUKFTA and be subject to an inquiry by the Committee.
In 2021, the Committee undertook an inquiry into strengthening the trade agreement and treaty-making process in Australia (Report 193). During this inquiry, it examined a number of issues, including: the need for independent economic impact analyses of trade agreements, and the substance of the consultation undertaken by DFAT during the negotiation process.
Independent economic modelling
As the Committee noted in Report 193, accurately modelling a modern trade agreement can be difficult, given they cover not only tariffs but a range of broader areas including non-tariff barriers, IP, the movement of natural persons, investment and the environment. The Committee has also found in other inquiries that modelling of trade agreements in the past has been overly optimistic.
Nevertheless, the Committee heard during its inquiry into the AUKFTA that DFAT continues to assess, for internal use, the trade agreements it negotiates, and its Chief Economist was able to review the UK economic impact analysis and found the UK’s model was robust and its findings reliable.
Notwithstanding the existence of economic modelling, DFAT urged the Committee to assess the likely economic impact of the agreement by examining the sectoral impact, pointing to tariff liberalisation in agriculture. Rather than examining the macro impact of trade agreements, ‘which might appear small’, DFAT stated, ‘what is important is the sectoral impact’.
However, this suggested approach is at risk of confusing sectoral opportunities with a careful assessment of the broad likely economic impact. It is far from clear when examining schedules of tariff reductions or commitments on services liberalisation whether Australian exporters are actually in the position to take advantage of trade liberalisation opportunities, or even if opportunities would eventuate in a competitive international environment. Liberalisation in services, for instance, does not guarantee Australian service providers would be successful in breaking into and competing successfully in new markets.
The Committee is encouraged to see commitments in side letters to the AUKFTA in relation to the exchange of data on trade in goods. Data collected and exchanged between the Parties should be made public, and the Committee believes future trade agreements negotiated by Australia should contain this provision. Further, any such data collection should be extended to services, given their increasing importance in the global economy.
Notwithstanding this innovation, the Committee remains of the view that to properly scrutinise a trade agreement, an independent economic impact analysis must accompany the National Interest Analysis and Regulation Impact Statement. This was a recommendation of Report 193 where while acknowledging the limitations inherent in economic analysis of trade agreements, the Committee stated independent economic analysis would reveal the basis of the economic gains and identify other forms of impact expected to flow from a trade agreement, which should form an important consideration.
The Committee further noted in Report 193 that independent economic modelling can function to increase public confidence in the benefits of trade agreements. It remains of this view.
Accordingly, the Committee makes a recommendation with regard to the implementation of the recommendations of Report 193.
The substance and quality of the consultation process around trade agreements has been a consistent theme of the Committee’s work over many years. Consultation should be timely, meaningful, and responsive. There is evidence that this has not been the case in Australian trade agreement making, especially when compared to the approach in other national jurisdictions.
As discussed earlier in this report, while peak business groups often express satisfaction with the substance of the consultation they have with DFAT during trade agreement inquiries, sectoral representatives, civil society groups and unions more often describe the consultation as little more than information sessions absent anything but a broad indication of the matters being negotiated.
It is the Committee’s view the Australian Government should consider how it can put in place improved consultation processes with all stakeholders as negotiations unfold. This would allow for improved access to industry and stakeholder expertise to inform negotiating positions, as was discussed in Report 193.
Trade agreements are both economic instruments and tools of foreign policy. The liberalisation outcomes appear balanced, and the so-called ‘trade plus’ chapters on a wider set of principles that go to social impact, sustainability, and sound regulation in both the national and global community’s interest are very welcome, but the Committee acknowledges that those provisions at present, while sensibly aspirational, are not overly specific or enforceable. As a tool of foreign policy the agreement brings the UK and the Indo-Pacific closer together and promotes rule of law in international trade. The Committee supports ratification.
The Committee recommends the Australian Government implements the recommendations of Report 193: Strengthening the Trade Agreement and Treaty-Making Process in Australia, particularly in relation to greater consultation and transparency during the negotiating process, and providing independent modelling and analysis of trade agreements.
The Committee supports the Free Trade Agreement between Australia and the United Kingdom of Great Britain and Northern Ireland and recommends that binding treaty action be taken.
Mr Josh Wilson MP
16 November 2022