Coming in 2022: The Australia-UK Free Trade Agreement

After much anticipation, the Australia-United Kingdom Free Trade Agreement (A-UK FTA) was signed on 17 December 2021. Once in force, the A-UK FTA will eliminate tariffs on over 99% of Australian exports to the United Kingdom, create new opportunities for workers, young people and businesses and further strengthen the close strategic tie between the two countries.

Implications for inbound and outbound investment

In terms of foreign investment, under the A-UK FTA, Australia has retained the right to screen investment on national interest and security grounds, while raising the investment screening threshold to match that given to other key Australian investment partners with whom Australia has a free trade agreement.

For context, in 2019-2020:

• the United States was the largest source country for approved proposed foreign direct investment by value (A$49.2 billion), followed by Japan, Singapore, Canada, and the UK (A$14.9 billion);
• the United States was the largest source country of investment by value in the finance and insurance sector (A$2.5 billion) with the UK the next largest source country (A$2.3 billion);
• the United States was the largest source country of investment by value in the mineral exploration and development sector (A$4.7 billion) with the UK the next largest source country (A$1.3 billion); and
• the United States was the largest source country of investment by value in the services sector (A$27.9 billion), with the UK the next largest source country (A$9.0 billion).

In relation to the Australia / UK export trade:

• the UK is Australia's 5th largest goods trading partner and gives Australia access to 66.5 million UK consumers;
• exports from Australia to the UK totalled $21.9 billion in the 2019-2020 financial year equating to approximately 5% of total annual exports with only 1.5% (or $724 million) of total agribusiness and food products exported to the UK;
• Australia's main exports to the UK include gold, alcoholic beverages (including wine), lead, pearls and gems in that order, with growth occurring in beef, diamonds and telecommunication equipment;
• in relation to alcoholic beverages, one in five bottles of wine drunk by UK residents came from Australia; and
• in relation to Australia's export of telecommunications, computer and information services, the UK government estimate a value of £100 million was imported from Australia in FY 2020-2021.

Notably, there is no investor-state dispute mechanism under the A-UK FTA. The Australian Department for Foreign Affairs and Trade highlights that this reflects the confidence both Australia and the UK share in each other's legal systems - however, this may prove challenging in the event there are any future disputes, as there are no written guidelines governing best practice dispute resolution.

Agribusiness and food implications

Australian agricultural and food exports to the UK have been low since the UK joined the European Union due to the high UK tariffs and other trade barriers. As a result, Australia diverted its agricultural and food exports to Asia. The A-UK FTA opens the door again to Australian farmers to grow this market for their goods, and may prove the alternative needed as the Chinese market is turned off or decreased for some of those export goods.

 

In particular, the A-UK FTA covers the following exports:

Wine

• An immediate elimination of tariffs on commencement, equating to approximately $43 million in custom duties each year.

Beef

• As an export good worth $9.6 billion for Australia in 2020, Australian beef currently attracts UK duties as high as 12% plus 254GBP/100kg. This will be significantly improved with an annual duty-free quota of 35,000 tonnes on commencement, rising to 110,000 tonnes in year 10, and continued improvement in years 11-15 before being eliminated. Currently, Australia supplies around 5% of the UK's beef and sheep meat.

Sheep meat

• As an export good worth $3.8 billion for Australia in 2020, Australian sheep meat currently attracts UK duties as high as 12% plus 260GBP/100kg. This will be significantly improved with an annual duty-free quota of 25,000 tonnes on commencement, rising to 75,000 tonnes in year 10, and continued improvement in years 11-15 before being eliminated.

Dairy products

• Tariffs will be eliminated in equal instalments over a 5 year period, with immediate access for cheese of an annual duty-free quota of 24,000 tonnes rising to 48,000 tonnes in 5 years; for butter of an annual duty-free quota of 5,500 tonnes rising to 11,500 tonnes in 5 years; and for other dairy products, immediate access to an annual duty-free quota of 20,000 tonnes for 5 years.

Rice

• On commencement, tariff elimination for short and long grain rice, with a permanent annual duty-free quota of 1,000 tonnes for long grained rice.

Sugar

• Full elimination of tariffs over 8 years, with an annual duty-free quota starting at 80,000 tonnes on commencement, rising to 220,000 tonnes in year 8.

Wheat, barley and other cereals

• Full elimination of tariffs over 4 years, and on commencement, an annual duty-free quota for wheat of 80,000 tonnes and an annual duty-free quota for barley of 7,000 tonnes.

Horticulture

• On commencement, elimination of tariffs for most fruit and vegetables, including almonds, macadamias and other nuts, avocados, cherries, dried fruits, citrus fruits, carrots and table grapes;
• over 3 years, elimination of tariffs on other key fruit and vegetables, including apricots, nectarines, peaches, strawberries, asparagus, beans, tomatoes, apples (except cider apples) and pears; and
• over 7 years, elimination of tariffs on all remaining products.

Seafood

• On commencement, elimination of tariffs on most Australian seafood including all finfish, fresh and frozen rock lobster; and
• over 3 years, elimination of tariffs on all remaining seafood products.

Other major sectors

The A-UKFTA will also make it easier for skilled Australian professionals to work in the UK market, with some working visas extended to three years and the age limit for a working holiday visa lifted from 30 to 35.

Similarly, both countries will commit to high standard rules for all services sectors, including cross-border trade in services, professional services, financial services, maritime and delivery services, and telecommunications. According to the Minister for Trade, Tourism and Investment, the aim is for Australian professionals to have the same access to the UK’s lucrative jobs market as their European competitors (except from the Republic of Ireland). This means Australian job seekers can compete on an equal footing with EU nationals in the UK for the first time in more than 40 years.

Finally, the experience of COVID-19 as well as ongoing global trade tensions has highlighted the importance of digital trade, with the A-UK FTA aiming to provide support for this type of trade to flow between the two nations. The A-UK FTA includes strong rules on data flows as well as rules against the requirement of data localisation. It also aims to facilitate digital trade by encouraging digital business transactions (for example, e-payments and e-contracting). All of this will assist the security of cross-border digital trading and create a more certain and safe online trade environment.

Timeline and next steps for the A-UK FTA

The Australian Government is committed to bringing the agreement into force in 2022.

To do so, consistent with Australia’s treaty making process, the A-UK FTA will be tabled in both of Australia’s Houses of Federal Parliament and any legislative changes required to implement the treaty domestically must pass both Houses of Parliament. Once the domestic procedures have been completed in Australia and the UK, each country will provide the other with confirmation of the same completion through an exchange of diplomatic notes, and the agreement will enter into force 30 days later, or on any other date that is mutually agreed.

Businesses and investors looking to take advantage of the new opportunities provided by the A-UK FTA should consider their own next steps, whether that be investigating channels to market, seeking to understand the specific market conditions for their products or services and/or taking steps to establish a presence in Australia or the UK.