European free trade deal shows global economic integration is not dead

In a global environment where the benefits of trade liberalisation and economic integration are being questioned, a trade deal between Australia and the European Union would demonstrate our commitment to open, rules-based trade.  

For Australia, this would be the last of the “big” trade deals. We already have trade agreements with most of our major trading partners – China, Japan, the US, Korea, India, the ASEAN nations, New Zealand and Britain.

The missing piece of our trade network is the EU – the world’s second-largest economy, and Australia’s third-largest trading partner, a population of 450 million mostly affluent consumers.

Those consumers insist on high-quality, clean and green products and who better than Australia can to supply them?

The Australia-EU trade agreement has been negotiated patiently by Australia’s Trade Minister, Don Farrell, with his EU counterparts, Farrell taking on the negotiations when he was appointed to the portfolio in 2022.

Modelling conducted back then by the EU found that a free trade agreement with Australia could boost Australia’s GDP by up to A$8 billion per annum, which equates to almost A$10 billion per annum in today’s dollars.

After two years of gruelling negotiations, Farrell stood firm and refused to accept a less ambitious EU proposal at a pivotal meeting in Osaka in late-2023.

But last month, Farrell met with his counterparts in Brussels and made the most progress in eight years, maintaining that a deal “is close, but not yet done.”

Trade Ministers like to gather shiny tin cups as trophies on the national mantlepiece. But Farrell had judged that the contents of a trophy are far more important than their appearance.

This agreement, which clearly is within reach, is well worth having, he has judged. Yet critics might argue that it is imperfect.

It is said that the perfect is the enemy of the good. To borrow another phrase, those critics might as well demand that Farrell waits for Godot, a character in a Samuel Beckett play who never turns up.

So no, a deal with the EU probably won’t be perfect, but neither are Australia’s trade agreements with China – now under review for possible improvements – or with the US, Japan, Korea and most of our other major trading partners.

But the trade deal with the EU is a helluva improvement on the heady days of 1986 when Paul Keating famously warned that Australia risked becoming a Banana Republic.

The US and the EU were engaged in an agricultural subsidies war that had collapsed the world prices of Australia’s major exports, dominated by wheat, beef, lamb and sugar.

As Hawke’s freshly appointed trade adviser, I accompanied him to meetings with EU leaders and with President Ronald Reagan where Bob urged them to call off the subsidies war – without much success.

Australia’s frustration at being caught in the EU-US agricultural subsidies crossfire led to its initiative in forming the Cairns Group of Fair-Trading Agricultural Exporters that became a powerful third force in international negotiations for a reduction in these subsidies.

The purpose of this trip down Memory Lane is to remind us of the strength of commitment of the EU to its heavily protectionist Common Agricultural Policy and of the US to its Farm Act and Export Enhancement Program.

It is against this historical background that the Australia-EU trade agreement should be judged. For the first time, Australian farmers and producers would have access to the EU market which has been extremely difficult to enter for decades.

Waiting for Godot would deny not only Aussie farmers, but all export-oriented businesses seeking to find new opportunities in a turbulent trade world.

Looking at existing trade agreements Australia has in place, we can reasonably expect that a trade deal with the EU will eliminate almost all import tariffs between Australia and the EU. This would cover energy and resources trade, including critical minerals. Such an outcome would build on the Australia-EU Strategic Partnership on Sustainable Critical Minerals signed in 2024.

For agricultural products, we can expect new or improved access through annual tariff rate quotas.  While falling short of full liberalisation, such an outcome is not out of step with our other major trade agreements and in the current climate, a bird in the hand is worth more than two in the bush. 

With the removal of the five percent Australian tariff on European imports, Australian consumers and businesses also stand to benefit through improved access to a wider variety of high quality and competitively priced goods from the EU.

Australian tradies and buyers of European vehicles also stand to benefit from a deal, through the elimination of five percent tariffs on these imports.

The Australia-EU trade agreement has outsized benefits for Australia and the EU beyond the particulars of the deal. This includes EU greater economic integration with the Indo-Pacific region. Last year, under Australia’s chairmanship, a dialogue was kickstarted between the EU and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

 In an era when the post-war consensus of economic integration through trade liberalisation is under existential threat, Australia has re-confirmed its credentials as a free-trading nation that were obtained by the Hawke and Keating governments and maintained ever since.

Seen in this context, the Australia-EU trade agreement demonstrates that free trade and economic integration are not dead, placing Australia not only on the right side of history but also on the right side of the future.