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Brexit: the state of play for Australian trade

Theresa May’s decision to call a snap election this week brings the reality of Brexit back to the forefront of international relations.

Ever since the British people voted to exit the European Union last year, the world has watched and waited to see what the implications would be for international trade. 

Moves taken to date are interesting. First, British PM Theresa May signed and delivered a letter to EU President Donald Tusk to formally trigger Brexit on 29 March 2017.  The letter was more conciliatory than previous statements might have indicated.

Then this week May called a snap UK election for 8 June 2017. Many have interpreted this as an attempt to provide stability and strengthen the UK’s hand in negotiations with the European Union (EU). These negotiations will commence in early June 2017 and will take at least 2 years to complete.

Even once negotiations conclude, transitional arrangements may be necessary for a number of years to come.

With regard to trade repurcussions, here's what we know so far:

  • The UK will not need to re-join the World Trade Organization (WTO) – it is already a member State.
  • The UK will need to lodge a ‘schedule of concessions’ with the WTO, which outlines their commitments on tariffs, quotas, subsidies and domestic support.
  • The UK currently provides a substantial contribution to the overall EU budget – a significant portion of which goes to payments to European farmers under the EU Common Agricultural Policy.
  • The UK is unable to launch formal FTA negotiations with any other countries until it is no longer a member of the EU.
  • Alongside Brexit, the EU has negotiated or is negotiating a range of Free Trade Agreements (FTAs).
  • Agreements between the EU, Canada, Mexico and the four founding MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay) are at the ratification stage.
  • Scoping studies have been completed between the EU and Australia, New Zealand and ASEAN countries, respectively.
  • Both the EU and Australia need to seek negotiating authority from their respective legislatures.  For Australia this means the Australian Parliament.  For the EU that means going through a separate process in each member State.

So what are the key take outs for Australian agriculture?

A balanced approach to both the EU and UK is essential.  In particular, the Australia-EU FTA must take priority before the UK formally exits the EU.  The terms of exit and the new formal relationships between the EU and UK will shape any potential FTA deals with third countries or other regions. 

Brexit will have a substantial bearing on the WTO in the lead up to the 11th WTO Ministerial Council meeting to be held in Buenos Aires, Argentina in December this year.  The tariffs in the UK schedule of concessions are expected to largely mirror the EU schedule lodged with the WTO.  This is the ‘straightforward’ part of Brexit. 

The changing landscape presents a range of opportunities but comes with the risk of severe pitfalls for Australian agriculture
Scott Kompo-Harms, GM Trade and Economics, NFF

What will be more challenging is determining how commitments on aggregate measures of support (restrictions that relate to public subsidies to European and UK farmers) apply to both parties.  This is complicated by the fact that the EU budget will be affected by the UK’s withdrawal and the fact the British farmers will no longer have access to CAP payments.  We would expect that a smaller EU budget would have an effect on the capacity for the EU to make CAP payments to farmers.  We would also expect that there will be domestic pressure within the UK to provide some level of payments to UK farmers, particularly in areas such as Scotland and Northern Ireland.

The other complicated area is how commodity quotas are divided up.  This will have significant implications for some Australian commodities, notably sugar and sheepmeat.  What is certain is that this will have an impact on market access for Australian products within both the EU and the UK.

The changing landscape presents a range of opportunities but comes with the risk of severe pitfalls for Australian agriculture.  There needs to be strong communication between the Australian Government and our agricultural industries during this time to ensure that the full potential of these important trade agreements are realised and that pitfalls are avoided.

For Australian industry, it will be necessary to build relationships in the EU and the UK, not only with their respective farming representative organisations, but also with downstream industry partners such as European and British food processors, manufacturers and retailers.

What are your thoughts on how Brexit is playing out so far? Log in and leave us a comment below!

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