It would be wise for Australian policy makers, business strategists and opinion formers not to set too much store on trade minister Simon Birmingham’s reported pledge. He says that Canberra stands ready to match the fast pace set by the British government in securing a new trade deal. Remember that Britain dumped Australia when it joined the European common market 46 years ago.
Senator Birmingham made his promise during a midweek phone call from a desperate Liz Truss, appointed as trade minister by prime minister Boris Johnson, who sacked Liam Fox, a Jeremy Hunt supporter in the Tory leadership contest.
Truss, an energetic self promoter, published a flattering picture of herself chatting to Birmingham, together with a short statement saying the government was ‘turbocharging’ work on securing free trade agreements.
In a tweet on her Twitter feed, which is almost as hyperactive as that of United States president Donald Trump, she proclaimed “@Birmo and I are on the same page. Both totally committed to getting a free trade deal ASAP. Will be visiting Australia soon to get the ball rolling.”
Before that she had tweeted, ”Britain will make fast-tracking US trade deal a number one priority”.
Unfortunately for Truss, who has held five Cabinet posts in as many years, there is a little matter of European Union law that states clearly a member state cannot negotiate an independent trade deal while still an EU member. It is a rule her predecessor observed and of which, as a former lord chancellor and secretary for justice, she is well aware.
Not that Truss, or her new leader, will be much bothered by this constraint, given that Johnson is now committed, ‘do or die’, to take Britain out of the EU on October 31, with or without a deal.
This show of bravado, backed by a budget of $A10.5 billion to prepare for a ‘no-deal’ crash out, ignores some factual obstacles to making progress on an Australia-UK trade deal. That is apart from the fact that parliament may vote down Johnson’s no-deal Brexit when MPs return from vacation on September 3. If that happens, a general election is a near certainty.
But let’s assume Johnson Brexit is not blocked by Parliament or an election, and that Britain leaves the EU on October 31 without a deal. It will not be the end of the crisis, but only the beginning. Of course, the UK can begin to trade independently on World Trade Organisation terms with any country that wishes to do so. The reality, though, is that it still has to sort out its relationship with the 27 remaining countries of the EU, which currently account for 45 per cent of Britain’s exports. And the EU will be bound from November 1 to introduce the same tariff barriers against the UK as it imposes against other non-EU members.
Worse still, Johnson has said he will withhold all or part of the £39 billion divorce bill his predecessor agreed with Brussels in her failed withdrawal agreement. Far from softening the attitude of a new Commission and EU president, both to be installed in the first week of November, playing hardball will harden European attitudes against London. After all, the divorce bill is not a penalty payment, but the sum of Britain’s legal obligations to cover expenses such staff pensions and loans made over previous decades.
This will take months to sort out, and no Australian government worthy of the name is going to finalise a Canberra-London trade deal until it has a clear picture of Britain’s future relations with Europe. There is the added complication that Canberra is in the final stages of its own drawn-out FTA negotiations with the EU, which are much more important given the latter is the world’s largest trading bloc and France is a leading defence partner. Even without these handicaps, there are the negotiations themselves. Birmingham has already made it clear his ambition is to gain significant access for Australian beef in Britain, as well as other Australian agricultural products. There will be no problems for fruit, from avocados to pineapples, and for sugar following the potential collapse of the UK beet sugar industry. When the British sugar industry loses its huge EU subsidy the door to Queensland sugar, provided it can compete with Caribbean producers, should be wide open. Increasing wine exports to Britain will be difficult. The biggest problem will be beef. According to market analysis by the Agriculture and Horticulture Development Board, Britain’s beef exports to EU countries could double present consumer prices after a no-deal Brexit, which would clearly reduce sales. The British beef industry is hoping to increase exports to China, but it faces strong competition from Australia and New Zealand, who both have FTA agreements with Beijing. Until something is sorted out with the EU on British beef, lamb and pork exports, both Australia and New Zealand are only likely to be able to maintain their present access levels to Britain.
So don’t expect Boris Johnson’s ‘Global Britain’ quickly to offer Australia many extra benefits than those already available. The exception, of course, will be for Australians travelling to the UK for holidays or on business who will get many more pounds for their Aussie dollars. Conversely, Britons holidaying in Australia will find need a bigger budget.