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The AU-EU FTA would cover goods, services and business investment, but the EU has set some new demands which link trade liberalisation to climate.

The free trade agreement between Australia and the European Union (AU-EU FTA) which aims to drive Australian exports, economic growth and job creation appears to be back on the table with negotiations restarting later this year, albeit with some hard lines on climate targets set by the European Union (EU).

In 2016, due to the Brexit fallout, the Turnbull Government announced that it had commenced work towards negotiations with the EU for an AU-EU FTA, with the first round of negotiations occurring in early July 2018.

The most recent round of negotiations for the AU-EU FTA took place virtually on 7-18 February 2022, but further negotiations have been on pause since France placed a block on further progress following the Morrison Government's cancellation of the French contract to supply diesel-powered submarines. Australia's relations with France had been on ice until this May, when newly elected Anthony Albanese made efforts to reinvigorate a spirit of co-operation between the nations, with there now being clear signs from the EU about proceeding with the negotiations.

The shape of those negotiations is a bit clearer, with reports that the EU will include sanctions for failure to reach Paris Agreement targets for emissions reductions (Australia has already satisfied a requirement to make a commitment on carbon neutrality). Some members of the EU Parliament have also called for more sustainability commitments in trade agreements as well, which could be a factor as the EU Parliament must approve any FTA.

Apart from climate issues, the EU is also looking for new laws on geographic indicators, which would bring rules already in place for wine to foodstuffs, while pushing back on the size of beef, lamb and dairy quotas.

Why does Australia need a free trade agreement with the EU?

The AU-EU FTA intends to leverage the partnership between Australia and the EU, given that they both share a commitment to the rule of law, global norms and free and open markets. According to Department of Foreign Affairs and Trade (DFAT), Australia exported goods and services to the value of $18.7 billion in 2019-20, and imported $59.9 billion in the same period.

As a bloc, the EU is a high-income market with a population of just under 450 million people and a GDP of around US$15 trillion. In 2020, it was Australias second largest trading partner, as well as our seventh largest export destination, fourth largest services export market and second largest source of foreign investment.

>Similar to the Australia-United Kingdom Free Trade Agreement that was signed on 17 December 2021, an agreement with the EU will provide new opportunities for Australian goods and services in a highly significant market, which in turn will assist Australia with its post-pandemic economic recovery. The AU-EU FTA also has the ability to afford Australian exporters with a competitive edge and more choice about where they do business, while granting Australian consumers greater choice in goods and services at lower prices.

Potential benefits of the AU-EU FTA

The AU-EU FTA has, like most FTAs, the potential to create significant benefits to Australia, such as:

What could the AU-EU FTA deliver?

Australia has been at the forefront of concluding modern, comprehensive FTAs which aim to maximise tariff reductions for Australian exporters, open up services markets, and set rules to enhance trade and investment, reduce regulatory risk and support further liberalisation.

The AU-EU FTA would cover goods, services and business investment and is considered key if Australia is to reduce its trade dependency on China. According to an impact assessment, trade in goods and services between the two partners could increase by around a third.

For example, the AU-EU FTA has the potential to deliver:

Timeline and next steps for the AU-EU FTA

Currently, the Australian Government is aiming to accelerate negotiations and progress the AU-EU FTA, with the next formal round of negotiation in October.

Throughout the negotiation period, DFAT indicates that it would be interested to receive submissions from interested individuals and groups on the potential opportunities and impacts of the AU-EU FTA. In your submission, it would be worthwhile considering how the AU-EU FTA may impact your business and the opportunities that will likely arise from a partnership with the EU to assist the Government in determining Australia's key priorities for further negotiations of the FTA.

In addition, as the AU-EU FTA is likely to have significant implications for Australian business and might open up various opportunities that will be worth taking advantage of, Australian businesses involved in trade and foreign investment, or those who are seeking to attract foreign capital, should prepare for the changing landscape and continue to stay abreast of the changes yet to come.

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Free trade agreement between Australia and the European Union back on the table - with some caveats - Lexology