Feb 26 2020
The United Kingdom (UK) entered a withdrawal agreement with the European Union (EU) on 31 January 2020. Although the UK has decided to formally withdraw from the EU, this is expected to be a drawn-out process, with the UK remaining a part of the EU’s single market and customs union for a period of at least one year while trade negotiations are carried out.
If no agreement can be reached between the UK and EU, and no extension to the transition period is requested or granted, the UK will exit the EU single market and customs union without a trade agreement, which is known as no-deal Brexit. Consequently, the UK will revert to default World Trade Organisation rules regarding trade.
For Australia, Brexit represents an opportunity to gain favourable trade advantages with the UK. Prior to Brexit, the UK was Australia’s single largest two-way trading partner in the EU, with over $30 billion of goods and services traded between the two countries. The UK leaving the EU single market allows the UK to independently pursue free trade agreements (FTAs). The Australian Government entered talks with the UK Government to develop an FTA in 2016, and this agreement is expected to be finalised by 2022. A variety of industries across the Australian economy will likely benefit from a FTA with the UK, although the exact benefits for any particular industry will depend on the outcome of FTA negotiations.
Australian agricultural industries are the most likely to benefit from an FTA with the UK. Meat exports, such as beef, lamb and mutton, would likely increase as Australian firms benefit from the removal of trade barriers, such as the 12.8% tariff placed on beef and lamb in excess of the allowable quota. In particular, lamb and mutton exports may end up competing with premium meat exports from New Zealand. New Zealand currently trades over $400 million of lamb and mutton to the UK, which is more than five times the amount traded to the UK by Australia. An FTA between the UK and Australia could therefore significantly assist industries such as:
Other areas of the Australian economy that may benefit from an FTA include Australia’s Mining division, as the sector currently faces tariffs of up to 12% under the EU single market. The Wine Production industry may also potentially benefit from Brexit, as the UK’s exit will allow it to potentially remove tariffs from Australian wines, increasing their competitiveness in the UK market. The UK is a net importer of wine, and the scheduled exit from the EU in 2021 could result in tariffs being placed on imported wine from EU countries. If Australia signs an FTA with the UK, these tariffs would result in a competitive advantage for Australian wines.
Overall, industries across the economy may potentially benefit from an FTA between Australia and the UK. However, the outcome for Australian businesses is currently uncertain, as FTA negotiations are ongoing. Australia’s stronger negotiating power with the UK, relative to negotiations with the EU as a whole, will likely deliver a more favourable outcome for Australian firms.
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