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Australia needs new Eurovision

27 Nov 2013
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Soon after Australia’s new government took office in September, Foreign Affairs Minister Julie Bishop stated that Australia would put ‘economic diplomacy’ at the centre of its foreign policy. In the weeks that followed, the government gave Trade Minister Andrew Robb a mandate to focus this economic diplomacy on sealing free trade agreements (FTAs) with China, Japan and South Korea.

These three countries are among Australia’s biggest trade partners, but there is now a risk that Australia’s new economic diplomacy priorities lead it to neglect its business relations with what arguably is its biggest partner in foreign trade and investment, if we consider both together; the European Union.

On any measure, the European Union of now 28 member states is a trade superpower. The EU accounts for 25% of global GDP, has a population of 504 million people and with 34% of global goods and services trade constitutes the world’s largest trading entity. The EU also occupies a key role among Australia’s commercial partners as its largest source of imports and its third-largest export market.

Furthermore, the legacy of Australia’s economic reforms of the 1980s and 1990s, the creation of the Single European Market in the EU and changes to the Common Agricultural Policy in Europe, have created a much more positive commercial environment between Australia and Europe, especially in trade of services and manufactures and in investment.

For the past three years, Australia and the EU have been seeking a closer relationship through the negotiation of a ‘Framework Treaty’ aimed at increased bilateral cooperation, but stopping short of specific commitments which would expand two-way trade and investment. This seems curious, given the importance of the trade relationship with the EU and the fact that trade policy and trade negotiations are exclusive responsibilities of the EU institutions in Brussels. In contrast, broader foreign policy responsibility rests with the individual member states of the EU.

The framework treaty negotiations since October 2010 have no doubt been beneficial in lifting the profile of the bilateral relationship in Brussels and in Canberra, but they remain uncompleted after three years. The time has come to move economic diplomacy up a notch with a full-fledged Australia-EU FTA, as we argue in a longer article ‘Australia and the EU: Is the framework treaty enough?’ published recently in the Australian Journal of International Affairs.

The completion of the framework treaty negotiations, once an FTA is finalised, would provide an effective complement for cooperation with the EU on a broader range of policy issues, including foreign and security policy, the environment, science and technology cooperation, foreign aid policy and education cooperation.

Several specific factors now make an FTA between Australia and the EU an appropriate target for Australia’s economic diplomacy. Prospects for revitalising the moribund Doha multilateral round of trade negotiations in Geneva appear dim. Further multilateral trade liberalisation for the foreseeable future, which remains the preferred route for both Australia and the EU, therefore seems remote.

The EU has already embarked on a program of negotiating ‘new generation’ FTAs with selected countries. The aim of these new generation FTAs is to seek trade liberalisation not only of border trade measures such as tariffs, but also behind-the-border non-tariff measures, mainly regulatory barriers to trade.

Such barriers are the key impediment to the liberalisation of trade in services and are increasingly important in restricting trade in manufactures, food products and agriculture as well as investment and public procurement.

The EU concluded the first ‘new generation’ FTA with South Korea in 2009. It since embarked on FTA negotiations with, Canada, Singapore, India, Malaysia, Japan and in July 2013 with the United States. The EU therefore has now either negotiated, or is negotiating, FTAs with most of Australia’s major Asian and (non-European) OECD trading partners.

The ‘Comprehensive Economic and Trade Agreement’ that Canada agreed with the EU on 18 October has relevant parallels with Australia’s trade relations with the EU. Both Australia and Canada are mid-ranking, highly developed countries. The size of their economies and their dependence on the EU for trade and investment are broadly comparable.

Canada and Australia also share with the EU comparable systems of regulatory values, objectives and governance. Like Canada, Australia has a federal system with the sub-federal governments exercising comparable levels of domestic regulatory authority, such as in relation to services, setting product standards and public procurement.

The opening of the Transatlantic Trade and Investment Partnership negotiations between the EU and the United States in July this year is an important new development for the bilateral EU-US trade relationship and for global trade in general. Should Australia wait for the outcomes of these negotiations before making its own approach to the EU? Arguably not.

The stakes in the EU-US negotiations will be high. The major transatlantic trade barriers are the regulatory non-tariff trade barriers. It will take considerable time to make progress and reach compromises that will work for both sides – certainly much longer than the ‘single tank of gas’ that the US claimed it wants to do the negotiations on.

The time is right for Australia to step up its economic diplomacy with the EU. Australia gains little in continuing to cruise along on its current track, losing out on new trade and investment opportunities with the EU without an FTA.

Don Kenyon and Pierre van der Eng are Associate Professors at, respectively, the Centre for European Studies and the Crawford School of Public Policy, Australian National University.

 

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