Credit: Original article can be found here
Free trade agreements can have a number of motivations. Under modern world trade rules, the simplest is that by having an FTA we are permitted to cut trade barriers to the country or countries with whom we make the agreement without cutting those barriers to everyone else. So, for example, if we want to reduce the barriers to imports from Australia but don’t want to cut the barriers to imports from China, we will need to make an FTA with Australia.
There is also the fact that by making an FTA we may find it easier to persuade the other party or parties to the FTA to cut their barriers to our exporters, and that the majority of the benefits of free trade come for our consumers, through their being able to obtain higher-quality, and sometimes cheaper, products from abroad. But our producers can gain as well and that is worth having if one can get it.
Finally, there is the geopolitical element. We tend to make favourable trade agreements with countries with whom we want an international partnership that goes beyond trade and into other matters such as defence, security collaboration and working together in global regulatory agreements over matters such as climate change or financial regulation.
All of these motivations are relevant to the UK-Australia trade deal, but the geopolitical one is most important. In the post-Brexit world the UK wants new mates, with whom it can work together on the global stage. The most obvious such new mates are Australia, New Zealand and Canada – and it is no coincidence that these are three of the main trade deals the UK is currently working on. As part of a new patchwork of international alliances, the UK also wants to leverage its trade deals with these three into membership of the third largest trade deal in the world – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Securing these three trade deals are an absolutely essential first step in the UK’s post-Brexit global strategy.
Now any FTA could potentially lead to some economic change. That is, after all, one of the key purposes. The best-case scenario would be one in which UK consumers were able to buy such large quantities of higher-quality, cheaper goods from the FTA partner that UK producers in that sector could be liquidated and the capital and workers devoted to other, more productive purposes where the UK had more of a comparative advantage. Some UK farming lobbyists suggest that will be the case for UK farmers if there is an FTA with Australia, saying UK producers would struggle to compete.
Alas, that is unlikely. As of 2018, Australia was the 14th largest food exporter to the UK. Even if the volume of those exports doubled, we would still import less food from Australia than we do from Denmark or Thailand. And Australian capacity to expand is far from limitless. It does not even meet all the quotas for food exports it has with other global trade partners as it is.
There are probably some niche sectors where UK producers would suffer in the short term. But there would be plenty of other sectors where UK food producers would gain by sending our produce to Australia. More than that, though, a UK-Australia FTA would be a key step allowing us to go on to do many other trade deals. First those with New Zealand and Canada. Then we might join the CPTPP. Then maybe a deal with the US and perhaps with other countries such as Brazil.
In some of these cases UK producers in new or growing sectors would gain and those in established sectors would lose out. In other cases UK producers in established sectors would gain. In all cases, UK consumers would gain. And the overall strategy is absolutely central to our post-Brexit global place in the world.
There is talk of a compromise whereby Australian food comes in tariff-free but is subject to quotas. Whether that matters rather depends on the level of the quota. If it’s very high quotas that the Australians will never breach, put in place just to establish the principle of quotas for other deals down the line, that could be a helpful cosmetic compromise. But if they were binding quotas intended to prevent trade with Australia growing enough to create structural changes in our economy, that would be a bad mistake. We want FTAs to lead to structural change. That is the ideal. Unfortunately, the UK-Australia deal is unlikely to involve large enough trade volumes to cause such changes but we definitely should not establish a principle that our FTAs are designed to prevent that key economic gain from happening.
Do the deal with the Aussies. They can be amongst our best new mates. Don’t let a few nervous farmers stop us seizing our new place in the post-Brexit world.