UK looks to seal Australia trade deal after G7 – Financial Times

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The UK is aiming to sign its first significant post-Brexit trade deal with Australia soon after the upcoming G7 summit, as a major Pacific trade bloc formally approved Britain’s application to begin accession talks.

Senior Whitehall officials said that talks between the UK and Australia were nearing their conclusion, with a tentative agreement “pencilled in” for the week commencing June 14 following the G7 summit in Cornwall. Scott Morrison, Australian prime minister, will join the gathering of western leaders from June 12 as a guest of his UK counterpart Boris Johnson.

The approval on Wednesday by Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, for the UK to start accession talks is a further sign that a trade deal with Australia is close to being sealed. One person close to the negotiations described the pact with Canberra, which is a founding member of the 11-nation bloc, as an “important stepping stone”.

A senior Downing Street insider confirmed that Morrison would remain in the UK the week after the G7 for bilateral talks with Johnson.

Those closely involved said they were hopeful that the UK-Australia agreement could be agreed in principle by both leaders. “Everyone is hopeful it will happen then,” one official said. It would be the first big post-Brexit trade deal that is not a “rollover” of existing agreements the UK enjoyed as an EU member.

Bar chart of 2020, £bn showing Australia is a relatively small export destination for UK goods and services

The signing of a UK-Australia trade deal would be seen as a political boon for Liz Truss, the UK’s international trade secretary, cementing her reputation as one of the Conservative party’s rising stars. But it also risks political fallout with some members of the Cabinet concerned it would trigger a backlash from UK farmers, who have warned of serious damage if their Australian counterparts are granted tariff-free access to the British market.

According to ConservativeHome, a website favoured by the party’s grassroots, the 45-year-old has topped its rankings of Cabinet ministers for four months in a row. The website reported she has an 89 point net approval rating among its members.

Paul Goodman, ConHome’s editor, said: “Members like ministers who can deliver and delivery in politics is difficult. But Liz has been delivering a mass of trade deals. The fact that nearly all of them have been rolled over is neither here nor there.”

Truss’s growing profile and eager use of social media has raised eyebrows among some of her colleagues, with one terming it “zealous self promotion”. Another senior Tory said the behaviour had led them to wonder whether the Department for International Trade should be renamed the “Department for Instagramming Truss”.

One senior DIT official cautioned that the sensitive nature of the farming issue meant the UK would not rush a deal with Australia. “We are in the final stages, but one of the sticking points is agriculture,” the individual said. “If a deal has to slip in order to get the right deal, so be it.”

Those with knowledge of the negotiations said the transition period for introducing the new trading terms was the other sticking point. “Australia isn’t very keen on waiting 10 or 15 years for the deal to be implemented,” one senior UK official said.

Bar chart of Main UK exports to Australia, 2019 ($m) showing UK trade with Australia

Despite the fanfare from Truss, the economic impact of a free trade deal with Australia on the UK would be small. The government’s own estimates suggest it would add an extra 0.01 per cent to 0.02 per cent to gross domestic product over 15 years.

The UK exported about £4.5bn worth of goods to Australia in the 12 months to March 2021 compared with £139bn shipped to the EU and £45bn exported to the US.

Exports of services were slightly higher at £5.4bn in 2020. But the combined export of goods and services still only accounted for 1.7 per cent of the UK’s total last year, making Australia the 14th largest UK exports destination. Australian goods and services accounted for less than 1 per cent of total UK imports in 2020.

Like the Australian deal, Truss has also eagerly pursued membership of the CPTPP, which includes fast-growing economies such as Mexico, Malaysia and Vietnam along with established regional players such as Japan, Australia, New Zealand and Canada, as one of the Johnson government’s key goals in fulfilling its post-Brexit “Global Britain” agenda.

Column chart of Share of UK goods exports, by destination (%) showing UK trade with the CPTPP countries is small relative to that with the EU and US

The UK moved quickly to submit its application to join the bloc within weeks of the Brexit transition period ending in December.

Dan Tehan, the Australian trade minister, welcomed the start of the UK’s accession talks. “The economic and strategic heft of the “CPTPP will be strengthened through the accession of high quality, high ambition economies,” he tweeted.

Truss said it was “excellent news” that the accession process had begun, describing CPTPP as a “dynamic free trade area”. Truss added that the UK’s plans would be presented to parliament before the formal start of negotiations.

Column chart of Rolling 12-month sum, £bn showing UK goods exports to CPTPP countries is dominated by Canada and Japan

As well as setting out its negotiating objectives for the CPTPP talks, the government intends to publish an economic impact assessment of UK membership of the bloc.

Professor Michael Gasiorek, director of the UK Trade Policy Observatory at the University of Sussex, warned that “the bargaining power here is largely in the hands of the CPTPP countries for whom the UK market is less important”.

He also pointed out that in a bilateral negotiation the UK could obtain a better deal than the many services exceptions that exist in the CPTPP, and he concluded that “on balance . . . the economic gains from the UK acceding to the CPTPP do not appear to be very high”.

UK goods exports to the 11 CPTPP members were worth £25bn in the 12 months to March 2021, accounting for 8 per cent of total UK goods exports and more than five times smaller than exports to the EU.