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Prospects for EU-Australia Relations

By Fraser Cameron

9 June 2017

Introduction

 

In the wake of President Trump’s abdication from global responsibility, the EU is seeking to deepen relations with like-minded partners such as Australia. Delegates attending the inaugural EU-Australia Leadership Forum in Sydney in early June were agreed that the two actors not only shared common values but also shared many interests including free trade, the multilateral institutions and the Paris climate change accords. There exists a rich institutional structure under-pinning the relationship but it is largely at official level and the public have little awareness of the depth of relations. Politicians and officials agree this will have to change in order to secure essential public support for future cooperation. A complication for the near future will be the impact of Brexit as politicians in London and Brussels jostle for Australia’s attention.

 

Why is Australia looking more to the EU? First, there is the unpredictability of the current US administration. Second, there is a feeling that Australia should not be over-dependent on the Chinese economy. Third, Canberra is developing closer defence ties with NATO and individual European countries. It has fought alongside European forces in Afghanistan. It recently bought a new submarine fleet from France instead of Japan. It also supports the important work that the EU is doing on counter piracy and maritime security in the Gulf of Aden and Horn of Africa. In short, it views the EU as an increasingly important, stable and reliable partner.

 

The Impact of Brexit

 

Brexit could have serious implications for Australia, depending on what kind of trading arrangement is agreed between the UK and EU. A hard Brexit, which seems inevitable, will weaken the UK and to a lesser extent the EU. Australia has close historical ties to the UK but increasingly its political, economic and security interests will require closer relations with the EU than the UK.

 

This will be most evident on economic ties. The EU and Australia plan to start free trade agreement (FTA) negotiations later this year following a successful scoping exercise. This is likely to be the most important FTA for Australia as it opens up new opportunities in the world’s largest single market. The aim is to cover areas beyond traditional FTAs such as energy and climate change, defence industries, healthcare, transport, infrastructure, the digital economy, public procurement, sustainable development, intellectual property and many others.

 

Total EU-Australia trade in 2016 was around 60 million euros making the EU the second largest trading partner for Australia after China. The services sector is a rapidly expanding part of this relationship. UK-Australia trade was about 37% of the total but a large percentage is transhipped on to other EU Member States. The UK provides about 50% of EU FDI in Australia; and receives about two-thirds of Australian investment in the EU. These statistics demonstrate the important role that the UK plays in the overall economic relationship.

 

But despite what some politicians in the UK (and Australia) have said there can be no UK-Australia negotiations until after the UK has left the EU, probably at the end of March 2019. There will, however, be no clarity on the likely outcome of the planned EU-UK trade deal and hence it makes little sense for Canberra to consider a trade agreement with the UK until the EU dimension is settled. This will mean an extended period of uncertainty for business, especially as many Australian companies use the UK as a gateway to the EU.

 

A key question is what will be the new tariffs? Will the UK revert to WTO schedules or split schedules? Another issue is regulatory standards. These will not change from day one but over time there could be significant divergences between the EU and UK which will affect Australian businesses. Mutual recognition might be the best way forward in this situation.  One sector that will suffer is the export of Australian wines to the UK. One recent estimate suggested there could be a decline of up to 25% of wine imports as a result of the reduced purchasing power of the British consumer.

 

On the political side, Brexit will be all-consuming for several years which will make the UK more inward-looking. It may also have to cope with major constitutional changes related to Scotland and Northern Ireland. With less resources to devote to external relations, the UK will be a less attractive partner to Australia in security and development issues. Given the various ties to the UK, Australia cannot neglect this relationship. But there is no doubt that its relationship with a reinvigorated EU will be much more important. The political uncertainty the British general election on 8 June can only lessen the UK’s attractiveness as a serious partner for Australia.

 

A Reinvigorated EU

 

In a remarkably short space of time, the EU has become more self-confident and cohesive after the French and Dutch elections. The populists are in retreat. The 27 have maintained a united front on Brexit. The economy is improving. The Franco-German axis is set to be renewed after the German elections in September and the EU is poised to move forward in a number of policy areas including a tighter eurozone and defence.

 

A Stronger EU-Australia Partnership

 

The EU and Australia are about to sign a new framework agreement that will widen the area of political cooperation. There are already official dialogues on several issues including foreign and security policy, counter-terrorism, violent extremism, migration, innovation and the environment. The Leadership Forum launched by Foreign Minister Julie Bishop and High Representative Federica Mogherini in September 2016 provides an additional mechanism to feed in ideas about the relationship.

 

At the first meeting of the Forum many interesting proposals were put forward. As strong supporters of the multilateral system, the EU and Australia should deepen cooperation in the UN, WTO and G20. Australia has unique insights on Asia and the EU on Africa: there are clear advantages in each learning from the other. Cooperation on development, especially in the South Pacific, is another potential fruitful avenue to explore. Another suggestion was joint Australia-EU peacekeeping and stabilisation forces.

 

On migration, there is much that the EU could learn from Australia. Processing refugees off shore is not an option for the EU. But the EU could take on board the way in which Australia has sold the positive benefits of immigration to the population and simultaneously demonstrated that there is an orderly system.

 

The agenda could be expanded to countering extremism, deepening existing cooperation in research and education, innovation and the digital economy. But as one senior Australian official said, it was essential to prioritise given resources restrictions on both sides. He also questioned whether it was necessary for several Member States to maintain similar dialogues with Australia when the EU seemed the more natural interlocutor.

 

Conclusion

 

These procedural questions can be resolved with goodwill. What is now important is to ensure that Brexit does as little damage as possible to the EU-Australia relationship; and that both sides can demonstrate to their publics the advantage of cooperation. In the changed geopolitical circumstances that affect the EU and Australia there has never been a more propitious time to deepen their partnership.

 

Fraser Cameron is the Director of the EU-Asia Centre