London: Australia is closer than ever to a trade deal with Europe that will cut prices for consumers and boost sales for exporters, after talks in Brussels cleared the way to a pact within weeks.
The likely gains for Australian households include lower prices for European exports such as cars and trucks, wiping away tariffs that add 5 per cent to every vehicle.
Australian farmers are also certain to benefit from bigger export opportunities in Europe, although both sides are still wrangling over the scale of the increase in beef and lamb sales.
The net result will expand a two-way trade relationship already worth about $110 billion to Australia each year, making this the most important agreement with the European Union in more than a decade. It has always been about much more than cars and cows.
There was a serious risk of failure when Trade Minister Don Farrell arrived in Brussels for two days of talks on Thursday and Friday with his EU counterpart, Maroš Šefčovič. There was always a chance that the Europeans would not offer enough access for beef and lamb, in which case Farrell would walk away.
So the mere fact that the talks continued into a second day, and ended with a positive statement on Friday afternoon (Brussels time), means that a deal is finally within sight.
There is now a stronger chance that European Commission President Ursula von der Leyen will visit Australia to seal an agreement with Prime Minster Anthony Albanese. This potential trip has been aired for at least four weeks, but now there is a solid reason for it to go ahead.
Sure, this will only receive modest attention when the Liberal Party is making headlines with its leadership spill and the rise of Angus Taylor as opposition leader. There is far less drama in the mundane work of government.
But there are three significant and strategic reasons to welcome the news from Brussels.
The first is that Australia and Europe are getting closer at a time when both have to contend with the sudden upheavals from Donald Trump on trade and security. The US president is turning America into an unreliable ally. The rational response for Australia is to tighten links with other allies.
The second is that Australian leaders have been saying for years that we need to rely less on China for our exports. Of course, sales to Europe cannot match the sheer volume of trade with China in coal, gas and iron ore. But it is wise to diversify.
The third is that the trade deal will be accompanied by a defence partnership.
This will not be an alliance like NATO or ANZUS, but an agreement to work together on exercises and procurement.
It might help Australian companies sell equipment to Europe, and it could help both sides work together on “hybrid warfare” threats such as drone strikes and cyberattacks. Put more bluntly, it will be about dealing with Russia and China.
There are likely to be practical and fairly swift benefits as well.
One is that cars from Europe become cheaper for households. Right now, a European car is 5 per cent more expensive because of the Australian tariff regime.
This puts companies such as Volkswagen, Skoda, Fiat and others – not just the luxury brands – at a disadvantage to rivals from China, Japan, Thailand and the US. (All these countries already have trade deals with Australia.) This is good for competition.
Another is that other capital goods also fall in price. While most products get into Australia without a barrier, there is still a 5 per cent tariff on many products from Europe. A cafe might pay more for a coffee machine, for instance. A transport company might pay more for a European truck.
There will also be a benefit for farmers who want to export more beef and lamb but have been blocked by EU quotas. In January, the Europeans appeared to be willing to allow 24,000 tonnes of beef and 20,000 tonnes of lamb from Australia each year. This was so low that there did not seem much point in doing a deal. Farrell has pushed for more.
Right now, Australia is barred from shipping more than 3389 tonnes of beef to the EU each year, according to Meat and Livestock Australia. It wants an increase to 50,000 tonnes, arguing this is in line with EU agreements with Canada and Brazil. Farm groups in Europe are lobbying to keep the number low.
Farrell sounded positive on Friday, which suggests he has made some headway. The “stretch” goal for the Australian side would be anything above 40,000 tonnes.
There are other gains to sweeten a final deal. Europe wants access to Australian critical minerals, and there is no reason to turn it away.
There is likely to be a limited agreement to make it easier for skilled workers to move between Australian and European employers, but this will not be open slather. (Anything more ambitious on visa rules would need approval from national parliaments in Europe.)
Jason Collins, who heads the European Australian Business Council, says finalising a deal would be a “smart move” to increase access to 450 million consumers across the EU.
The decision to start these trade talks dates back to 2015. Progress was so slow that Farrell walked away two years ago because the Europeans were not offering enough access on beef and lamb. He was right to insist on a better deal.
On Friday in Brussels, the trade minister issued a brief statement: “I am confident that both Australia and the European Union will reach agreement that benefits both of our economies.”
He did not say that they “could” reach a deal – he said they “will”. After more than a decade, an agreement is within sight.
This will not get as much attention as a Liberal leadership spill, but it represents a quiet economic win for Labor. The gains for households are real. And, in the age of Trump, the strategic benefits are not to be ignored.
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