Trade ties with EU gains strategic importance

Free trade negotiations with the EU, which began in Brussels this week, aren’t just about sending more cheese to France.

EU trade commissioner Cecilia Malmstrom will visit Australian next month. Picture: AFP

It’s hard to believe driving conditions in Sydney and Melbourne are so different from Madrid and Berlin that they warrant entirely different safety regulations. Negotiations for a free trade and investment agreement with the European Union, which began formally in Brussels this week, aren’t just about sending more cheese to France.

Jason Collins, president of the European Australian Business Council, says the EU-Australia agreement “could be our biggest FTA yet, certainly in terms of coverage and the size of the economic relationship”.

It’s easy to overlook Europe’s economic clout. The obsession with China, especially here in Australia, and the political theatre offered daily by the US are distractions from relatively dour Europe, too often seen as sclerotic.

Politically perhaps, but the 28-nation bloc has half a billion consumers and its economy is worth over $US17 trillion a year: in purchasing power terms bigger than that of the US and almost as large as China’s, according to the World Bank’s latest figures.

It’s our second largest trading partner, including third largest export destination, and second largest services export market. Two-way merchandise and services trade between Australia and the EU is currently around $100 billion a year. At the end of last year it was also Australia’s largest source of foreign investment.

Indeed foreign direct investment from The Netherlands alone exceeded China’s, $53bn to $41bn, and is growing at a faster rate too. The response to Unibail-Rodamco’s buyout of Westfield underscores how uncontroversial European investment is for Australians.

“Certainly there are traditional market access issues, such as in agriculture, but where the real transformation will be is in regulatory alignment,” says Collins. Fewer and more consistent regulations for government procurement could reduce costs, especially in construction and infrastructure where Spanish, French and Italian firms are competitive. As state and federal governments embark on major infrastructure projects at the same time, this will become more important. “We could also see greater skills recognition, where it becomes easier for skilled Europeans to work here and vice versa,” Collins adds.

Perhaps cheese exporters and BMW connoisseurs shouldn’t get too excited yet. Negotiating a trade deal with the EU will probably be more difficult than with its departing member, Britain.

Fears Australian farmers will put their European counterparts, subsidised heavily by the EU Common Agricultural Policy, out of work will hamper progress. Whether Australia’s awarding a $50bn contract to a French submarine maker makes France a little less protective of its farmers remains to be seen. “There’s an incorrect perception that Australia would somehow be this agricultural juggernaut, but that’s not the case,” Collins says. In fact Australia exported around $4.9bn in agricultural products to the EU last year, almost 50 per cent more than it imported.

EU Trade Commissioner Cecilia Malmstrom is due to visit Australia next month to meet the Prime Minister and top trade negotiators in Canberra. At the same time the remaining 27 countries of the EU will be thrashing out their internal budget for the next seven years.

The Multi-annual Financial Framework will affect the relative competitiveness of European industries by determining who gets what of more than €1.1 trillion ($1.7 trillion) from 2021 to 2027.

Perhaps the free-trade agreement with Britain, which at least speaks the same language, will be concluded first. As a share of two-way EU trade in goods and services, Britain makes up about 20 per cent and 43 per cent, respectively.

Whichever agreement is finished first, it’s increasingly clear our trade and investment relations with Europe, including Britain, will become strategically and economically more important if relations with China sour further.