Is an FTA between the EU and Australia back on track?

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Negotiations between the EU and Australia on an FTA are set to gather pace after a warming of relations between the two parties.

Negotiations on a proposed free trade agreement between the EU and Australia are said to be back on track after stalling last year.     

According to the EU's outgoing ambassador to Australia Michael Pulch, both sides are showing a renewed "sense of urgency" about the deal and there are no major barriers still to be overcome before representatives from both sides meet up in Brussels in October to finalize the details.

So with the likelihood rising that an FTA will be in place within a year, how have previous hurdles been overcome, what could the benefits be to both sides, and what if any issues remain to be addressed?

New government policies help boost EU-Aus relations 

Talks on an FTA between Australia and the EU had been taking place since 2018, but were put on hold in 2021. One key reason for this was a rift between Australia and France caused by Canberra signing up to a new mutual defense pact with the US and UK.

The AUKUS deal, signed by the previous administration of prime minister Scott Morrison, called for closer military cooperation between the three countries. A major part of this was an agreement by Australia to purchase nuclear-powered submarines from the UK and US - overriding an existing multi-billion dollar contract with the French government that would have seen the country supply a dozen diesel-powered submarines to Australia.

Paris reacted furiously to the move, with president Emmanuel Macron publicly accusing Mr Morrison of lying and recalling the French ambassador from Australia in protest.

However, the election of a new government in Canberra has helped reduce tensions, with incoming prime minister Anthony Albanese pledging to build a "better relationship" between the two countries. As part of this, Australia agreed to pay France €555 million (US$584 million) in compensation for the canceled contract in June.

Other commitments by the new Australian government have also helped strengthen relations with Europe. These include much tougher policies on climate change that will seek to greatly reduce the country's emissions, as well as Australia's support for Ukraine.

Australian ambassador to the EU, NATO, Belgium and Luxembourg Caroline Millar commented: "Australia's new climate commitments, the reset in our relations with France and our solidarity with Ukraine have all contributed to this positive momentum."

What could be on offer in an FTA?

The EU and Australia are already major trading partners. According to Australia's Department of Foreign Affairs and Trade, the EU was the country's second largest two-way trading partner of goods and services in 2020, as well as the third largest export destination in 2021. Meanwhile, EU figures show that in 2020, total trade in goods between the two amounted to €36 billion in 2020.

However, an FTA would have a range of benefits. The Australian government notes that the EU has higher tariffs than Australia on many industrial goods, with exports facing tariffs of up to 12 percent on minerals and metals, ten percent on wood and paper and seven per cent on chemicals. An FTA would seek to eliminate these duties in order to stimulate more trade. 

Elsewhere, imports of items including beef, sheep meat, sugar, cheese and rice are significantly constrained by EU quotas, so "full tariff liberalization of agriculture" is a major priority for Canberra. On the EU's side, it is pushing for the abolition of luxury taxes that make it harder for Australians to buy products such as cars from the EU.

Both parties have also noted that recent world events have highlighted the need to reduce reliance on countries such as Russia and China for the supply of goods.

"Trade diversification is a key aspect of what we're doing. We believe there is a lot of unused potential in relations with many countries (in Asia)," Mr Pulch said. "We certainly talk to Australia as one of the world's largest LNG suppliers to see whether we could secure more energy supplies to Europe to offset Russian supplies".

What obstacles still lie ahead?

Despite the positive words from both sides, an EU-Australia FTA is still far from a done deal. Politico reports that the EU has a reputation of being a tough negotiator, while Australian representatives will be looking closely at the details of the FTA between the EU and New Zealand for guidance on how Brussels is likely to protect its own markets.

In that case, negotiations went right to the eleventh hour as the EU took a hard line on beef and dairy imports, with one New Zealand official later describing the EU as the "most protectionist agricultural bloc in the world."
Other issues that are likely to prove tricky include intellectual property, raw materials and protected designation of origin rules. The EU is especially keen to preserve its rights for named products such as wines and cheeses, which may be at odds with Australian interests.

There are also questions as to whether Australia's new climate commitments go far enough, especially after a decade of governments that were openly hostile to such efforts. One official told Politico: "Australia's new climate commitments have been well received in the EU, but Australia is waiting to see what the EU will propose on climate change in the FTA following its review of trade and sustainable development."

However, with newly-found goodwill on both sides towards getting a deal done, the signs of progress are positive, which could mean that if all goes well, a final deal may be expected sooner rather than later.