Australia’s possible Free Trade Agreement with the European Union
Australia’s possible Free Trade Agreement with the European Union (EU) will promote stronger trades in goods and services. The EU is Australia’s second-largest trading partner as of 2016.
On the 15th of November, 2015, the Australian Prime Minister along with the President of the European Council and the President of the European Commission agreed in a joint statement to start a process towards an extensive and superlative Free Trade Agreement. A Free Trade Agreement (FTA) is a treaty between two or more countries that benefits importers, exporters, investors and producers by reducing and eliminating certain barriers to international trade and investment. Current barriers to EU exports and investments to Australia include: relatively high tariffs for processed food products (such as cheeses, wines and spirits) and stricter screening thresholds than investors from other countries. These barriers leave the EU with less access to the Australian market than other countries that already have a FTA with Australia. For example, over 5 years the growth rate of Australia’s imports from the US was 4.1%, whereas the EU only had a 3.3% growth rate. Although Australia is subject to gain more in direct financial benefit than the EU , there are enough advantages to lure European leaders into negotiating a FTA.
The 1933 Treaty of Maastricht established the European Union and laid the foundations for the Euro. The Maastricht Treaty paved the way for Europe to have a strong presence in world trade, including trade with Australia. Economic links with Europe since 1993 Treaty of Maastricht has had an effect on Australian consumers and businesses as well as the Australian Economy.
The Maastricht Treaty enabled Europe to trade with Australia. In turn, Australian consumers had a wider range of goods and services to select from. Some goods and services also lowered in price.
After the 1933 Treaty of Maastricht, Australian Businesses were able to further expand their customer base. By expanding their customer base, they could make more profit and grow their company. The Maastricht Treaty also allowed Australian Businesses to sell a greater variety of goods and services.
The Australian Economy
The Australian Economy has substantially improved since the 1933 Maastricht Treaty. As seen in the graph below, Australia’s Gross Domestic Product (GDP) had a peak after 1933 and has been relatively high since in comparison to our GDP before 1933. A higher GDP indicates that Australia’s economy has performed well and grown. When GDP growth is strong, businesses hire more workers and can afford to pay higher salaries and wages, which leads to more spending by consumers on goods and services.
A Free Trade Agreement with the European Union would have both advantages and disadvantages for Australia and the EU.
A FTA with the EU would help to ensure our trade relationship reaches it’s full investment and remove barriers to trade in goods. Access to 5.1 billion European consumers could deliver an unexpected gain for Australia of between $4.1 billion and $6.4 billion in Gross Domestic Product by 2030, according to an EU scoping study. A FTA with the EU would also encourage expand our investment ties, encourage business productivity and innovation, attract foreign investment and foster freer trade and investment flows. The FTA would especially benefit Australian farmers that currently face extremely restrictive farm tariffs and quotas. However, it could also lead to a loss of Australian Industries because of exposure to European producers which sell at lower costs. A Free Trade Agreement between Australia and the EU would most likely have negative impacts on Australian local businesses because of a wider range of businesses available to Australia. There is also a concern that the EU will demand geographical indicators which would prevent Australian producers using particular names, for example, Dairy farmers could be restricted from using the Italian flag colours (green, white, red) on their packaging and labelling their cheese as ‘feta’ or ‘parmesan’.
As for the EU, European businesses could use Australia as a pathway for trade into Asia. There are also broader geopolitical interests within the EU to resist protectionism. A FTA would allow European countries access to Australian markets without many restrictions. However, European farmers, particularly in Italy and France, are concerned about their charitable protections and allowing more Australian beef imports in.
For both parties, there will be greater export and greater employment, leading to higher profit + income. There will be lower prices for consumers and a greater variety of goods and services. Disadvantages for both Australia and the EU are structural unemployment and closure of businesses.
Australia’s possible free trade agreement with the EU will boost our trade with Europe in goods and services.