Trade experts analyse impact of tariff-free proposals in UK-Australia free trade deal
By: Neil Vowles
Last updated: Friday, 21 May 2021
This week, news emerged that the UK Government was considering allowing tariff-free imports of lamb and beef as part of the UK-Australia free trade deal.
Trade experts at the UK Trade Policy Observatory at the University of Sussex have been responding to the proposals and analysing the implications for domestic producers, consumers and the UK economy.
"Trade negotiations always entail strong domestic defensive interests, especially as the agriculture sector is a ‘politically’ highly sensitive area for many countries - not only for the UK.
"The argument here is a typical domestic constraint surrounding trade negotiations.
"For example, a strong contest to FTAs from farmers and domestic agricultural reforms were always the central political issue for Japan. When Japan made a decision of joining TPP, most of discussion went to agricultural reforms. In the end, Japanese government used TPP as a domestic political leverage for agricultural reform.
"The domestic coordination is the key for a successful trade deal to achieve inclusiveness.
"There are two major basic issues here.
"One is about winners and losers argument.
"It is likely that UK lamb and beef farmers will become losers as a consequence of UK’s trade deal with Australia.
"The role of the UK government is to plan agricultural reforms and design an export strategy from the long-term perspective.
"Another issue is about food safely and sustainable environment.
"Are production methods of Australian agricultural products are acceptable from the food and environment standard point of view? Do British consumers have any concern?
"These issues should be properly discussed in public, ideally before any deal is concluded.
"Trade deals are based on concession.
"The UK cannot get market access in non-EU countries without concession.
"Since the UK market is open both in terms of goods and services, it was clear from the beginning that the UK has to give more in agriculture.
"Since the UK wants to accede CPTPP, having the successful bilateral trade deal with Australia would become an important step for the UK.
"However, if the UK rushes to an FTA with Australia without debates on agriculture at the domestic level, there will be a big price to pay for future trade talks, such as a trade deal with the US.
"In general, Asian-pacific countries already import lamb and beef from the US, Australia and NZ and Canada.
"So in terms of the free trade opportunities a UK-Australia deal would open up for UK farmers, as has been suggested by some supporters of the no tariff deal with Australia, these would be fairly limited.
"It would be difficult for UK firms to compete with price of those imports due to geographical proximity (carriage) and production costs.
"If the UK can successfully differentiate UK lamb or beef from others and establish a brand of ‘Scottish lamb” like ‘Kobe beef’, a success story could be made.
"To achieve this though, the UK Government needs to establish an export strategy before making the FTA."
Professor L. Alan Winters, founding director of the UKTPO and Professor of Economics at the University of Sussex Business School, said:
"It is inevitable that signing a trade deal with Australia that includes tariff free access for Australian beef and lamb is going to have an impact on UK farmers and Scottish farmers in particular. You can’t remove a 30- 40% tariff without it having some effect and so some domestic farmers will experience a competitive pressure and some may even see it as the final straw. However, it will in all likelihood not be as devastating an impact as critics of the deal are suggesting.
"Australia produces formidable amounts of meat but the UK will not become a main market for them. Carting meat all the way around the world is quite expensive especially compared with serving the huge markets in Asia closer to home.
"So if a tariff free agreement is reached, consumers may see more Australian meat on their supermarket shelves and it maybe more affordable to them but Australian farmers aren’t going to squeeze UK producers right out of the marketplace. And many consumers will retain a preference for Scottish beef or Welsh lamb or will want to support local producers or will feel uncomfortable eating meat with so many food miles.
"What could be more disruptive to the UK would be if the trade deal with Australia also involved a lowering of UK food standards to the benefit of Australian farmers. As far as we know there has not been discussion of lowering standards and the government has promised that these are not in danger.
"Standards will, however, be one of the major stumbling blocks around the terms for US meat producers entering the UK market after Brexit. The Australians can use hormones in beef production but have shown a greater willingness than American farmers to produce hormone-free beef for export.
"Setting a cap on the amount of tariff free Australian meat that can be imported each year would be a way to further reduce the impact upon domestic producers but its impact would be limited.
The Australians will argue to gradually increase that limit until eventually in 15 years time, say, there will be no cap.
So although Australia has voiced strong opposition to such tariff-rate quotas, it may well agree to such a compromise in order to give themselves a foot in the door to the UK market.
"There are of course wider implications that go beyond just an agreement with Australia.
One trade deal sets precedents for the others so New Zealand will also expect similar access to Australia and US farmers will expect zero tariffs; so possibly will the large beef producing countries in South America.
The UK would find it very hard to hold the line on tariffs that could protect its domestic production with other countries if it gives Australia the terms it is searching for.
"The suggestion from supporters of a tariff-free arrangement that it will open up huge foreign markets for UK farmers is fanciful.
Britain is by and large a net importer of meat products with hardly any significant exports of meat outside the EU – e.g. high quality frozen beef to Hong Kong.
It is absurd to suggest that Scottish farmers will be able to sell much larger amounts of their produce around the world because they are not competitive in any way against the very big meat producing countries.
"What is worrying on a much broader point is that the UK Government is pushing ahead with a trade deal without any public discussion about what trade policy, what kind of economy and what kind of national food production they are pursuing, if there is any strategy at all.
It feels like the main impetus is to secure that first trade deal to show that the UK is able to pursue the freedoms of Brexit.
For Mr. Johnson, there is a big attraction to signing a trade agreement that he can hold up as a win to his supporters.
"A further attraction is that there is little parliamentary scrutiny of trade agreements and virtually no possibility of Parliament or the devolved nations stopping a trade deal.
Thus getting something into a trade deal allows him to make policy without formal challenge.
What we really need is to have a national discussion about what sort of economy we want and from this see which sectors of the UK economy will benefit from trade deals and which sectors may have to suffer some pain as part of that trade-off.
"The risk is that these trade deals could exacerbate existing tensions within the Union if the costs and benefits aren’t shared equally.
In terms of opening the market to other meat producers, this disproportionately impacts Scotland, which has 30% of the UK herd of breeding cattle and 20% of the breeding flock of sheep.
"The government estimates that the economic benefit of the Australian trade agreement would be between one and two ten-thousands of UK income.
Depending on the details – which we have not seen yet – the larger effects nationally will come in other sectors."