What is an “Australia-style” Brexit trade deal?

Time for negotiations between the UK and the European Union (EU) to produce a trade agreement is fast running out - bringing the possibility of no deal back onto the agenda.

If there's no agreement by the end of the year, the UK would automatically fall back on the rules of the World Trade Organization (WTO).

The government refers to this no-deal outcome as an "Australia-style deal" (Australia trades with the EU largely on WTO rules).

On Thursday, Prime Minister Boris Johnson said, "There is now a strong possibility that we will have a solution that is more like an Australian relationship with the EU than a Canadian relationship with the EU".

Former Australian prime minister, Malcolm Turnbull told that, "Australians would not regard our trade relationship with Europe as being a satisfactory one...there are very big barriers to Australian exports of agriculture products in particular and a lot of friction in the system in terms of services."

The UK is currently in a transition period with the EU, which means it is still following EU rules and trade stays the same. This ends on 31 December.

The EU is the UK's biggest single trading partner. In 2019, it accounted for:

  • 43% of UK exports
  • 51% of UK imports

If the UK followed suit at the end of the transition period on January 1, following WTO rules would mean tariffs being placed on many goods traded between the UK and the EU, with the addition of some quota restrictions and customs checks.

Australia deals with the EU mainly under standard World Trade Organization (WTO) rules – meaning a range of tariffs, quota restrictions and customs checks are applied to many traded goods – although it has spent two years trying to negotiate a more favourable Free Trade Agreement. There are also some unique agreements in place between Australia and the EU, such as concessions on wine imports, that would not apply under a UK-EU deal without further negotiation.

The significant difference between Australia and the UK in relation to existing trade with the EU is the volume and type of goods traded.

Australia trades about 11% of its goods into Europe, most of which are raw materials, while the UK trades in more than half of its goods, including a far wider range of items.

The impact of the relatively unfavourable terms that exist between trading partners under WTO rules will therefore have a far greater impact on the UK than they do on Australia.

Posted on Dec 11, 2020.

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