Australia and UK signed a Free Trade Agreement (FTA) on December 17, 2021 (an in-principle agreement had been announced in June 2021).
The FTA, which will come into force in 2022, will drastically reduce tariffs on several Australian exports to the UK and reduce duties on a number of British commodities to Australia significantly, It will also make it easier for both Australian and British workers to work in each other’s countries under the working holiday scheme (WHS).
According to estimates of the British government, the FTA could increase trade between the United Kingdom and Australia by approximately $19 billion “in the long run” while the UK’s GDP may increase by about $4.2 billion by 2035.
Some of the provisions of the FTA will specifically benefit workers from both countries. Firstly, in an important step, both countries have increased the working holiday visa eligible age to 35.
What is significant is that there is no pre-requisite for applicants under this category to be employed in any ‘specific work’. Second, Australia will permit up to 1,000 workers to come from the UK in the first year of a new “skills exchange” trial.
The symbolic importance of the FTA
In a post-pandemic world, the world is becoming even more insular and borders are becoming more stringent, encouraging professionals and workers is important. In June 2021, UK Prime Minister, Boris Johnson while commenting on the relevance of the deal said: ‘We’re opening up to each other and this is the prelude to a general campaign of opening up around the world,”UK’s Secretary of State for International Trade, Anne Marie Trevelyan described the deal as a landmark moment in the historic and vital relationship between our two Commonwealth nations”.
The geopolitical significance of the FTA
From the UK’s point of view, the FTA is important because the UK has been seeking to become more proactive in the Indo-Pacific.
Australia has been one of the most vocal proponents of the Free and Open Indo Pacific, and is also one of the members of the Quad (the other three members are the US, Japan and India).
The FTA with the UK may not be able to compensate for the economic ramifications of strained ties with China, it could pave the way for Australia to explore similar arrangements with a number of other countries.
From an economic standpoint, the FTA is important because the UK is seeking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (members of this group have a combined GDP of USD 13.5 trillion), and this deal will only bolster its chances.
UK has already signed trade agreements with two members of the CPTPP — Japan and Vietnam – in 2020. Interestingly the TPP (Trans-Pacific Partnership), the precursor to the CPTPP was conceived by Former US President Barack Obama, but the US withdrew from the agreement during the Trump Administration (pulling the US out of the CPTPP was one of the first decisions taken by Donald Trump after he took over as President).
Interestingly, the trade agreement has been opposed by a number of Democrat leaders including Hillary Clinton and Bernie Sanders.
For Australia, this agreement is especially significant because ever since the souring of relations with China, the bilateral economic relationship has been adversely impacted.
China has imposed tariffs on a number of commodities, such as wine and barley and also restricted imports of Australian beef, coal and grapes.
Under the Australia-UK FTA, tariffs on Australian wines will be terminated immediately, and the FTA will give a boost to the sales of not just wine but a number of other commodities boycotted by China.
The FTA with the UK may not be able to compensate for the economic ramifications of strained ties with China, it could pave the way for Australia to explore similar arrangements with a number of other countries.
In conclusion, the agreement between Australia and UK is an important development and a clear reiteration of the point that the UK has an important role to play as a stakeholder in the vision of the ‘Free and Open Indo Pacific’.
Second, the Indo-Pacific needs to have a strong economic component and FTAs between countries are important in this context.
Third, countries – like Australia — willing to bear the economic ramifications of a deterioration in ties with China need to look at alternative markets for their commodities.
Finally, while there are certain areas where only the US can provide global leadership, US allies need to chart their own course as is evident not only from FTAs signed between many of them but also the success of the CPTPP without the US being on board.
(Tridivesh Singh Maini is Assistant Professor at Jindal School of International Affairs, OP Jindal Global University, India)
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