Australia & New Zealand

Insight: EU-Australia FTA negotiations haunted by ‘ghost’ of Mercosur

Australia is aiming to conclude its free trade negotiations with the European Union by the end of this year. But the forthcoming battle to push the eventual deal past an increasingly sceptical European Parliament will inevitably complicate the final stages of the negotiations.

The trade and sustainable development issue has already emerged as a ‘hot button’ topic in the three-year-long talks, along with a range of other, perhaps more predictable sticking points such as agriculture.

And although insiders believe that negotiators will ultimately find a way to conclude the TSD chapter, the EU will be acutely aware of the fact that completing the negotiations may be only half of the battle that lies ahead.

Australia’s profile is seen by many as being uncomfortably similar to that of Mercosur – a powerful agricultural exporter whose commitment to environment and climate issues is not expressed as unambiguously as some Europeans would like.

It famously took some 20 years for the EU to complete its FTA negotiations with the South American bloc – but since the talks were finally wrapped up in June 2019, there has been precious little progress on approval and ratification within Europe.

European governments and MEPs uneasy at the implications of the Mercosur deal for EU farmers have made common cause with those unhappy with Brazil’s record on climate and the environment, and have forced the European Commission into a quest for ‘additional commitments’ to help the ratification process to progress.

Good progress so far – but thorny issues lie ahead

The fear is that a similar set of circumstances may conspire to hold up the nascent EU-Australia deal.

There is clearly a sense of momentum in the negotiations, which were initially launched in the summer of 2018, and officials on both sides say they are pleased with the progress so far. This is especially the case given that the pandemic has meant that four out of the ten rounds completed so far have had to be conducted remotely.

A great deal of work has been completed in the background, and a number of chapters have already been closed.

But thorny topics like trade and sustainable development, as well as agricultural market access, geographical indications and intellectual property, have now moved centre-stage as the talks move towards their end-game.

The next round of negotiations – the 11th since the talks launched – are planned for 1-11 June.

The talks were given fresh impetus in late April when Australian trade minister Dan Tehan visited Brussels for face-to-face talks with key personnel, including EU trade and agriculture Commissioners, Valdis Dombrovskis and Janusz Wojciechowski, and leading MEPs.

Political sensitivities on both sides over sustainable development

The issue of trade and sustainable development represents one of the biggest political problems to be overcome in the EU-Australia negotiations.

Australia, a major producer of minerals and fossil fuels, has come under fire from environmental campaigners for having failed so far to make a commitment to net zero carbon emissions – although Canberra insists that it is pushing forward plans to decarbonise the Australian economy as rapidly as it can.

The Australians are taking what they describe as a ‘bottom-up’ approach to the issue of meeting the country’s Paris Agreement commitments. This involves trying to ensure that individual businesses will be able to take the necessary actions to reduce emissions, before binding national targets are set.

But the European Commission knows that an increasingly trade-sceptical European Parliament will refuse to sign off on any deal unless it includes firm language which commits Australia to climate action.

The EU believes that to a large extent the issue is presentational rather than substantive – with the Australians being resistant to the idea that the EU is ‘telling them what to do’ about climate change.

It is not yet clear whether the EU is seeking to elevate trade and sustainable development to the status of ‘essential element’ within the EU-Australia FTA. That would imply that the EU could respond with the suspension or removal of elements of the agreement, such as tariff concessions, if Australia were judged to be not living up to its commitments – and vice-versa.

EU on defensive over agriculture, as Australia resists GI demands

Inevitably, agriculture is also a big challenge in the negotiations, with Australia set on expanding its currently-limited access to the EU market for products like beef, sheepmeat, dairy, rice and sugar.

But the EU will be anxious to avoid giving too much away in the form of tariff rate quotas for these sensitive products.

EU agri-food exports to Australia actually outstrip imports by more than two to one – but agriculture is nevertheless seen within the EU as overwhelmingly a defensive interest within the FTA negotiations.

Australia is generally perceived in Europe as being an agricultural powerhouse, and the prospect of sharply increased imports from Australia will be a difficult political ‘sell’.

This is especially the case with the talks coming so soon after the conclusion of the highly-sensitive Mercosur FTA less than two years ago – and also with the prospect of further market openings for New Zealand when the EU-NZ FTA negotiations are wrapped up, also quite possibly later this year.

The balance of concerns on geographical indications is reversed. Australia is resisting EU demands for protection of prominent agri-food product names which, in the eyes of the Australians, should be viewed simply as generic food or drink types.

The debate is now understood to have boiled down to how to address names such as ‘feta’ and ‘parmesan’, which have required compromise solutions in most of the EU’s recent previous FTAs. Officials are said to be confident that similar workarounds can be found for Australia.

Differences on rules of origin, intellectual property, digital, cars

Other areas where further work is needed before a deal can fall into place include rules of origin and intellectual property. In both cases, the different systems which are in place in the EU and Australia respectively do not readily align.

On services, the talks are said to be making good progress, albeit with “challenges” in the area of digital trade.

There are also issues to resolve over the EU’s request for a special annex on cars in the technical barriers to trade chapter, with Australia voicing concerns as to how the EU’s ‘type approval’ system would interact with its own regulatory processes. It is understood that a resolution to this issue is likely to be one of the final questions to be thrashed out.

But the sustainable development issue is increasingly looking like the key to ensuring that any negotiated EU-Australia deal does not languish in the same ratification purgatory that the EU-Mercosur agreement now finds itself.

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