CPTPP, UK Australia & NZ

Perspectives: Details of Australia FTA speak volumes about new direction of British trade policy

Signing on to a trade deal with Australia is seen in London as a major stepping stone towards CPTPP accession and, beyond that, towards a potential future agreement with the United States. But the move comes at the expense of tailoring trade agreements to specific British interests and ducks difficult strategic decisions.

The full text of the UK-Australia Free Trade Agreement, agreed in principle in June 2021, was published last December. Given the text has apparently been ‘legally scrubbed’, without strong parliamentary scrutiny processes in either country, this is likely to be substantively the final text.

Most of the attention of British analysts has been drawn to elimination of UK beef and lamb quotas after 10 years, along with some improvements to conditions for cross-border services trade, mobility and public procurement access to the Australian market. Certainly, tariff-free market access for Australian food is likely to lead to greater UK exports, if as yet of an unknown amount.

Rather less attention has been paid to the agreement’s weak provisions in areas such as ‘technical barriers to trade’ – TBT – and sanitary and phytosanitary matters, i.e. SPS, in which in both cases the text barely goes beyond basic WTO norms. There are no specific ‘equivalence’ arrangements between each country’s regulations that would reduce border checks and duplicative product tests, nor are any dispute settlement procedures foreseen. This suggests there will be little effective reduction in non-tariff barriers between the parties.

On closer inspection, these chapters and much else in the treaty is a close copy of that of the Comprehensive and Progressive Trans-Pacific Partnership better known under its acronym CPTPP. Perhaps most notably, the detailed public procurement and state-owned enterprises chapters, and the absence of chapter dedicated to disciplining subsidies, follow very closely that precedent.

Given that the UK’s accession process to the CPTPP  has commenced, there is some logic in using similar language for an FTA with a signatory to that agreement. The more interesting questions now are whether CPTPP is still seen as a pathway to a US trade deal for the UK, and what this means for its regulatory choices between the EU and the US.

Following CPTPP template – but not only

It was already clear that the UK’s approach to its bilateral agreement with Australia would follow the CPTPP template in some policy areas, particularly in issues such as cross-border data flows and digital policy. But some of the alignment agreed by London was not a given, such as the fact that it signed up to CPTPP-style labour and environment provisions, which are enforceable via a mechanism that can lead to commercial ‘sanctions’.

The only annex to the TBT chapter, on cosmetics, also follows the CPTPP text and has the potential to be controversial with animal welfare lobbies in not specifically allowing a ban on the sale of cosmetics tested on animals. The absence of other annexes is most likely related to the existing UK-Australia Mutual Recognition Agreement, a copy of the arrangements to which the UK was a party as an EU member.

There are some changes and additions to the CPTPP text, and these are also revealing.

Meanwhile a number of additional issues were added to the CPTPP model in the form of new chapters, including on animal welfare and anti-microbial resistance – but without substantive commitments beyond cooperation between the two governments.

Thus the UK-Australia text contains enforceable commitments on issues that are not particularly relevant to trade between the parties, such as fisheries management, and only loose commitments in areas of greater concern to UK stakeholders such as animal welfare.

Although a reference to climate change was added, this is only to affirm commitment to the 2015 Paris Agreement both have already signed.

As with granting full market access to Australian beef and lamb, for the British government the path to CPTPP membership appears to have come ahead of consideration for UK stakeholders.

Government impact assessment: too optimistic

The original Department for International Trade impact assessment for the UK-Australia FTA  suggested only a small gain in UK exports and GDP up by only 0.01 to 0.02%. The revised version that accompanied the text increased both exports and GDP dramatically, up to close to 0.1% of GDP for the latter.

There was a fully disclosed change in methodology. But it is hard to avoid the suspicion that ministers had put pressure on the hitherto scrupulously impartial in-house trade economists’ team to come up with better results. There is no requirement in UK law for any independent estimate of the benefits of a trade agreement, meaning this is likely to be the only available forecast.

Certainly, there are gains for UK companies in this agreement thanks to its provisions on increased access to the Australian public procurement market and through higher monetary thresholds above which UK firms investing in Australia would undergo security screening. Rules of origin requirements for cars  – only 25% UK content for passenger vehicles – is undoubtedly a UK ‘win’ in this negotiation, and reflected in the suggestion made in the impact assessment that there will be more UK car exports.

Given however that Australia already has FTAs with most neighbours, as well as being party to both CPTPP and RCEP, the UK faces considerable competition. There is an interesting new element on regulatory cooperation in financial services, but little in the text suggests a transformation of an already strong trading relationship.

It may well be that the public will soon be disappointed by the failure to grow exports as a result of the FTA.

Big ‘regulatory divergence’ decisions postponed 

If the UK-Australia FTA text clearly sets the direction of travel towards the CPTPP, most likely to be confirmed by New Zealand text once completed, the extent of UK regulatory divergence is yet to be confirmed. At the height of Brexit arguments in the UK in 2018 it was argued by some insiders that joining CPTPP was a useful precursor to a US FTA, in ensuring acceptance of ‘science’ based SPS such as hormone treated beef and chlorinated chicken.

Subsequently the UK government has strongly denied any intention to change food rules in this way. The exclusion of Dispute Settlement from the SPS chapter defers the matter, for although Australia may press the UK on hormone treated beef, they have no way to overturn the British approach.

Even CPTPP accession may not help resolve the issue, for it remains unclear if any party would take the UK to dispute settlement over ‘precautionary’ approaches such as these. It may well be that only if US talks ever restart would the issue finally come to a head.

By deferring decisions on issues of regulatory divergence until a possible US deal, the British government presumably hopes to have the best of all worlds, holding on to some alignment with the EU while still getting the full benefit of the Australia deal, and still keeping public support. The appeal of such a strategy is obvious, its application in terms of real-world benefits could well disappoint on all counts.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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