The UK-Australia FTA: what more do we know?

Since the legal text of the UK-Australia Free Trade Agreement was released on 16 December, our specialists have been taking a look at the detail. While it will take substantially longer to unpack every implication of the new treaty, there are some immediate takeaways worth highlighting, building on our earlier article at the point of agreement in principle.

First – on goods – we are now able to say with certainty how applied rates of duty will change when the agreement enters into force. This deal will see the removal of all duties on UK exports – most on day one, with a handful phased out (for example, the removal of Australian cheese tariffs is staged over 5 years). The UK is phasing out most agricultural tariffs and keeping a small number in place indefinitely (for instance on some swine and poultry products). So while this deal is almost tariff-free, there are a handful of notable caveats. We should also remember that a great many goods are already traded duty-free (and where Australian tariffs are applied, they are generally already very low).

On agricultural goods specifically, we can now see the detail of the market access and protections that have been agreed for sensitive sectors. UK tariffs and quotas on beef and lamb will be phased out over 10 years, sugar after 8 years and dairy after 5 years. Quotas on wheat and barley expire after 4 years. Safeguard mechanisms have been agreed which permit the UK government to intervene in the event of import surges; however, these safeguards expire after 15 years.

It is worth bearing in mind that the UK’s new statutory Trade and Agriculture Commission hasn’t yet undertaken its formal review of the text – and, incidentally, nor have the House of Commons trade or environment committees. We will have to wait a few more weeks for those. However, as anticipated, the National Farmers Union has provided an assessment of the deal as being “one-sided”, where “the Australians have achieved all they have asked for and British farmers are left wondering what has been secured for them”. The Regulatory Policy Committee (RPC) - the watchdog on the impact of regulatory change - largely agrees, concluding that UK “agriculture and semi-processed food sectors are expected to be disadvantageously affected by the FTA”.

That said, the agreement does help UK food & drink exporters avoid duties (of up to 5%) previously levelled on their products, such as ham, sausages, biscuits, whisky, gin and wine. The same is true across a wide range of other manufactured products, such as cars, engines, machinery, hand tools, textiles, ceramics, chemicals, pharmaceuticals, cosmetics and ceramics, which also currently incur tariffs of up to 5%.

Importantly, the agreement includes straightforward rules of origin which are simpler even than other recent UK FTAs, making it easier for UK firms to qualify for zero tariff treatment on more goods originating or processed only partly in the UK. An example is cars, of which only 25% of the local value needs to be from Britain. In most cases, manufacturers should not need to alter their existing supply chains to qualify for tariff removal.

On arrival in the destination country, exported goods will benefit from enhanced customs rules, including the guaranteed rapid clearance of goods from customs within 48 hours (provided all requirements have been met). Greater certainty will also be afforded to exporters, who will be able to apply to receive a legally binding decision from customs authorities on tariff classification and product origin in advance of shipment. Traders will no longer be required to use customs brokers to import or export goods - and a range of simplifications, for example reducing traders’ data requirements, will make the process quicker and less costly. Both countries have also committed to implementing single trade windows (single online reference points for the submission of customs paperwork).

A wide range of services sectors are also expected to benefit from this FTA, which provides certainty over the market access rights for each sector at both federal and sub-federal levels. The UK government said: “this deal goes further than Australia has ever gone before in giving services companies access to the Australian market. This means that UK services from architecture and law to financial services and shipping will be able to compete in the Australian market on a guaranteed equal footing”. Importantly, there are extensive exemptions and conditions attached to market access for each subsector, detailed in the agreement’s annexes (such as requirements on residency, nationality, board composition, corporate form, establishment and licencing).

The FTA includes a dedicated chapter on financial services which locks in existing market openness and establishes closer regulatory cooperation – and, for the first time, both Australia and the UK have agreed on a standalone professional services chapter. The provision of legal services are specifically guaranteed, so lawyers can advise on home, foreign and international law under existing qualifications – and, more broadly, the FTA includes a broader framework to encourage relevant professional bodies to establish and maintain systems for recognising each country’s qualifications. (Admittedly these are similar to the provisions commonly found in other modern FTAs which, thus far, have been scarcely used).

However, it looks like the big win for the UK in this FTA is on mobility – something of a quid pro quo for UK concessions on agricultural imports. Indeed, this agreement represents the most liberal approach to business travel ever taken by Australia in an FTA. The main points are as follows:

·       A wide range of service providers will, under this FTA, be able to send staff to Australia for business purposes without being subject to Australia’s revolving “skilled occupation list”. Those sectors accommodated include engineering services, management consultancy, insurance, accounting, architecture, advertising, telecoms and travel agency.

·       Australian companies will no longer need to prioritise a local firm to deliver a contract before sponsoring a visa for a UK professional to undertake the same task.

·       The FTA locks in businesses’ rights to undertake intra-corporate transfer, including support for employees’ spouses and dependants, who will be able to stay for up to 4 years (previously limited to 2 years).

·       More UK citizens will qualify for Australia’s working holiday visa scheme (up to the age of 35) for up to 3 years. The requirement for travellers to first work on a farm will be removed.

·       Australia will pilot an early career workplace exchange scheme for graduates aged 21 and 45.

There are more noteworthy inclusions in other areas, such as data & digital, where the agreement is particularly strong, incorporating a range of commitments that go at least as far, if not further, than any existing UK FTA. Provisions include guarantees on the free flow of trusted data, standards for data protection, a ban on data localisation, protections on source codes and commitments in advanced areas such as support for electronic transferable records (for example, recognition of electronic documents, contracts and digital signatures) which could significantly enhance supply chain efficiency.

Equally meaningful commitments on government procurement mean greater market access will be afforded to both UK and Australian suppliers. The government estimates that UK firms are guaranteed the opportunity to bid for £10 billion per year worth of contracts at both federal and state-level in Australia.

What should I do now?

This FTA underscores a positive long-term environment for trade and investment between the UK and Australia, helping businesses in both countries establish stronger commercial footprints.

There is no getting away from the fact that existing bilateral trade between the two countries is relatively small - currently accounting for just over 1% of the UK’s total trade. Even according to the government’s own figures (which raised eyebrows having been significantly revised-up), the deal is set to boost UK GDP by just 0.08% over the next 15 years. The FTA will not therefore, on its own, be a game changer in macroeconomic terms.

However, there are many positive aspects to this agreement which, upon entry into force, will present targeted new opportunities for companies trading within, or considering entering, the UK-Australia corridor – from the ability of some firms to fulfil services contracts for the first time, to the embrace of electronic records to cut costs and delivery times.

Businesses should now be taking the time to understand some of the complexities of this agreement and quantify the opportunities – particularly those with existing supply chains in the UK-Australia corridor or exporters already operating outside of Europe. To understand more about the provisions in this agreement, identify how you could capitalise on the changing trading landscape and assess your priorities, our specialists are on hand to help.