Negotiations for a free trade agreement (FTA) between the EU and Australia are stalling as Australia wants to leverage its wealth in critical raw materials to get more market access for its meat and sugar industry.
On Tuesday (11 July), Australian Trade Minister Don Farrell broke off what many hoped to be the final round of negotiations for an FTA between Australia and the EU. Having travelled to Brussels on short notice, Farrell was left unimpressed by the EU’s market access offers for Australian beef, sheepmeat, and sugar producers.
“We’ve made it very clear right from the start that we won’t simply accept any agreement,” he told journalists on Tuesday afternoon.
An EU Commission spokesperson said the EU executive regrets that “it was not possible to conclude our talks with Australia this week,” arguing that the EU had “made every effort to arrive at a balanced agreement that meets our mutual strategic interests, while also protecting the interests of our stakeholders”.
EURACTIV understands that the EU presented Australia with a new market access offer that the Australian trade minister could not accept without first consulting with his colleagues in Canberra.
“We note there were several issues on which the Australian side required further internal consultations,” the Commission spokesperson said.
Both parties agreed to keep negotiating in the hope of getting towards an agreement before the end of the year.
Collaborate in critical raw materials
While the EU just signed an FTA with New Zealand, Australia seems to be a tougher nut to crack. It is not only the Australian economy that is more than six times larger than New Zealand’s, Australia also has something that the EU desperately needs: critical raw materials.
In its vast and sparsely inhabited territory, Australia finds most of the materials that will be crucial to transition the world economy towards a greener model.
For example, Australia is the world leader in lithium extraction, producing more than the world number two (Chile) and three (China) combined, according to the United States Geological Survey.
Although Australia has started to scale up its lithium refining capacities, most of the lithium still goes to China for processing. China currently accounts for about 60% of lithium processing capabilities.
As both the EU and Australia have professed their intention to “de-risk” and diversify their supply chains away from China, the opportunity for collaboration seems clear.
“If [the Europeans] want to do what we want to do, which is diversify our trading relationships, then Australia is the perfect country to do it with,” the Australian trade minister said on Tuesday.
But the details are difficult.
Double pricing: Industrial policy vs free trade
For example, the EU would like to have access to Australian raw materials under the same conditions as Australian consumers. It wants Australia to commit to a policy that would prohibit so-called double pricing that disadvantages EU companies compared to Australian ones.
One of these policies is the regional government of Western Australia’s policy of reserving 15% of liquified natural gas production from each LNG export project for the domestic market, which reduces prices for domestic gas consumers.
The EU’s push for Australia to refrain from such policies is understandable from a European perspective, especially since the EU tries to build up its own raw materials processing supply chain in Europe.
However, this push might undermine Australian efforts at being more than just a raw materials exporter.
Australia has long struggled to establish businesses further down the value chain despite the availability of abundant energy. This is partly due to its wealth in natural resources.
The highly profitable raw materials sector attracts talent with highly competitive wages, which raises labour costs for industries across the board. Add to that the fact that raw materials exports push up the value of the Australian dollar, and it gets even harder for any downstream manufacturers to be competitive in the global market.
Double pricing could therefore be one of the few policy options for Australia to help establish some more sophisticated industries next to its mining giants.
Agricultural market access
While critical raw materials might be the most important aspect of the FTA from a strategic point of view, agriculture, as usual, is the most contentious one.
Take the Australian dairy industry, for example. Seeing its biggest market is in China and other Asian countries, it has little to gain from an FTA with the EU. It does, however, have something to lose as the EU pushes for the respect of its geographical indications (GI) for several food products, specifically Feta, Parmesan, and Romano cheese.
If Australia subscribed to these GIs, producers of Australian goat cheese, for example, could no longer call their product “Feta”, as the GI would restrict the use of this name to products made in Greece, an issue of great contention for the large group of Australians with Greek heritage.
With the dairy industry having nothing to gain but much to lose, support from the Australian agricultural sector would have to be secured in another way, for example by significantly increasing the EU import quotas for Australian beef, sheepmeat, and sugar.
“The agreement has to achieve meaningful agricultural access to European markets,” Don Farrell said. He is under pressure from the National Farmers’ Federation (NFF), whose chief executive Tony Mahar said in a statement that it was “better to walk away than to agree to a dud deal.”
Australian farmers want to have a slice of the market of more than 440 million EU consumers, but this hurts the interests of EU farmers, especially in France and Ireland. As farmers have proven to be politically very influential in trade matters, it will be difficult for EU countries to agree to open their market for agricultural products.
For the EU, it is thus also a question of whether the industries needing an assured supply of critical raw materials or the agricultural sector will see their interests better defended.
Negotiations in August
Both the EU and Australia still profess to be optimistic about the FTA negotiations, even though EU negotiators seem to be taken aback by the Australian trade minister’s brusque departure.
“We rely on our Australian partners to work with us to get this over the line soon. Our door remains open,” an EU Commission spokesperson said.
Don Farrell said that there was goodwill on both sides. “In August, we will meet again with the aim of trying to resolve an agreement as quickly as possible,” he said.