24 Jun 2021

Australia and the UK reach an Agreement in Principle for the long-awaited Australia-UK FTA

By Julie Wong, Charis Chan, Samy Mansour, Andrew Hay and Zac Chami

The Australia-UK Free Trade Agreement is set to increase the flow of commerce and trade between Australia and the UK, particularly through the removal of significant tariffs on goods and introduction of broader labour mobility provisions.

A significant milestone in Britain's post-Brexit future, and Australia's continuing program of free trade agreements, has been reached with the announcement on 15th June of the "Agreement in Principle" (AIP) on the terms of an Australia-UK Free Trade Agreement (FTA) – Britain's first bilateral trade deal to be negotiated from scratch since it left the European Union in 2020. This follows five years of discussion and while further negotiations are required to finalise the text of the agreement, the preliminary AIP outlines at a high level the key changes which aim to boost access for businesses and workers between both countries to drive economic growth and job creation.

As we noted in 2019, the FTA is important given the UK was Australia's seventh largest trading partner then, with the FTA now predicted to boost the Australian economy by up to A$1.3 billion a year. As the world continues to deal with the impacts of the COVID-19 pandemic, the hope is that the FTA will support both nations' continued economic recovery.

In particular, the FTA is expected to deliver the following benefits for Australian businesses and consumers:

Removal of tariffs on goods resulting in cheaper export fees and British goods

In 2020, the UK was Australia's fifth largest goods trading partner with the relationship valued at A$21.9 billion. The FTA aims to improve access to goods in both countries' markets, including by gradually removing taxes on Australian exports to the UK over a transition period. The Australian Department of Foreign Affairs and Trade (DFAT) has indicated Australia’s exporters stand to benefit with 99% of Australian goods by value able to enter the UK duty-free when the FTA enters into force.

Under the deal, Australia will instantly be free from the requirement to pay any tariffs on wine and short and medium-grain milled rice. Tariffs for beef and sheep meat, on the other hand, will gradually be reduced over 10 years (a term which was subject to substantial negotiations caused by British farmers fearing the potential flood of cheaper meat exports from large Australian farms).

For example, Australia will immediately be able to export a duty-free quota of 35,000 tonnes of beef, rising in equal instalments to 110,000 tonnes in the tenth year when no tariffs will remain. In the following five years, a safeguard will apply on beef exports exceeding a further volume threshold rising in equal instalments to 170,000 tonnes, levying a tariff safeguard duty of 20% for the rest of the calendar year. Meanwhile, tariffs for sugar will be reduced within eight years, and dairy within five years. Australian consumers will also benefit from the removal of tariffs on cars, whisky and various other major exports from the UK.

Extension of Youth Mobility Schemes leading to an increased two-way labour flow

Under the FTA, Australian or British nationals up to the age of 35 (as opposed to the current threshold of 30) can work in the other country for a total of three years without needing to conduct specific work such as rural farm labour. This change will be introduced within five years to monitor any impact on Australia's agriculture sector and ensure alternative workplace opportunities are in place. Both countries have agreed to measures that should increase the mutual flow of backpackers, which is important for tourism and supporting the agricultural industry. A new agriculture visa will also be established which allows people to work on farms in either country.

Mutual recognition of professional services qualifications resulting in more job opportunities in the UK for Australians

The FTA will make it easier for professionals including lawyers, accountants, engineers and architects, to transfer and use their qualifications in the other country. Subject to relevant industry bodies, Australia and the UK will establish a best practice framework to improve the two-way movement of professionals.

One specific focus is on improving accessibility for Australian lawyers to practise foreign and international law in the UK, including in arbitration, mediation and conciliation proceedings. The FTA will include provisions for the legal regulatory bodies to collaborate to reduce barriers preventing local lawyers from practising in the other jurisdiction.

New investment rules increasing opportunities for Australian businesses entering the UK market and vice versa

In 2020, the UK was Australia's second largest source of foreign investment in terms of total stock (A$738 billion) and the third largest source of foreign direct investment (FDI) (A$123 billion). It was also the second largest destination for Australian foreign investment with total stock of A$615 billion and FDI of A$135 billion.

To further this investment relationship, the FTA will include protections for investors including guarantees of fair treatment and protection from expropriation. In addition, the FTA will cover both FDI and portfolio investment in order to benefit Australia's asset management sector, such as Australian fund managers active in the UK market supplying essential services and infrastructure.

Each country will also reduce any requirements for senior managers or directors of businesses to be residents of the other country, in order to make it easier for small and medium enterprises to be established. Similarly, both Governments are also exploring the possibility of limiting regulatory conditions on investors. The inclusion of a most-favoured nation provision also seeks to bolster Australian investors trying to access the UK market.

On the incoming investment side, Australia intends to encourage UK investment by raising the monetary threshold for UK investments that require screening by the Foreign Investment Review Board.

Intellectual property protections supporting investment in creativity and innovation

Under the FTA, Australia will make reasonable efforts to join the multilateral Hague Agreement on Industrial Designs, which allows designers to protect their original creations overseas more easily. A process that allows Australian artists to receive royalties when their original works of art are resold in the UK and vice versa is also underway. Australia has also agreed to protect European Union geographical indications (GIs) under a new Australian GIs system under the FTA, if the UK also puts forward its GIs for potential protection.

Timeline and next steps for the Australia-UK Free Trade Agreement

The FTA is expected to come into effect in 2022 after the parties finalise negotiations and the Australian and UK Parliaments pass the required legislation.

Individuals and groups who have comments about the proposed Australia-UK FTA can make submissions to the DFAT website here. In particular, DFAT has indicated that it welcomes commentary on the expected commercial, economic and regional impacts, as well as specific market access challenges and information on tariff and non-tariff barriers to goods and services trade and investment. Submissions can be made in several forms, from a short email through to a more comprehensive analytical paper.

Detailed snapshot of Australia-UK FTA

Visas/work

Working visa 
  • Extended to three years
  • Age limit lifted from 30 to 35 years
  • British backpackers – No longer have to work 88 days in the Australian agricultural industry to get an extension on their visa

Regional visa scheme

Further details to be announced – aim of scheme is to address dearth of farm labour

Seasonal agricultural visa

Offered in both directions (eg. shearers could work in Australia and Britain) – further details to be announced

Professionals

"Mutual recognition of qualifications" – see "Services" below

Innovation and Early Careers Skills Exchange

The UK and Australia will jointly explore dedicated visa requirements, in line with their respective systems, to further enable workplace exchanges which facilitate early career mobility for those involved in innovation across industry, culture and the arts

Goods

Scotch whisky 

Tariffs eliminated as soon as deal is signed

Confectionary (Australian and British)

Tariffs eliminated as soon as deal is signed

Australian wine

Tariffs eliminated as soon as deal is signed

British cars (incl Mini and Jaguar)

Tariffs eliminated as soon as deal is signed

British ceramics

Tariffs eliminated as soon as deal is signed

Australian swimwear

Tariffs eliminated as soon as deal is signed

Agriculture

Note: for the following items, transitional quotas will be single quotas with no additional conditions. Transitional quotas will be managed by the Australian Government on the same basis as Australia’s country-specific quota access under the WTO. Neither side will seek additional access or faster tariff reduction through the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Beef
  • Tariffs to be eliminated over 10 years
  • Duty-free quotas to progressively increase over that time
  • Australia will have immediate access to a duty-free quota of 35,000 tonnes, rising in equal instalments to 110,000 tonnes in year 10
  • In the subsequent five years a safeguard will apply on imports exceeding a further volume threshold rising in equal instalments to 170,000 tonnes, levying a tariff safeguard duty of 20% for the rest of the calendar year
  • Out of quota tariffs will remain at MFN until year 10 and then be eliminated

Sheep meat
  • Tariffs to be eliminated over 10 years
  • Duty-free quotas to progressively increase over that time
  • Australia will have immediate access to a duty-free quota of 25,000 tonnes, rising in equal instalments to 75,000 tonnes in year 10
  • In the subsequent five years a safeguard will apply on imports exceeding a further volume threshold rising in equal instalments to 125,000 tonnes, levying a tariff safeguard duty of 20% for the rest of the calendar year
  • Out of quota tariffs will remain at MFN until year 10 and then be eliminated

Australian rice
  • Permanent duty-free quota of 1,000 tonnes per year for long-grain milled rice
  • Immediate tariff elimination for short and medium-grain milled rice  

Dairy
  • Tariffs to be eliminated after five years
  • Duty-free quotas to progressively increase over that time
  • Australia will have immediate access to a duty-free quota for cheese of 24,000 tonnes, rising in equal instalments to 48,000 tonnes in year five
  • Australia will also have immediate access to duty-free quota for non-cheese dairy of 20,000 tonnes.
  • There will be a further duty-free transitional quota for butter of 5,500 tonnes rising to 11,500 tonnes in year five

Sugar/Cane
  • Tariffs to be eliminated after eight years
  • Duty-free quotas to progressively increase over that time
  • Australia will have immediate access to a duty-free quota of 80,000 tonnes, rising by 20,000 tonnes each year to 220,000 at year eight

Other – from agreement in principle published 17 June 2021

Trade remedies
  • Australia and the UK commit to including a chapter on Trade Remedies that will affirm both countries’ rights and obligations under the WTO framework, including safeguards. 

Customs Procedures and Trade Facilitation
  • Australia and the UK commit to facilitating increased bilateral trade and efficient and transparent customs procedures, while also allowing the UK and Australia to maintain effective customs control.

Note: A separate bilateral instrument to be negotiated on Co-operation and Mutual Administrative Assistance in Customs Matters (CMAA) intended to be completed to the same timeframe as the FTA (by Autumn 2021) to support and strengthen customs co-operation.

Sanitary and Phytosanitary Measures
  • Australia and the UK will commit to provisions that facilitate trade while ensuring protection of human, animal and plant life and health. Imports will still have to meet the same respective UK and Australian food safety and biosecurity standards. 

Services
  • The UK and Australia will commit to high standard rules for all services sectors, including cross-border trade in services, professional services, financial services, maritime and delivery services, and telecommunications.
  • Professionals who want to work in each other’s territory and will have their qualifications recognised without facing unnecessary cost and bureaucracy, primarily through collaboration between UK and Australian accreditation and regulatory bodies aimed at facilitating qualification recognition.
  • Legal service provisions will guarantee that UK and Australian lawyers can advise clients and provide arbitration, mediation and conciliation services in the other country’s territory using their original qualifications and title, as well as establish and drive collaboration between regulators with the aim of addressing remaining barriers to practise as a local lawyer in the other country’s territory.
  • Coverage of UK/Australia-flagged vessels in the services chapter, allowing these to benefit from guaranteed market access and non-discriminatory treatment when operating in Australia/UK and an International Maritime Transport Annex which ensures that UK/Australian shipping companies, vessels and service suppliers have non-discriminatory access to ports and port services, can move empty containers freely and provide feeder services between ports, consistent with each country’s cabotage regimes.

Investment
  • Commitments will cover all investment, portfolio and FDI and ambitious market access commitments.
  • The agreement will not include an Investor-State Dispute Settlement mechanism.
  • The deal also includes higher investment screening thresholds for UK investors in Australia, meaning fewer UK investments are subject to review by the Foreign Investment Review Board.

Digital trade
  • To include strong rules on data flows and the prohibition of unjustifiable data localisation requirements to create a more certain and secure online environment and support increased growth in digital trade between Australia and the UK.
  • Will also include provisions to ensure the recognition of electronic contracts and signatures and legal frameworks on electronic transactions that facilitate e-commerce.

Intellectual property
  • The agreement will include provisions on copyright, design rights, patents, trademarks, artists resale rights, trade secrets and test data. These commitments will not lead to increased medicines prices in either country.
  • The deal will also include a commitment that if Australia introduces bespoke Geographic Indication schemes for spirits and agri-foods, the UK will be able to put forward Geographic Indications for potential protection subject to Australia’s legal procedures.

Government Procurement
  • Australia and the UK will make commitments that maximise opportunities for our suppliers to participate in each other’s government procurement markets, and drive value-for-money outcomes.

Competition
  • Australia and the UK commit to including provisions aimed at competition policy and consumer protection, including provisions that maintain national competition laws that proscribe anti-competitive agreements, anti-competitive practices by entities that have substantial market power, address mergers with substantial anti-competitive effects, and maintain a national competition authority.

State-owned Enterprises and Designated Monopolies (SOEs)
  • Australia and the UK agree to include provisions that provide for open and fair competition between commercially-oriented SOEs and private businesses; for example rules around non-commercial assistance to SOEs and non-discrimination.

Environment
  • Both countries commit to undertaking co-operative activities, including those targeted at key technologies in the transition to a low carbon and climate resilient economy.

Transparency and anti-corruption
  • Australia and the UK commit to best-practice transparency and anti-corruption provisions.
  • Aims to address the harmful effects of facilitation payments; prohibiting the tax deductibility of bribes; whistleblowing. 
  • To include co-operative provisions on embezzlement and money laundering, and asset recovery. 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.