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Australia must remember 1973 before running back to Britain

Image credit: Number 10 (Flickr: Creative Commons)

By triggering article 50, UK Prime Minister Theresa May has indeed confirmed that ‘Brexit means Brexit’. Establishing Free Trade Agreements (FTAs) to replace the loss of the single market will be the top economic priority of May’s government. President Trump’s announcement that he is eager to sign an FTA with the UK has been a welcomed win for May. Equally, Australia’s hurried announcement that Canberra is also salivating over the prospect of an FTA with the mother country has been a source of euphoria among pro-Brexiters. However, alacrity is a poor negotiation trait and Australia needs a history lesson before it pushes forward with any agreement.

They will be turned back

Britain made clear its intent to move closer to Europe as early as 1961 when then UK Prime Minister Harold Macmillan announced the decision to apply for European Economic Community (EEC) membership. UK membership to the EEC was finally granted in 1973, but was dependent on Britain severing its remaining Commonwealth ties, predominantly in the area of trade. This was essentially a protectionist measure to defend inefficient European producers from the comparative advantage of Australian imports. This decimated Australian exporters, with Australian butter exports dropping by more than 90% and Australian apple trade declining from 86,000 tonnes in 1975 to just 27,000 tonnes in 1990.

May's proclamation in the House of Commons that 'there can be no turning back', the UK will be leaving the EU and it will be a 'hard Brexit' seems to be misunderstood by Canberra. Leaving the single market (hard Brexit) does not mean isolation from the EU. Whatever emerges from the Brexit negotiations, one can be assured that the chances of total isolationism are slim to none. A bilateral partnership based on established trade regimes with a new organisation governing relations will likely be the result.

These sort of trade arrangements rarely remain as superficial as they start. They usually always experience a spillover effect—a phenomenon that occurs when integration in one area is a corequisite of integration in an interrelated policy area. Essentially, Britain will re-join the EU through piecemeal agreements that will be demanded by business, and will be necessary to improve the efficacy of the economic partnership between the EU and UK. That outcome—for an Australia that has restructured even part of its economy to take advantage of the AUS-UK FTA—will produce a 1973-esque shock.

Canberra should recognise this and approach any deal with extreme caution. Any FTA must contain strong investor-state dispute settlement clauses favouring Australian companies before any deal is even considered. In addition, as Richard Snape argues, trade creation gains need to be carefully weighed against possible retaliation by other countries. Canberra ought to remember that the present, and likely the future, of the bulk of Australian exports head to the Asia-Pacific and not the UK. A UK deal would likely result in import diversion from current trade deals in Asia. Such an outcome will force Asia-Pacific countries to retaliate by erecting trade barriers to Australian exports. Finally, Australia’s ongoing negotiation with the EU to establish an AUS-EU FTA should not be hindered by risking a deal with the UK. Of course Australia could and indeed should use the UK-AUS FTA as leverage to extract a more preferable deal with the EU. However, establishing an FTA with the EU should be our first priority, and will provide insurance to any possible return of the UK into the EU.

Ann Capling notes that FTA’s have greater importance than seeking to create trade. She points to the AUS-Japan FTA, which was motivated more by geo-political concerns rather than commercial interests. However, a UK-AUS FTA seems to be neither motivated by geostrategic concerns or commercial interests. Rather it appears to be a deal based on antiquated ideology. Canberra must base its trade policy knowing that Australia has no permanent friends or enemies, only interests.

Chris Arnel is the International Trade and Economy Fellow for Young Australians in International Affairs.

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