The end of it, or the beginning of a serious relationship?

Well, many seemed surprised about Australia's and the EU's recent failure to conclude a Free Trade Agreement. But there are also those who are wondering, what these negotiations were all about in the first place, considering that both economies are already reasonably open and complementary in the sense, that Europe provides Australia with technology and investment, while Australia is supplying raw materials, energy and agricultural products to Asia.

I have had the chance to follow the FTA-negotiations from the sidelines in Sydney and provide input to EU negotiators from day one of the talks. After the fall of Prime Minister Malcolm Turnbull who genuinely seemed committed to strengthen ties between continental Europe and the Commonwealth, it became increasingly clear under Prime Minister Morrison that Australia was losing interest in the negotiations, despite or maybe even because of increasing tensions with its largest trading partner, the People′s Republic of China.

Strategic security considerations became more and more important for Australia, which made the Commonwealth turn even more towards the US, a process culminating in the cancelation of a EUR 50bn submarine deal with France and the signing of a rather not so clear AUKUS deal with the USA and the UK costing Australia at least EUR 250bn.

Economically, Australia is disappointed with European (industrial) investment in the country. The Commonwealth and the powerful States do see Asian players, in particular Japan and Korea, as much better placed partners for the strategic development of the (critical) minerals & hydrogen sector, a key issue for a country that's about to lose its position as largest coal and LNG exporter in an increasingly decarbonized future. Therefore, the EU demand that its companies should have access to Australian resources at the same conditions as domestic (and US) firms, was never really taken seriously by Canberra.

A desperate Great Britain eager to sign a first new trade deal after Brexit made quite some concessions in its bilateral FTA with Australia, including in the agricultural sector. Consequently, Australian expectations might have been that the EU weakened by the war on its Eastern flank and an energy crisis would budge as well, which wasn′t the case.

So, are we really talking beef quotas and GIs (geographic indicators) killing the deal? It is obviously convenient to say so as we have seen trade deals falling apart over agriculture in other instances, but here the issues go deeper. I rather think we are witnessing a misalignment in terms of security and economic interests, as other partners can offer more credible alternatives to satisfy Australia′s presumed or real vital interests.

With respect to the trade relations with the European Union, the breakdown of negotiations won′t change much in the short run, even though it for sure constitutes a missed opportunity for Australia to make its market more competitive and open the EU as largest market in the world to an industrial base the Australian Commonwealth looks to rebuild.

In strategic terms, however, by not engaging the EU as a strategic partner, Australia runs the risk of becoming completely dependent on the United States, which currently makes only a minority of Australia′s politician worry despite the extremely volatile political situation in the US. It is in this context interesting to see that New Zealand as Australia′s closest neighbor has signed the FTA with the EU in July 2023, also in order to counter-balance the strong influence of the US and China and, in a very smart move by joining parts of the EU′s Horizon R&D program, to tap into the EU′s enormous research and development potential.

So current events are for sur not the end of bilateral relations between the EU and Australia, but a new beginning might be some way off and will depend on how Australians continue to perceive their strong reliance on the United States as pillar for security and provider of technology under different administrations in Washington D.C.