What would a trade deal with Australia mean for ‘Global Britain’?

Boris Johnson has made his first real choice – one with domestic winners and losers – on what post-Brexit, ‘Global’ Britain means. A Cabinet decision to offer a phased-in zero tariff, zero quota trade deal with Australia has enraged British farmers and is opposed by the devolved governments in Scotland, Wales and Northern Ireland. Economically, a trade deal with Australia would deliver little for the UK: on the DIT’s own figures, up to 0.02% of GDP (￡500m) over 15 years. It matters as a signal of intent – of what trade-offs the government will make to secure trade deals, of prioritising a particular vision of Brexit over the UK Union; above all, of no going back to EU rules – and what that implies for UK standards.

The UK will pay a price for quick deals…

While agreement is yet to be reached with Australia, it is likely to come quickly – perhaps even by the G7 summit in Cornwall on 11 June. That is the political quick win Boris Johnson wanted, and the Australians gambled, correctly, that the UK government would pay the price of tariff and quota-free access to the UK food market (better access than many of Australia’s other trade deals) to get it. That is probably the most significant aspect of the imminent deal; and what other prospective trade partners will focus on. This is also what Cabinet have really been arguing about; if you offer full access to the UK food market to Australia, even with a long phase-in, how can you expect trade deals with New Zealand, the Pacific CPTPP or South American countries without giving them the same? And what impact would that cumulative competition have on the survival of British farmers, most of whom are represented by Conservative MPs?

… but a major US deal is probably a step too far

Does this mean we are likely to see a US trade deal anytime soon? It remains unlikely during this Biden four-year term; partly because the President wants to see a stable solution on the Northern Ireland Protocol first, but mainly because his administration care more about enforcing standards in global trade, rather than seeking the Congressional authority to cut new bilateral deals. But even if Biden were keen on a quick UK deal, the government is unlikely to take on the domestic political opposition to accepting US food standards or concerns about NHS data and drug pricing. While the idea of a trade deal with Australia is popular – in the abstract – these asks still make a US deal toxic for too many voters.  

How worried is the government about domestic opposition?

As well as reluctance to make the case for accepting US food, we’ve regularly seen this government swerve sharply to meet backbench pressure, on everything from Covid restrictions to free school meals. Despite anger from the farming and fishing industries over the impact of the EU trade deal, the Conservatives did well in May’s local elections in places like Cornwall. But No10 and the Whips will be watching closely to see how Tory MPs in rural seats react to the new pressure from the farming lobby as other trade deals come into view. Parliament has no effective power to block trade deals, but organised backbench opposition could cause the government to offer extra reassurances over food standards, which would complicate future trade talks.

Taking risks with the UK Union

This wariness is largely confined to English voters, however. Johnson’s decision on an Australia trade deal highlights how little strengthening the UK Union weighs against his political imperative of delivering a particular vision of Brexit. The Scottish and Welsh governments, as well as all parties in Northern Ireland, oppose a tariff-free Australia deal, fearing for the impact on their small farmers. Post-Brexit legislation on trade and the UK Internal Market means that Edinburgh and Cardiff are powerless in the otherwise-devolved area of agriculture – which will play into the SNP’s independence arguments, particularly if further deals with big food exporters follow. Northern Ireland farmers, who effectively remain in the EU market, will be protected from tariff-free Australian competition – a point which the SNP will ram home. The impact in Belfast is political; as Johnson acts on his choice of trade deals for GB over ease of trade with NI, the prospect of light-touch checks across the Irish Sea will fade, and Unionists’ sense of abandonment only increase.

A message to the EU: no going back

The EU’s solution to reducing checks across the Irish Sea was for the UK to align, temporarily if need be, with EU food standards. David Frost has publicly resisted this, arguing that only full UK control of food standards can deliver new trade deals. An Australia deal will be used to vindicate this stance, and send a wider message – to the EU, but also to other domestic industries who oppose divergence – that there is no going back.

Behind the triumphant headlines, there is frustration among the hard Brexiteers at the heart of government with what they see as Whitehall caution over divergence. The Queen’s Speech legislative programme contained only two areas framed as explicitly diverging from EU rules – on public procurement and State aid – and even then it is not clear how radical any divergence will be. The UK may also decide to allow more use of gene technology, to help the competitiveness of an agriculture sector badly hit by falling EU exports. But the regulatory ‘benefits of Brexit’ agenda looks thin. Partly in response, Frost is seeking to beef up his own policy resource, with a new Cabinet Office team to look at divergence opportunities, and to chivvy Whitehall departments to be more ambitious.

Although an Australia trade deal is a significant choice in favour of free trade over protecting national producers, the long lead-in time shows that the government are still cautious. The big battles over trade and de-regulation are still to be fought.