EU-Australia free trade: What can we learn from the failure?

Since mid-2018, the European Union (EU) and Australia have been negotiating an agreement aimed at facilitating and expanding trade. The "preliminary termination" of the talks at the end of October came as a surprise to the EU.

An EU trade official told German business daily Handelsblatt that Brussels was in a "state of shock." German Finance Minister Christian Lindner expressed his frustration, saying, "If we can't make progress even with Australia — a liberal democracy firmly rooted in the Western world — that is concerning."

The Europeans had placed great hope in an agreement with Australia for several reasons. In a world increasingly marked by conflicts, isolationism and protectionism, free trade agreements are seen as symbols that a different approach is possible.

What was at stake?

In addition to the lofty goal of preserving a liberal world trade order, the EU was also naturally interested in Australia's wealth of raw materials.

The continent's deposits of rare earths, for example, could have reduced Europe's dependence on China, while green hydrogen from Australia could have helped the EU to transform its traffic sector. Europe's carmakers also hoped for a bigger market share.

In exchange for that, Australia sought larger EU market access for its agricultural products, especially for the grains and beef that make up a significant bulk of Australian exports.

The EU is Australia's third most important trading partner after China and Japan. But Australia ranks only 18th for the EU. In 2022, bilateral trade had a volume of approximately €56 billion ($59.7 billion) for goods and €26 billion for services.

Stumbling on agriculture

The negotiations failed primarily due to disagreements over agriculture. The EU had reportedly offered to allow Australian agricultural products worth approximately €600 million annually into the European market. Australia considered this inadequate.

Holger Görg, an international trade expert at the Kiel Institute for the World Economy (IfW), can understand why Australia rejected the deal. "The EU imported agricultural products worth about €200 billion in 2022. The offer to Australia accounts for around 0.3% of total EU agricultural imports," Görg told DW, adding that the improvement under the accord would have amounted to not more than just half of what Australia currently exports to the EU.

Another point of contention was the EU's  protected designation of origin (PDO) policy under which all parts of the production, processing and preparation process of branded agricultural products must take place in the specific region.

Product names such as Parma ham, feta cheese, champagne or even Prosecco are protected in the EU, but not in Australia, said Görg. "In Australia, labeling regulation is being handled more loosely, and there are Australian alternatives with similar names for many EU products."

Evgeny Postnikov of the University of Melbourne says Australian farmers consider the EU's PDO policy as unfair, which is why talks on the issue didn't make progress. "The usage of these names in Australia is an indication of the success of European farmers who migrated here and brought these products, demonstrating their lasting popularity," he told DW.

Postnikov thinks Australian farmers drove a hard bargain in the talks because they are in "a good bargaining position."

"A deal with the EU would have been a bonus, but is not existential for its [Australia's farming sector's ] global competitiveness," he said. Unlike EU farmers their Australian counterparts are not pampered by heavy state subsidies. They are much more competitive on international markets as big as China.

Lobbyism galore

In both the EU and Australia, farmers wield huge political influence, says Markus Wagner, and their lobbies were "not willing to make a compromise." The associate professor and expert in economic law at the University of Wollongong in Sydney told DW that groundbreaking new projects also foundered in the wake.

"The lobby for green energy sources was not strong enough to break this resistance, even though it would have been strategically beneficial," Wagner said.

In addition, there were political constraints in both Canberra and Brussels.

In a national referendum Australians overwhelmingly rejected a government  proposal to recognize Indigenous Australians in the constitution, with the biggest opposition having come from rural voters. "The Labor government cannot afford to alienate this constituency, especially ahead of general elections in 2025," said Wagner.

And officials in Brussels fear that any far-reaching concessions to foreign farmers might upset EU farmers and swell the already-growing ranks of populist parties ahead of EU parliamentary elections next year.

No country for EU free trade policy?

The failed negotiations with Australia overshadow a free trade agreement between the EU and New Zealand, successfully completed and signed earlier this year.

Postnikov thinks a trade deal with much-bigger Australia would have put the EU and all other global free trade efforts in good stead.

"This does not augur well for the rules-based trade which both parties wish to promote in the face of growing protectionism in the US and elsewhere," he said. The failure would send a signal around that the world may have reached "the pinnacle of trade liberalization," and other countries, "particularly in the Global South, will be watching closely."

According to Australia's Minister of Agriculture, Murray Watt, bilateral trade negotiations with the EU are "unlikely" to resume before next election in 2025.

Another free trade pact in danger

Agriculture policy also plays a significant role in the planned free trade agreement between the EU and the South American trade bloc Mercosur comprising Argentina, Brazil, Paraguay, and Uruguay.

The trade pact was already reached in 2019 after two decades of negotiations, but has been on hold due to EU environmental concerns. Brussels presented Mercosur with an addendum to the agreement that included environmental safeguards to address reservations by many EU member states. Brazil, which currently holds the presidency of Mercosur, called the additions protectionist and pushed back against more open government procurement provided for in the proposed trade deal.

Holger Görg thinks both parties to the trade talks should change their priorities "given the current situation, where trade is being reconsidered to avoid dependencies." especially on raw materials, priorities in trade agreements should be reconsidered."

Especially in the EU, were agriculture accounts for only one to two percent of economic output, it should be "possible to consider opening up the sector for the  benefit of other sectors, particularly raw material imports," he said.

Wollongong University's Wagner agrees and thinks pressure from farming lobbies will also be "high" in the context of Mercosur. "Given the challenging geopolitical situation, it remains to be seen whether the EU can look beyond purely economic interests."

This article was originally written in German.