Australia will be exposed to sanctions for missing climate change targets under a new trade deal with the European Union that holds out the promise of boosting $94 billion in two-way trade.
But Australia has fallen behind New Zealand on the path to a deal – in part due to anger over the Morrison government’s cancellation of its submarine contract with the French government – leaving farmers to wait longer for better access to a huge market despite attempts to put the talks on a faster track.
EU Trade Commissioner Valdis Dombrovskis says a free trade agreement could be struck next year.Credit:AP
EU trade commissioner Valdis Dombrovskis told The Sydney Morning Herald and The Age an agreement could be reached next year but insisted climate change targets would have to be part of the outcome, exposing Australia to sanctions if it failed to honour pledges to cut greenhouse gas emissions.
The EU is holding out against Australian demands for bigger quotas for beef, lamb and dairy exports while demanding new rules that would stop Australian food producers using European geographic names such as parmesan cheese and Parma ham.
Speaking in Brussels during a break from talks with New Zealand negotiators, Dombrovskis said access for Australian farmers was a “sensitive question” and both sides knew of the sensitivities around agriculture.
“One needs to approach this question with a sense of realism,” he said.
Australian producers are frustrated with the barriers to their exports when European consumers are dealing with rising food prices but the farm groups in each of the 27 EU member states could rally voters against lower tariffs during a year of campaigning before the 2024 elections for the European Parliament.
The delays, blamed on the uproar over the Morrison government’s decision to cancel the submarine contract with France last September in favour of an agreement with the United Kingdom and the United States for nuclear-powered submarines, mean Australian negotiators could struggle to reach a favourable deal.
“The AUKUS case and the cancellation of the submarine contract became an obstacle in our decision, so we had some delays and we postponed some negotiating rounds,” Dombrovskis said.
“Now I would say things are broadly on track and, since the Australian and French governments seemed to settle the issue, hopefully we can say it is behind us.”
“It certainly was a problem because the whole announcement came out very unexpectedly, there were no prior consultations with the EU on all those decisions.”
French President Emmanuel Macron branded former prime minister Scott Morrison a liar over the surprise AUKUS announcement and gained support from other EU member states who wanted to suspend talks on the Australian trade deal.
A trade delegation led by the European Australian Business Council, including company directors as well as industry groups such as Meat and Livestock Australia, met government officials in Paris and Brussels this week. Some of those in the meetings said the message from the EU was that the new Australian government’s climate policy and its resolution of the submarine dispute had smoothed the way for a trade pact.
Prime Minister Anthony Albanese emerged from a meeting with European Commission President Ursula von der Leyen in Madrid on Wednesday to say he hoped for “real progress” by March.
Prime Minister Anthony Albanese in Madrid on Thursday, June 30.Credit:Alex Ellinghausen
But the New Zealand deal is much further advanced, partly because it covers a smaller economy, and could be agreed in principle when Prime Minister Jacinda Ardern meets von der Leyen in Brussels on Thursday.
Climate targets remain a crucial factor in the trade talks after Dombrovskis declared last week that trade partners in new deals would have to honour “core provisions” of global standards including emission cuts committed to under the Paris Agreement at the United Nations.
While Albanese has improved the prospects for a trade deal by pledging a cut of 43 per cent by 2030 compared to 2005 levels, deeper than Morrison’s target of 26 to 28 per cent by the same year, this nonetheless falls below the EU target of 55 per cent on 1990 levels by 2030.
In a positive sign for the Australian side, the EU trade boss did not urge a deeper target for 2030 and said the government’s net zero target for 2050 was a key requirement.
“There are two important elements: one is respect of the Paris Agreement and the second, in the case of the G20 economies, we are seeking a commitment on carbon neutrality. And that’s something the new Australian government has announced.
“But we cannot micromanage other countries’ adjustment path, so we cannot expect all countries to have exactly the same reduction pathway. So if it’s 43 or 55 by 2030, countries take their own decisions,” he said.
Even so, the central EU requirement will be that it could apply trade sanctions on Australia after a dispute settlement process if it believed Australia was not honouring its climate commitments to the United Nations.
The trade negotiations will also have to overcome concerns from members of the European Parliament, or MEPs, who believe trade liberalisation has failed to link climate action with the traditional approach of removing tariffs.
“The New Zealand government is very, very open and even goes further in some of the sustainability areas than the commercial ones,” Greens MEP Anna Cavazzini said in an interview.
“If Australia basically would follow this line, and would also be open to a new model of trade agreements, or even push harder for other things that we don’t probably have in mind yet, that would be excellent from a green perspective.”
“We think sustainability and climate change is not reflected enough in trade agreements, so they’re very one-sided on liberalisation,” Cavazzini said.
“I think there should be a clear commitment with your CO2 emissions and when they’re broken, then this basically means that it is the same as if you would breach the liberalisation rules. It would become basically more enforceable up to including sanctions and the withdrawal of trade preferences.”
A delegation of MEPs will visit Australia in September and another round of formal negotiation will be held in October.
The EU estimates total trade between Australia and the EU in 2020 was worth $94 billion; €36 billion ($54.6 billion) in goods, with services worth another €26 billion. The EU has a surplus on both: €24 billion in goods and €10 billion in services.
The early scoping study for the deal, before the pandemic, forecast the EU would increase its GDP by 0.02 per cent while Australia would gain a 0.2 per cent economic boost from a deal.
Under a “fast-track” process the Australian deal would require approval from the EU’s peak council and parliament, but it would not give a veto power to national parliaments of the 27 member states.
This overcomes a structural problem seen six years ago when the region of Wallonia in Belgium stopped that country’s parliament from approving a trade deal with Canada, thereby delaying ratification for the entire EU.
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