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Why the Australian trade deal could be good for post-Brexit London

Boris Johnson meets Scott Morrison (PA Wire)
Boris Johnson meets Scott Morrison (PA Wire)

It’s easy to be cynical about the benefits to Britain, and London in particular, of Boris Johnson’s trade deal outlined today with Australia.

After all, while Australians and Brits feel a natural kinship (off the rugby and cricket fields), the prospect for UK companies to export Down Under are pretty limited.

Australia’s economy is about $1.3 trillion smaller than Britain’s.

Its population, though wealthier than Britain’s (GDP per capita there is $53,799 against $39,720 here) is 40.3 million smaller than ours.

Australia is only Britain’s 20th largest trade partner and Britain is Australia’s eighth.

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In other words, Vegemite’s Aussie owner Bega Cheese will find more new customers here in a tariff-free world than Bovril and Marmite’s parent Unilever will reach over there.

Besides, even if we can sell more UK goods to Australia, as Boris has suggested, most of those have little impact on Londoners.

But, while we’re yet to see the small print, there could be more to this deal than meets the eye.

What’s included?

So far, there’s scant detail, although the government has said cars, Scotch whisky and confectionery would be cheaper for Aussies due to reduced tariffs and red tape.

Australia has said its farmers would get a “great win” with new access to the UK market.

While this is all small beer for Britain’s £2 trillion economy, what could be more significant would be an opening up of Australia’s services industry to UK firms.

Again, detail is scant, but industry sources who have been advising the government are hopeful that it will include provisions for free access to Britain’s leading digital, technology and data firms, as well as financial services.

As one financial services lobbyist said: “The noises from both sides are that this is breaking new ground.”

Financial services lobby group, TheCityUK, said: “Services account for 80% of the UK economy, and the agreement recognises this. It aims at setting a new global standard for trade in services and delivering real improvements to the framework for financial and professional services trade between the two countries.”

Given that the City is one of the biggest financial services markets in the world, it is clear that this would be one area where Britain would have most to gain.

How much will the City really stand to gain from dealing with Australians?

It’s a fair question. Australia’s relatively small economy and even smaller population do not necessarily rank as a goldmine.

Last year, of the £13.9 billion of each-way trade between our two countries, UK financial, insurance and pension services to Australia were just £2.2 billion. To put that in context, the global revenues of just one British bank, HSBC, in the last three months alone were £9 billion.

So it’s an irrelevance then?

Not necessarily. If the City’s lobbyists are right, and financial and other services are going to be included in the deal, it marks a breakthrough in trade negotiation structures because, generally, trade deals only cover goods.

Services are far more complicated, with professions often having non-governmental regulators to comply with such as the Law Society, British Medical Authority or Financial Conduct Authority. Getting agreement from that lot can take years.

If the deal with Australia has found a way around this, it could mark an exciting blueprint for other UK trade deals.

Other trade deals?

Yes. This is the first trade deal the government has struck that is not essentially a copy of an existing deal we’ve had via the European Union (see our deal with Japan).

Once one deal is struck like this, it can serve as a template for others, so while Australia may not be a big market for UK financial services, other, bigger countries will be.

Key to the UK government’s hopes is that the Aussie deal will be the model for others in the Asia Pacific region. Most importantly, Australia is in the CPTPP - a mouthful of a trade bloc in the region, standing for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Who’s in that?

The CPTPP is made up Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. It was originally hoped to include the US under the old name, the Trans-Pacific Partnership, but Donald Trump pulled the US out.

Financial services lobbyists say if Britain can sign copycat deals like the Australian one with the other members, then Britain could join the whole trade bloc, securing good access to some of the fastest growing markets in the world.

Politically, being in the CPTPP would be strategically advantageous because it could act as a counter to our future reliance on China.

Critics of remainers will argue, probably rightly, that today’s deal pales into nothing when set against what we have lost in trade with the EU through our Brexit.

While it is too early accurately to measure the impact of that, particularly now Covid has reaped such damage to trade at the same time, it is beyond doubt that Britain will be a net loser from our departure from the EU.

But Brexit is done, and cannot now be undone. For the City, alternative sources of revenues must be found, and if the Australian deal lives up to the hopes of lobbyists, it will be seen as a significant step in the right direction.

All this speculation comes with a major health warning, though: until we have seen the wording of the text, the real importance will not be clear.

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