EU, Australia Launch Negotiations for Free Trade Pact

21 June 2018

On Monday 18 June, the EU and Australia formally launched negotiations on a free trade agreement (FTA). European Trade Commissioner Cecilia Malmström travelled to meet with Australian Prime Minister Malcolm Turnbull and Australian Minister for Trade Steven Ciobo in Canberra, Australia to begin the talks.

Malmström also met with New Zealand officials on Thursday to launch a parallel set of negotiations. The European Council gave the Commission the green light for bilateral trade talks with both Australia and New Zealand last month. (See Bridges Weekly, 24 May 2018

The first round of negotiations on an FTA is set to take place in Brussels, 2-6 July. Bilateral trade between the EU and Australia has climbed steadily in recent years, with nearly €48 billion of trade in goods and €28 billion of trade in services. A European Commission press release suggests that an FTA between the trading partners could boost trade in goods by over a third. 

 “The result of our negotiations will be an agreement that offers clear benefits for both the EU and Australia. It will boost economic opportunity for businesses, both big and small, and create jobs,” said Malmström in response to the launch. 

A Commission statement also noted that FTAs with Australia and New Zealand would be a “valuable entry point into the wider Asia-Pacific region.” Agreements would put European exporters on a more competitive footing with those from countries in the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is currently at the ratification stage and is not yet in force. The CPTPP has 11 signatories, with countries from North and South America, as well as Asia and Oceania, among them. 

Similarly, Ciobo said in a statement that his country is “seeking an ambitious and comprehensive trade agreement to drive Australian exports, economic growth, and create new Australian jobs.” He also noted that Australian exporters are currently at a disadvantage to many of their competitors, as they lack preferential access to the EU market. 

 “Making Australian exports more competitive means our farmers can sell more produce, our professionals can provide more services and our manufacturers can make and sell more goods. The more Australia sells to the world, the more Australian jobs are created,” he added. 

Broader trade context and defence of multilateralism

The trade negotiations will take place in the broader context of the European Union’s push to secure new trade deals, which Commission officials say is part of their effort both to deepen commercial ties with more partners, along with achieving sustainable development objectives and supporting the rules-based global trading system. 

Over the past two years, the EU has concluded trade negotiations with Japan, Mexico, Canada, and others, forming new FTAs or updating existing relationships. The EU is also in a renewed set of negotiations with the South American trading bloc Mercosur, though the timeframe for concluding those talks is not fully clear. (See Bridges Weekly, 9 May 2018

Australia is also pursuing an extensive free trade agenda, including the recently negotiated CPTPP; associate member status with the Pacific Alliance; and a planned Regional Comprehensive Economic Partnership (RCEP) deal between the 10-member Association of Southeast Asian Nations (ASEAN) and its six FTA partners. (See Bridges Weekly, 24 May 2018

A European Commission press release notes that the new FTA negotiations with Australia are part of a greater opportunity to “shape global trade.” In a speech delivered Monday at Australian National University, Malmström characterised 21st-century politics as moving beyond a “left versus right” divide to an “open versus closed” axis. She said the EU’s role is to “build mutually beneficial relationships, establish global rules, and enforce them to the benefit of global order.”

Malmström cited Brexit, along with the landmark elections seen in the US in 2016 and France in 2017, as significant “political shifts” that saw the debate on “open versus closed” take centre stage. She also praised the Nordic and Australian models of openness, along with the value that deeper partnerships can bring going forward. 

“The EU and its partners are coming together to: shape globalisation, stand up for open trade, and to agree on a rule book that works for everyone. And we will need many allies to help us in pursuing these goals,” she added. 

In her speech, Malmström pointed out that the reasons for partnering extend beyond trade and investment. She said that the EU’s recent FTAs all include chapters on sustainable development, noting that “they uphold and promote our values in the world, protecting the environment, labour rights and human rights.”

A European Court of Justice opinion issued in May 2017 on the EU-Singapore trade agreement said that the EU has “exclusive competence” over sustainable development provisions in FTAs. While that ruling was specific to the provisions of the EU-Singapore deal, it is being used as guidance for how to approach the negotiation of future trade and investment pacts. (See Bridges Weekly, 18 May 2017) 

Agricultural market access, geographical indications

When negotiations formally begin next month, the parties acknowledge that agriculture and geographical indications (GIs) will be among the more contentious issues. Among Australia’s stated objectives for negotiations is to “address the protection of geographical indications in a mutually acceptable way.” 

Both the EU and Australia are major agricultural exporters, and farm groups on both sides have expressed interest and concern over what a free trade pact could mean for their competitiveness. Geographical indications are also a frequent sticking point in trade deals and are a key priority for the European Union. GIs are a type of intellectual property rights protection used for food and drink products, and involves the use of place names that denote certain reputational, production, or quality characteristics. Common examples include feta cheese or champagne. 

According to comments reported by The Weekly Times, John Clarke, the lead EU negotiator on agriculture for the FTA, said in late March that GIs could “make or break” the negotiations. Clarke said that other sensitive issues may include key Australian agricultural exports. 

In a press conference, Malmström acknowledged that “agriculture and … geographical indications are very important to us. I think that this is probably the chapter that will be the most difficult one. But we are well prepared, we know the different interests, we will start early discussing all this, and I’m sure we will find a good outcome.” 

Malmström presses for multilateral investment court system

In her talk at Australian National University, Malmström voiced support for a multilateral investment court, an idea the EU has consistently pursued in the past several years.  (See Bridges Weekly, 17 September 2015 and , 2 March 2017

EU officials have promoted a multilateral investment court as a necessary overhaul to the arbitration system that currently prevails in investor-state dispute settlement (ISDS) provisions. Some advocacy groups have questioned the ISDS mechanism and its use, arguing that it needs to be strengthened to better ensure nations’ continued right to regulate in the public interests of health, safety, and the environment. 

The EU is currently pushing for its new trade pacts to feature instead an investment court system (ICS), with the hopes that this could eventually lay the groundwork for negotiations on a multilateral investment court. 

The investment court system backed by the EU, officials say, aims to clarify parties’ explicit right to regulate in the public interest, as well as to add transparency and accountability to the dispute settlement process, incorporate an appellate mechanism, and provide other additional safeguards. 

Until recently, the European Commission had pursued building the investment court system through bilateral trade agreements such as the Comprehensive Economic and Trade Agreement (CETA) with Canada, along with a separate trade accord with Vietnam. (See Bridges Weekly, 21 September 2017

However, in light of the ECJ’s decision in the Singapore case that investor protections fall within the EU’s shared competence with member states, and thus requires the latter group’s ratification as well, the Commission is now looking to negotiate these investment courts under separate investment agreements. This would help avoid legal stumbling blocks at the ratification stage, officials say. 

The European Council, during a meeting last month where it approved mandates for trade talks with Australia and New Zealand, noted that the Commission had not submitted draft mandates for parallel investment agreements. The Council urged the Commission to do so in the future for other accords. 

Even so, EU Commission officials have made clear that they are still interested in pursuing the multilateral investment court objective, along with the negotiation of investment court systems in bilateral and regional agreements. 

In a recent interview with the New Zealand-based organisation Newsroom, Malmström expressed a mutual concern between the EU Commission and the New Zealand government over ISDS mechanisms for foreign investors, given that the existing system “clearly has a lot of loopholes.” While an investment court system will not be included in the planned trade agreement, Malmström expressed a desire to discuss with New Zealand whether it may wish to be involved in the multilateral court project at some stage. 

ICTSD reporting; “Geographical indications: EU digs in on FTA until label issue resolved,” THE WEEKLY TIMES, 13 March 2018; “EU Trade Commissioner makes case for NZ deal,” NEWSROOM, 18 June 2018.

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