Scrutiny of international agreements: UK-Australia free trade agreement Contents

Summary of conclusions and recommendations

Introduction

1.In economic terms, the agreement is forecast to have a modest positive impact. The Government’s impact assessment anticipates a 0.08% increase to GDP by 2035—although increased collaboration and positive dynamic effects not captured by the modelling may unlock further benefits over time, particularly in services and digital trade. (Paragraph 3)

2.This agreement is, however, politically significant, providing an indication of the UK Government’s approach to trade after Brexit. (Paragraph 4)

3.The agreement also helps pave the way for the UK’s accession to CPTPP. As the then High Commissioner told us, Australia “would have been in a strange position to be championing the UK’s accession into the CPTPP if we had not been able to do an FTA with you ourselves”. The UK Government was also able to secure a commitment during the negotiations that Australia would not seek additional market access or faster tariff reduction through the CPTPP negotiations, thus providing a degree of certainty for those negotiations. (Paragraph 5)

Services trade, digital trade and investment

4.We welcome the provisions facilitating services trade, including those in relation to legal and financial services, which represent a significant benefit to the UK. We highlight, in particular, the guarantees that UK lawyers will be able to practise the law of the other Party, other foreign law (to the extent qualified) and international law in Australia using their home qualification. (Paragraph 19)

5.The establishment of a Professional Services Working Group (PSWG) to facilitate discussions on the mutual recognition of other professional qualifications is a positive step, though this is a framework and does not yet secure such mutual recognition. (Paragraph 20)

6.The Government should continue to hold discussions with Australian counterparts and support UK regulators in securing mutual recognition. We ask the Government to clarify whether discussions will be needed with regulators at the sub-federal level in Australia; and, if so, what steps it is taking to engage with individual states. (Paragraph 21)

7.We welcome the improvements in mobility arrangements, which can increase services trade. While it is difficult to quantify their impact at this stage, Australia’s removal of an economic needs tests and skilled occupation list for UK professionals should increase the movement of UK professionals and delivery of services in Australia. (Paragraph 26)

8.We welcome the agreement’s provisions on digital trade. The ban on data localisation requirements should benefit many sectors, including financial services. The Government’s Impact Assessment did not quantify the potential impacts of the digital trade provisions. Given the importance of digital trade, we call on the Government to strengthen their assessments and ensure that it is included in Impact Assessments in future. (Paragraph 33)

9.Some questions remain regarding the protection of personal data, given the differences between the UK and Australia’s data protection regimes. We ask the Government to explain how it will ensure that UK citizens’ personal data exchanged under the agreement will be protected and offer commitments that digital trade provisions in new FTAs will not risk losing the UK’s data adequacy decision with the EU. (Paragraph 34)

10.We welcome the investment provisions in the agreement. (Paragraph 41)

11.However, Government policy towards investor-state dispute settlement (ISDS)—though not included in this agreement—remains unclear. We call on the Government to clarify its policy towards ISDS, including its position on other mechanisms for investment protection. The absence of a clear policy begs the question whether the omission of ISDS in this agreement was sought by the Government, or whether it assented to an Australian request to exclude it. (Paragraph 42)

Goods trade

12.It remains to be seen how UK agriculture will be impacted by the agreement with Australia and whether the tariff rate quotas and safeguards will protect the interests of the UK agricultural sector, and that of the devolved nations in particular. (Paragraph 56)

13.Individual UK producers may be adversely affected by increased agricultural imports from Australia. We therefore welcome the Government’s assurances that it will be monitoring the usage of TRQs in real time through its licensing system and monitor the implementation of the agreement. (Paragraph 57)

14.There is a risk that this agreement could set a precedent for the negotiations with countries closer to the UK market, particularly with other large agricultural producers, such as the US, Canada, Mexico, Argentina and Brazil. The impacts of the UK-Australia agreement may therefore go well beyond this particular FTA. (Paragraph 58)

15.The key question is the extent to which liberalisation in agricultural trade in the Australia agreement will be claimed as a precedent in future FTA negotiations. The Government regard each FTA in its own terms, but there will be expectations created for future negotiations. (Paragraph 59)

16.We welcome the expert Trade and Agriculture Commission’s report on the agreement and note its finding that the FTA is unlikely to lead to substantive increases of imports into the UK of goods produced to lower standards, including animal welfare standards. (Paragraph 70)

17.However, the report also acknowledges that some goods produced to potentially lower standards will enter the UK, including goods produced using pesticides banned in the UK and, in particular, beef that has been raised in feedlots. It is reasonable to assume that Australian producers will enjoy a production cost advantage over UK farmers in those cases. The Government should continue to monitor the levels of pesticide residue on imported goods from Australia and ensure that they remain at safe levels. (Paragraph 71)

18.It is clear that the Government has prioritised tariff removal over demanding certain conditions on production methods and animal welfare to be met. We call on the Government to set out its rationale for prioritising this approach over available alternatives and to consider further the circumstances under which it may ask for such conditionality. (Paragraph 72)

19.The TAC has concluded that the UK’s right to regulate will be unaffected in the short term, but could be constrained through decisions taken by the Joint Committee. We welcome the Government’s confirmation that any equivalence decisions or other significant amendments arising from Joint Committee discussions would be subject to formal scrutiny procedures under CRAG. (Paragraph 77)

20.However, it is unclear what amendments would be considered “significant” and, consequently, be subject to CRAG. (Paragraph 78)

21.Where amendments fall short of the requirement to lay them for parliamentary scrutiny under CRAG—and particularly where the change does not require domestic legislation—there will be a scrutiny gap. We call on the Government to ensure that significant amendments to this agreement that may not engage CRAG are still notified to us. (Paragraph 79)

22.We welcome the joint FSA/FSS advice which found that the agreement maintains UK levels of statutory protection for human health in relation to food imports. (Paragraph 86)

23.While the FSA/FSS have provided advice on food standards, we regret the DIT has not commissioned advice on the impact of the agreement on broader human health issues. We call on the Government to explain why it has not commissioned such advice. (Paragraph 87)

24.Although Australia represents a relatively small market for UK manufacturing exports, the reduction in tariffs, customs procedures and rules of origin in the agreement are likely to be beneficial. (Paragraph 96)

25.In particular, we welcome the agreement’s liberal rules of origin. We call on the Government to ensure that businesses have support to take advantage of these. (Paragraph 97)

26.While the agreement reduces some technical barriers to trade, more needs to be done. Given the significant differences in the Parties’ regulatory regimes, the agreement should be used as an opportunity to achieve this. We call on the Government to set out its plans for further reducing technical barriers to trade. (Paragraph 98)

27.The UK Government has an obligation to ensure that Northern Ireland is able to benefit from any new trade agreements and is not disadvantaged compared to the rest of the UK. The publication of the Northern Ireland Protocol Bill will undoubtedly lead to further debate on this issue. (Paragraph 102)

28.Although there is continued uncertainty over the Protocol, the Government will need to ensure that consumers and businesses in Northern Ireland can fully benefit from this (and any future) trade agreements. (Paragraph 103)

29.We also call on the Government to ensure that the explanatory materials on future trade agreements routinely cover how trade between Northern Ireland and the other Party will be impacted by the Protocol. (Paragraph 104)

Environment and climate

30.There are elements of the Environment Chapter which we welcome. These include commitments on environmental protection, including controlling ozone-depleting substances, ship pollution and the regulation of marine wild capture fisheries. We also welcome that the provisions in the climate and environment chapter are subject to dispute resolution. (Paragraph 114)

31.However, the disappointment from UK stakeholders about the Environment Chapter is something that the Government should take seriously. Considering that the UK granted Australia generous agricultural market access, it is regrettable that the Government did not press Australia for more ambitious commitments on climate change and that the temperature goals which are fundamental to the Paris Agreement were not explicitly referenced in the FTA. We call on the Government to establish a firm baseline for future agreements which goes beyond the Australia text. (Paragraph 115)

32.We call on the Government to review the provisions related to environment and climate issues and to monitor their implementation. The change of government in Australia and the engagement of the electorate on environmental issues gives the Government an opportunity to revisit the Environment Chapter of the agreement. We hope that this will be taken up in the Joint Committee and ask the Government to keep us informed of developments. (Paragraph 116)

33.Given Australia’s position on coal, it is regrettable that the agreement did not include any references to reducing or reviewing Australia’s reliance on coal. This contrasts with the trade agreement the UK signed with New Zealand. (Paragraph 117)

34.The impact assessment states that the agreement should not significantly change the greenhouse gas (GHG) emissions within UK-based production, but some areas, such as transport-related emissions, have been left out of the calculations, and the potential for increases in carbon leakage is not discussed in detail. (Paragraph 118)

35.The Government’s future impact assessments should cover in greater detail transport-related emissions, the potential for increases in carbon leakage, impacts on deforestation and biodiversity. Trade sustainability impact assessments produced for the European Parliament during trade negotiations are more detailed in this regard. (Paragraph 119)

36.In the light of our net zero commitments, future FTAs should seek to achieve a net reduction in GHG emissions—which may be achieved by agreements on production methods and procurement. (Paragraph 120)

Intellectual property

37.Geographical Indications are important to regions of the UK which feel their agricultural interests have been undermined by the removal of tariffs. It is disappointing that the UK Government has been unable to achieve this negotiating aim. After the agreement is implemented, the Government should encourage Australia to make progress towards reviewing the provisions on GIs and introducing a GI scheme. As we have seen in the case of the UK-Japan FTA, when the agreement does not set out the timescale and detailed steps for GI approval in the partner country, there can be a significant delay in obtaining protection. (Paragraph 131)

38.The other parts of the IP chapter have been broadly welcomed and the agreement reflects the aims set out in the Negotiating Objectives. We note that this is an area in which continued co-operation in implementation is important, and that for example the UK should continue to push Australia on the Hague Agreement on Industrial Designs, as well as on other issues raised by UK stakeholders. (Paragraph 132)

Procurement

39.The Government has been broadly successful in incorporating its objectives on procurement into the agreement and we welcome the procurement chapter. (Paragraph 136)

Other chapters

40.We welcome the inclusion of a dedicated SME chapter. We note that it remains unclear as to whether such chapters have a positive impact on SME trade engagement. Once the Agreement has been implemented, we therefore call on the Government to monitor the levels of preference usage and provide export (and other) support for SMEs as required. (Paragraph 141)

41.We welcome the chapter on competition policy and consumer protection. We note, however, that the UK-New Zealand FTA separates these out into individual chapters. Such inconsistency is unhelpful, and we believe that consumer interests are important enough to deserve a dedicated chapter. (Paragraph 142)

42.We welcome the inclusion of an innovation chapter but would welcome further information from the Government about how it could be used for the benefit of UK businesses and consumers. (Paragraph 143)

43.We call on the Government to provide clarity on why it has chosen particular chapters to be subject to dispute resolution mechanisms and not others. (Paragraph 144)

Looking ahead

44.We thank the devolved administrations for the evidence they submitted. In the absence of detailed information provided by the UK Government on the discussions it has had with the devolved administrations, it is vital that we hear from them directly. We reiterate our open invitation to the devolved administrations and legislatures to raise with us any issues they consider to be significant. (Paragraph 151)

45.While we accept that the negotiation of trade agreements is a reserved competence, trade agreements will have a significant impact not just on devolved policy areas, but also on devolved economies more generally (even in reserved areas) and interests. (Paragraph 152)

46.We remain concerned about the adequacy of the information shared with the devolved administrations regarding matters that are reserved, such as tariff liberalisation for sensitive agricultural goods. (Paragraph 153)

47.We call on the Government to ensure that consultation with the devolved administrations and legislatures is comprehensive, transparent, detailed and timely, and that their views are represented throughout the negotiations, including on reserved matters that may have an impact on them. (Paragraph 154)

48.We welcome that the Government has conducted a modelling review to provide a more detailed sub-national assessment of the impact of FTAs. We look forward to receiving assessments with more detailed information on the impact of FTAs on the nations and regions of the UK. (Paragraph 155)

49.We welcome the collaborative and constructive engagement we have had with DIT officials and Lord Grimstone throughout the negotiations. In particular, we welcome that our recommendation for an exchange of letters to consolidate existing parliamentary scrutiny commitments in respect of trade agreements has been accepted and implemented. (Paragraph 160)

50.Whilst we are grateful for the time we had to scrutinise this FTA prior to its formal laying under CRAG, we were only able to scrutinise this agreement after all decisions had already been taken. The Government commitment to facilitate a debate on the Negotiating Objectives if requested by the committee was made too late for this particular agreement. We reiterate the recommendation we made in our Working practices: one year on report that it is important that consultation and dialogue with our committee starts before a mandate is established, so the final mandate can be informed by Parliament. (Paragraph 161)

51.We welcome the Government’s commitment to monitoring and evaluation and call on it to keep us (and the International Trade Committee in the Commons) informed on progress and outcomes, and make any reports available to Parliament by depositing copies in the libraries of both Houses. (Paragraph 169)

52.The UK-Australia trade agreement is the first ‘new’ trade agreement where the UK is not simply replicating the trade arrangements we had as part of the EU, making it an important indicator of its post-Brexit trade policy. (Paragraph 170)

53.However, it is regrettable that the agreement cannot be placed within the context of a published trade policy. We ask the Government to publish a comprehensive trade policy before it signs another trade agreement with a major economy. This will enable trade policy to be understood in relation to other policy priorities, to see how Government assesses the impacts and trade-offs of trade liberalisation, to set the Negotiating Objectives in context, and to inform public consultation and Parliamentary scrutiny. (Paragraph 171)





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