As UK-EU trade talks faltered late last week, Prime Minister Boris Johnson warned the UK to prepare for an ‘Australian-style deal’. Previously, the government has spoken of its preference for a ‘Canada-style’ deal with the EU.
During the transition period, the UK and EU have continued to trade as if the UK was still a full member of the EU. From 1 January 2021, all that changes.
If the UK does not sign a trade deal with the EU, it will leave the bloc’s Single Market and Customs Union and begin to trade on World Trade Organisation (WTO), or ‘Australian’ terms.
Canadian option: pros and cons
Canada, which the UK government has suggested as a model for its desired trading relationship with the EU, has had a trade agreement with the EU since 2017.
Called the Comprehensive Economic and Trade Agreement, or CETA for short, the deal gives Canada almost completely tariff-free trade in goods.
CETA protects EU ‘geographical indications’ whereby products with a specific geographical origin are protected, for instance Champagne and camembert cheese from France. Under CETA, Canada is precluded from importing any cheese calling itself camembert from another country.
Cooperation on standards
Canada and the EU’s cooperation on standards is also enshrined in CETA, meaning that a product cleared under EU safety and security rules does not have to undergo further checks if imported into Canada.
While CETA does increase quotas (ie the amount of a product that can be exported without extra charges), it does not do away with them altogether. For example, CETA increased the amount of cheese that the EU can export to Canada from 18,500 tonnes to 31,972 tonnes a year.
Overall, though, Canada still faces more regulatory barriers to trade with the EU than EU countries do when trading with each other. So, even with a Canada-style deal, there would be more red tape for UK firms trading with the EU than they have at the moment.
Nearly tariff-free
Although 98% of products are tariff-free, import taxes do remain on some, such as meat, eggs and poultry, for example.
Of greater concern to the UK’s service-led economy is the limited access for services to the EU market provided by the Canadian template, though EU and Canadian companies can bid on each other’s government contracts and there is mutual recognition of professional qualifications.
Perhaps the most noteworthy aspect of CETA is the length of time it took to gestate: the EU’s agreement with Canada is the result of eight years of negotiations, talks having begun back in 2009.
'Australian-style deal': pros and cons
While Australia is currently negotiating a free trade agreement with the EU, it does not currently have one, says Fullfact.org.
If the UK traded with the EU under Australian terms, it would have no favourable access to the EU market. UK businesses would face the EU’s standard WTO tariffs when exporting to the continent, and EU businesses would face the UK’s standard WTO tariffs when exporting to the UK.
Tariffs could mean cars would cost about 10% more and up to 30% would go on the price of milk, cheese and some meat, reports Sky, with shops likely to pass that price on to the customer.
The UK has a large services market and under an Australia-style deal it would lose any preferential access to EU markets.
Business Minister Alok Sharma was recently unable to explain the difference between no deal and an Australian deal, reports the Independent. When pressed, he said that it came down to “semantics”.