1. Andrew Percival Special Counsel European Lawyers Conference - Trade Relations between Australia and Europe

2. 2 Trade Relations between Australia and Europe In examining trade relations between Australia and Europe:- first, examine the nature of that relationship, that is, the trade in goods and services between Australia and Europe; and second, identify and examine one issue, that is, a barrier to trade affecting the trade relationship, namely, agricultural subsidies. For the purposes of this presentation, ‘Europe’ is taken to refer to the European Union (EU) and the twenty- seven (27) countries that currently are members of the EU.

3. 3 Trade Relations between Australia and Europe What is the trade relationship between Australia and Europe? As a single entity, the EU is Australia’s largest trading partner, with total merchandise trade (i.e. imports and exports) worth AU$54.9 billion in 2005/06. Australia is the EU’s 14 th largest export destination for merchandise trade, receiving 1.7% of EU exports. As a source of EU imports, Australia ranks 30 th. The EU also is Australia’s largest overseas market for services and the largest source of imported services. Similarly, the EU is Australia’s largest source of inbound investment at AU$411.8 billion as at December 2005 and the second largest destination of outbound investment at AU$193.6 billion as at December 2003.

4. 4 Trade Relations between Australia and Europe Australian merchandise trade with the European Union – 2005 to 2006*: AU$(m)Total ShareGrowth (yoy) Exports to the EU$18,56012.2%34.4% Imports from the EU $36,26621.6%3.4% Total trade (exports + imports) $54,82617.1%12.1% *Source: Department of Foreign Affairs, ‘Fact Sheets – European Union’

5. 5 Trade Relations between Australia and Europe What did Australia’s exports to and imports from the EU consist of in 2005? PercentageExportsPercentageImports 32%Primary products 72%Manufactures 19%Manufactures20%Services 15%Other merchandise 5%Primary products 34%Services2%Other merchandise

6. 6 Trade Relations between Australia and Europe Major Australian exports to and imports from the EU in 2005 – 2006*: ExportsAU$(M)ImportsAU$(m) Coal$3,829Medicaments$4,031 Non-monetary gold $2,416Passenger motor vehicles $2,776 Alcoholic beverages $1,310Aircraft & parts$2,193 Medicaments$677Telecoms equipment $1,131 *Source: Department of Foreign Affairs, ‘Fact Sheets – European Union’

7. 7 Trade Relations between Australia and Europe Australia’s trade in services with the EU, 2005 – 2006: AU$(m)Total share Exports of services to the EU $7,12817.0% Imports of services from the EU $9,55423.2%

8. 8 Trade Relations between Australia and Europe Major Australian service exports to and imports from the EU, 2005 – 2006: Service exports AU$(m)Service imports AU$(m) Personal travel (excluding education) $2,923Personal travel (excluding education) $3,514 Transportation$1,266Transportation$2,919

9. 9 Trade Relations between Australia and Europe What is happening with Australia’s trade with the EU? Essentially increasing: In 2005: trade in goods and services (i.e. imports + exports) rose 8% in 2005 exports of goods and services from Australia rose 8% imports of goods and services into Australia rose 7% Also exports of goods and services rose 2% per annum on average during 2000/05 imports of goods and services rose by 7% per annum on average during 2000/05 Australia always has run a trade deficit with the EU (i.e. imports>exports

10. 10 Trade Relations between Australia and Europe Is trade with the EU uniform amongst its member countries? In 2005: the United Kingdom was Australia’s largest EU export market for goods and services accounting for 41% of total Australian exports, valued at AU$9.2 billion, followed by the Netherlands (AU$2.7 billion), Germany (AU$2.2 billion) and Italy (AU$1.7 billion); and The United Kingdom was the largest source of imports of goods and services from the EU, valued at AU$10.4 billion and account for 23% of imports, followed by Germany (AU$10 billion), France (AU$5.7 billion) and Italy (AU$4.9 billion)

11. 11 Trade Relations between Australia and Europe What do the statistics show about the trade relations between Australia and Europe? Each is an important trade partner for the other not only because of the volume of trade but also the nature of the goods and services being traded. That relationship is growing as trade continues to grow each year. Export trade in goods by Australia is predominately in unprocessed or simply processed primary products, whereas that of the EU is predominately elaborately manufactured products. Trade in services is mutual, namely, travel and transportation. The EU is a significant source of inbound investment and a significant destination for outbound investment. Australia’s trade with the EU is not uniform amongst its members.

12. 12 Trade Relations between Australia and Europe What issues does Australia have in its trade relationship with the EU? There are several trade related issues that Australia has with the EU of varying significance to Australia, ranging from geographical indications to regulation of certain product standards. However, the main issue Australia has in trade with the EU is market access for its agricultural products. Access to the EU market is generally open with the exception of the agricultural sector. However, there are tariff and non tariff barriers to accessing the EU agricultural market, including: -high agricultural tariffs; and -subsidies, including export subsidies, on agricultural products.

13. 13 Trade Relations between Australia and Europe What is being done to improve market access for agricultural products? The elimination of export subsidies and reduction of tariffs on agricultural products is the subject of negotiation in the Doha round of WTO negotiations. Agreement has been reached on the elimination of export subsidies by 2013. The stumbling block to date is reaching agreement on the reduction of tariffs and subsidies on agricultural products, with the USA and the EU being the main stumbling blocks. Negotiations are continuing! Also, since 2003/04 the EU has been reforming its Common Agricultural Policy by decoupling subsidies from production to reduce over-production of agricultural products.

14. 14 Trade Relations between Australia and Europe How are subsidies treated under the WTO? The WTO agreement on subsidies is the ‘Agreement on Subsidies and Countervailing Measures’ (Subsidies Agreement). Essentially a ‘subsidy’ is any form of financial contribution or support by a government. Article 3 of the Subsidies Agreement prohibits: -subsidies contingent upon export performance; and -subsidies contingent upon the use of domestic over imported goods. Non-compliance may lead to a dispute, which, if not settled amicably, may be referred for settlement under the WTO settlement process and, if it is found that the subsidy is a prohibited subsidy, an order for its immediate withdrawal can be issued. One exception was agricultural products under Article 13 of the WTO Agreement on Agriculture, which exception has expired.

15. 15 Trade Relations between Australia and Europe How are subsidies treated under the WTO? Subsidies other than export subsidies not prohibited under the Subsidies Agreement. However, if goods receiving such subsidies, either directly or indirectly, are exported and, because of the subsidisation, cause material injury to an industry producing like goods material injury, then a duty, known as a countervailing duty, may be imposed on those imports in an amount up to the amount of the subsidy so as to offset the injurious effects of the subsidisation of those imports. Countervailing measures have been used to offset the injurious effects caused to Australian industry by subsidised imports from the EU – subsidised canned tomatoes and canned peaches.

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