Old Blighty, the Old Dart, England. For decades, it was Australia’s biggest and most generous trading partner.
Australia would stack ships full of lamb, wool and wheat, with little thought for value-adding, and send it off to an obliging mother country.
Then in 1973, along came the European Common Market to tilt the world off its axis, then the European Economic Community and ultimately the European Union.
While it was once our most important export customer, the United Kingdom has become somewhat of a bit player.
But that isn’t stopping our government trying to stitch up – and talking up – a free-trade agreement with the UK, on the eve of its exit from Europe.
According to Department of Foreign Affairs and Trade (DFAT) figures from 2018, the UK was Australia’s 13th-largest export partner – just ahead of Thailand and a touch behind Vietnam.
In 2018, the UK took just $5.033 billion worth of Australian goods, while Australia imported $7.24 billion worth of goods from the UK.
And while the UK makes up a significant percentage of trade with Australia compared with the 27 European Union member countries, total trade with those 27 countries outweighs trade with the UK by almost three to one.
Australian exports to the UK are comprised largely of gold, wine, lead, pearls and gems, while more than a quarter of our imports from there are vehicles and automotive parts.
Minister for Agriculture David Littleproud has previously said nearly a third of Australia’s wine exports in 2018 went to the UK.
But while the value of goods exported to the UK might seem small beer – at least compared with China ($118 billion) or Japan ($56 billion) – the level of foreign investment is definitely not.
According to DFAT, the UK is the second-largest source of total foreign investment in Australia, valued at a staggering $574.8 billion in 2018.
And this is the element at greatest risk from a post-Brexit.
International trade expert Dr Giovanni di Lieto, of Monash University, told The New Daily that Australia was highly exposed to any risk in terms of the UK’s capital investment in Australia and was vulnerable to any post-Brexit turmoil or volatility.
Will we be better off from a post-Brexit Europe?
The Australian and UK governments have agreed on a “prospective” free-trade agreement (FTA), which – based on DFAT’s half-page summary on its website – doesn’t seem to mean much at all.
The blurb promises an “expeditious transition to FTA negotiations” once the UK leaves Europe.
Associate Professor Mark Melatos, of the University of Sydney’s School of Economics, said an FTA with the UK is unlikely to make a significant difference for Australia.
“An FTA with the UK would likely boost Australian exports to the UK when compared to the case where there is no FTA post-Brexit,” Professor Melatos said.
“However, exports to the UK might well be lower post-Brexit than currently, even if a FTA is concluded.”
Professor Melatos said exporters currently use the UK as an entree for access to the EU market, but after a no-deal Brexit, it would no longer be possible to use the UK as that conduit for Australian exports to the EU.
Just how negative the impact will be depends largely on: How quickly Australian exporters can adjust their export channels to gain direct access to continental European consumers; how large the regulatory differences between the UK and (post-Brexit) EU are; and how Australian firms can implement a strategy to sell separately into the UK and EU.
Dr di Lieto believes Australia can benefit overall if it can negotiate “preferential trading agreements” with the UK and the EU, but suggested it should prioritise a “preferential partnership” with the EU over any new FTA with the UK.
“I think on balance, provided Brexit doesn’t cause a major crash on financial markets, medium term we will be better off,” Dr di Lieto said.
“I think if it [post-Brexit turmoil] doesn’t escalate, we can do well from trade diversification and new opportunities, but there is a risk that it goes all pear-shaped.”