The AUKUS announcement creates extra challenges for Australia’s trade negotiations with the EU. Now scheduled for mid-October, this development is seen as a French and European reaction to the so-called “sub snub.”

The next round of negotiations for the free trade agreement (FTA) between Australia and the EU, launched in 2018, has now been postponed by a month. This is not unexpected.

When the new nuclear submarine deal between the US, UK, and Australia was announced in mid-September, the cancellation of France’s A$90 billion submarine contract with Australia became clear – and then was confirmed. It unrolls from there.

A centrepiece of French-Australian cooperation

Unsurprisingly, France, having agreed at Australia’s request to adapt its nuclear submarine production to diesel, reacted strongly to the AUKUS announcement. Together with this current FTA negotiation as part of the EU, Paris has viewed its submarine deal as a centrepiece of French-Australian cooperation. A massive compensation claim is now looming, adding to others such as for Victoria’s 2015 East-West link.

A most symbolic first signal of strong discontent was, in a rare diplomatic move, that France’s Ambassador Jean-Pierre Thebault was recalled to Paris, illustrative of the perception that communication had broken down. It took more than three weeks for France to consider sending an ambassador back.

France’s European affairs minister, Clement Beaune, very quickly started to speak of the current trade negotiations with Australia as a possible victim of the incident, and Australian Federal Minister Dan Tehan, currently in Europe, has struggled getting any speaking time with France. So the FTA delay should not come as a surprise.

The European Union dimension

France, together with Germany, is a highly influential player at the EU’s negotiation table when it comes to bi- and multilateralism. As great proponents of trade agreements with “depth,” they aim for comprehensive agreements improving trade and investment conditions for both goods and services. They ideally also include collaborations that allow parties to work jointly on solutions and innovations to contemporary challenges, such as the pandemic, climate change, diversity and inclusion issues, or migration. All of these ambitions reflect the very core of Australia’s challenges too.

The delayed FTA negotiations were most recently expected to be one of their final rounds of talks, with the aim of concluding the negotiations in 2022. Part of these negotiations are about agriculture and geographic indicators that France tends to be highly protective of. France will have a substantial voice as the EU’s second-largest economy, a valued EU founding member, and one that brings particular strength to Australia, for example in infrastructure, renewable energy and utilities, in industry-aligned education as well as an important additional partner role in the Indo-Pacific.

These are important negotiations. The EU is a substantial high-income market for Australia’s goods and services exports with almost 450 million people, and investment opportunities across 27 member states with a GDP of around US$15 trillion. The EU is already Australia’s second-largest trading partner, yet conditions can remain challenging. EU investments are the second-largest source of foreign investment for Australia, and with this comes innovation and competitive edge (e.g., in renewable energy), local employment (as from the French submarine project), cooperation (such as, on vaccines and pharmaceuticals), and key contributions to global value chain resilience.

Trade links at work

The Europe-Australia Business Council (EABC) reports that the EU-Australia investment relationship having trebled in the last 15 years. This has been driven by European investment in Australia in green energy, infrastructure, defence, and supporting major projects. An example form the university I work at, Federation University, is the rehabilitation of the Latrobe Valley coal mines through collaborations based on solid research relations with European partners, as well as mobility and migration. This is an essential piece of collaboration for a mining nation that inevitably will need to manage transition as part of climate change policy, with attention to ongoing employment, including re- and up-skilling, especially in regional areas.

Likewise, there is more and more Australian investment to Europe through super funds and other major investors in conjunction with digital and environmental innovators and partners. This would bring a breath of oxygen especially to the many small and medium-sized companies in Europe that have suffered through the pandemic, as well as larger organisations struggling with value chain challenges and allow the services sector to excel further.

This means then, that the FTA can potentially provide greater collaboration to obtain two outcomes, One, free trade & investment, with ore or better choice for consumers,  lower prices and high quality standards in goods and services that are part of these trade flows and less red-tape for business that works across borders – and with benefits from better market access for our companies. And at the same time, it can help solve the grand challenges of our times.

The EABC works with the expectations that, if this is done right, then investment liberalisation under the FTA could lead to an 87.2 percent increase in EU-FDI flows into Australia. The deepening of this trade and investment relationship is important exactly because this is an ambitious and comprehensive FTA. It is designed to effectively help Australia’s business sectors diversify more from their traditional Asia focus. It is meant to accelerate new business attraction to drive post-pandemic recovery, climate change adaptations, and more.

What’s truly at risk

As Angela Merkel has left German politics (and with it, key leadership in the EU), uncertainty about the influence and leadership at the helm of the European Union is tangible. Since the announcement of AUKUS, many voices in the EU have shown solidarity to France. Even if the next German government will step into Merkel’s footprint and pursue her compromising, reflective, pragmatic approach to international relations, the likelihood is high that France will struggle to bring any enthusiasm to the negotiation table even in a month’s time. Worse, any EU member state can refuse to ratify a FTA, and that could be an option for France in this case. Similarly, investors and businesses, those who would benefit most from the FTA, may be losing patience and trust and are questioning the value of the Australian signature on a contract.

Professor Gabriele Suder is the Dean of New Business Accelerator, Federation University. She can be reached at g.suder@federation.edu.au

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