The U.S. renegotiated a number of free trade agreements during the Trump presidency. Meanwhile, in the aftermath of Brexit, we see the UK trying to renegotiate new agreements on multiple fronts. Free trade agreements are generally accepted as being good. But reality depends on perspective. On closer inspection, it turns out that free trade agreements cut both ways.
The U.S. might want a free trade agreement with another country in order to open that country to more imports. But to get it to work, the U.S. has to reciprocate by opening its own markets. The end result is a scenario with both winners and losers.
We’re seeing that very thing play out as the UK and Australia work on their latest agreement. It is an agreement focusing mainly on agriculture. The two sides have agreed to gradually eliminate import taxes over the next 15 years. What does that mean for agricultural concerns in both countries? Again, that depends on perspective.
Larger Market, Cheaper Goods
Vigilant, an Ohio-based global trade management provider, explains that the larger markets generally resulting from free trade agreements typically lead to cheaper goods. Producers make money on volume rather than per unit price. Let us apply that to the current UK-Australia deal.
UK producers believe they will not be able to compete against their Australian counterparts in terms of beef and lamb production. That’s because Australia’s meat industry is much larger and more consolidated than the UK’s. Australian producers have the economics of scale in their favor.
In isolation, UK producers are the losers while Australian producers are the winners. But such an isolated perspective doesn’t provide a clear picture. For example, consider the produce side of things. UK farmers have the advantage there.
While Australia exports more meat products to the UK, it is expected that the UK will export a lot more produce to Australia. It is a ‘one hand washes the other’ sort of thing. That’s not something UK meat producers and Australian produce farmers want to hear, but it is reality.
Regulatory Compliance Issues
Pure economics aside, there are also regulatory issues whenever free-trade agreements are discussed. A good example related to the UK-Australia deal are concerns over Australian producers meeting UK food standards. Such concerns have prompted Australian trade minister Greg Hands to reassure British lawmakers that the deal will not lead to a compromise of any standards relating to food safety, animal welfare, or the environment.
No doubt that any deal reached between the two nations will be subject to regulations ad infinitum. That will make organizations like Vigilant more important than ever before. Producers on both sides of the deal will lean on their global trade management partners to ensure that they remain compliant. Meanwhile, regulatory agencies will be on the lookout for violators.
Not So Free After All
The grand lesson in all of this is that free trade agreements are not so free after all. They may represent freedom in the sense of opening up new markets and reducing tariffs and taxes, but they aren’t free in terms of regulatory compliance. Every free-trade agreement has its legal sticking points.
Free-trade agreements are not necessarily free to end-users and producers, either. As is demonstrated by the UK-Australia deal, producers on both ends could suffer. So could consumers, especially if free trade results in lower quality or compromised standards.
Free-trade agreements are viewed pretty favorably around the world. But they aren’t all positive. Indeed, they cut both ways. What looks like a winner for one side can be a loser for the other. That is the nature of global trade.