Inquiry by the Environment, Food and Rural Affairs Committee of the House of Commons into
Trade in Sugar Post-Brexit

Submission by the

Australian Department of Foreign Affairs and Trade

April 2018

Inquiry by the Environment, Food and Rural Affairs Committee into Trade in Sugar Post-Brexit

Submission by the Australian Department of Foreign Affairs and Trade (DFAT)

The following submission is made by the Australian Department of Foreign Affairs and Trade (DFAT). The submission addresses the following points drawn from the Inquiry’s terms of reference:

• How should the deficit in sugar that will accompany the departure from the EU be filled?
• How can future policy best address trends in the sugar industry such as a falling world price and decreased consumption?
• What trade policies and agreements could achieve a balance between protecting domestic and infant industry, competitiveness and free trade and supporting the sugar industry in Least Developed Countries (LDCs) and Africa, Caribbean and Pacific (‘ACP’) countries?

Introduction

1.         Australia and the UK are committed to deepening trade and investment links as the UK leaves the EU, including by concluding a comprehensive and ambitious bilateral free trade agreement (FTA) once the UK is formally in a position to do so.[1]  The FTA is a priority for both countries as it provides an opportunity to redefine the terms of our trade and investment relationship – including for our agriculture sectors – to reflect contemporary circumstances and opportunities and to advance our shared commitment to open markets and free trade.

2.         Australia’s experience with trade liberalisation and agriculture sector reform since the mid‑1980s informs our view that it would be in the UK’s long term economic interests to adopt trade policies and reforms of domestic support mechanisms that are genuinely trade liberalising, least trade distorting, and sustainable. The Hon Steven Ciobo MP, Minister for Trade, Tourism and Investment, delivered a speech in London on 26 March 2018 and said ‘Australia is now in our 27th consecutive year of annual economic growth. Open trade and investment settings are a crucial part of that success story and we are keen to share our lessons and experience.’[2]

3.         DFAT’s submission[3] to the House of Commons International Trade Committee’s inquiry on UK trade with Australia and New Zealand, highlighted the manifest benefits of Australia’s approach to trade. A 2017 report by the Centre for International Economics summarised the effects of Australia’s trade liberalising policies over the period 1986 to 2016.[4] It found average household income was GBP4,886 higher in 2016 than it would have been without trade liberalisation, real GDP was 5.4 per cent higher than it would have been without trade liberalisation, investment 11.7 per cent higher, real wages 7.4 per cent higher and prices 3.4 per cent lower. By contrast, a move to more protectionist settings – characterised by higher tariffs and other trade barriers – would have seen job losses, cuts in household consumption and falling living standards. [5]

How should the deficit in sugar that will accompany the departure from the EU be filled?

4.         Prior to its joining the European Economic Community (EEC) in 1973, the United Kingdom was a major buyer of Australian sugar. However, from the time the UK joined the EEC, prohibitively high tariffs, and very limited tariff rate quotas (TRQs) and country-specific quotas (CSQs) have limited Australian access into the UK for key agricultural commodities, including sugar. For example, in 2017, Australia was the world’s second-largest raw sugar exporter,[6] yet the EU’s CSQ for Australia restricted EU refiners access to only 9,925 tonnes of Australian raw sugar at in-quota tariff rates.

5.         In the decades since the UK joined the EEC, Australia significantly expanded and diversified its trade and investment relationships, particularly with the countries of South-East and East Asia. Key markets for Australian sugar exports now include South Korea, Indonesia, Japan and Malaysia.[7]

6.         Improved access to the UK for Australian sugar post-Brexit would be unlikely to change the Australian sugar industry’s focus on these key Asian markets, given their size and relative proximity to Australia. However, it would allow the UK more flexibility to fill part of its sugar deficit with competitively sourced high quality Australian sugar when market conditions are right.

How can future policy best address trends in the sugar industry such as a falling world price and decreased consumption?

7.         Australia has learned from experience that openness to trade and access to a diverse range of import and export markets helps drive efficiencies and improves industry’s agility and ability to manage risk. As a result, Australia has significantly lowered tariffs, eliminated virtually all quantitative measures, reformed domestic support, and expanded and diversified access to international markets.

8.         Australian farmers have benefitted significantly from international trade. The ability to export gives Australian farmers the opportunity to sell their products to a wide range of markets and consumers. The government works hard to support this by finding new markets and new opportunities for Australian agricultural exports and the Government has announced it will expand Australia’s network of trade agreements to ensure that by 2020 we have FTAs with countries that account for over 80 per cent of Australia’s trade.[8]

9.         Furthermore, Australia’s openness to international markets also allows Australian farmers and firms to access specialised equipment and materials, and other inputs, from overseas at competitive prices. This improves their efficiency, productivity and capacity to meet the demands of both local consumers and export markets, and to remain competitive.

10.     Access to overseas alternatives to domestic markets can also help producers achieve higher margins. Farmers are in a stronger negotiating position, both at home and abroad, when they can sell their products in a greater range of markets. Diversifying their client base helps producers and exporters manage risk. Australia’s liberalised trade settings provides the Australian sugar industry with incentive to improve the competitiveness of its production and export value chains.

11.     A more liberal UK trade regime for sugar would benefit both UK consumers and sugar refiners. In particular, it would enable UK refiners to competitively source raw sugar from a range of suppliers, including high quality Australian raw sugar when market conditions permit.

What trade policies and agreements could achieve a balance between protecting domestic and infant industry, competitiveness and free trade and supporting the sugar industry in Least Developed Countries (LDCs) and Africa, Caribbean and Pacific (‘ACP’) countries?

12.     Again, Australia’s experience may be instructive as the UK considers its future trade policy and potential agriculture sector reforms. The Australian agriculture sector has undergone significant reform and structural adjustment over a number of decades. Australian Government support to producers has moved away from inefficient market-distorting support that provides producers a direct price signal, to support based on managing risk. The types of support we favour are those which are WTO compliant, least trade distorting, have no effect on production and are not subject to reduction commitments, for example: research and development; training; government services such as pest and disease control; and promotion services.

13.     Australian reforms have been driven by an acknowledgment that increasing efficiency and productivity is the best way to compete. While the initial reform process was difficult, the period of structural adjustment has had a significant, positive impact on the sector’s productivity.

14.     Furthermore, the Government has made aid for trade a key priority of Australia’s development policy. Australia’s aid for trade is aimed at helping developing countries address their internal constraints to trade such as cumbersome regulations, poor infrastructure and lack of skills. The Australian Government has set a target of increasing aid for trade expenditure to 20 per cent of the aid budget by 2020.[9] Australia also provides duty free, quota free access for all LDCs, with no exceptions or product carve-outs.

Looking forward

15.     A more liberal trade regime for sugar, as part of an independent UK trade policy posture post‑Brexit, would be unlikely to change the Australian sugar industry’s focus on its existing key markets in Asia. It would, however, allow the UK more flexibility to fill part of its sugar deficit with competitively sourced high quality Australian sugar when market conditions are right.

16.     As a country with much at stake in an open global trading system, Australia looks to the UK to establish trade policies and reform domestic support mechanisms so that that are genuinely trade liberalising. This would not only be in the UK’s long term economic interests, but would also send a clear signal of the UK’s commitment to a strong global trading system.

17.     The Department of Foreign Affairs and Trade welcomes this opportunity to share Australia’s experiences and outlook on trade and agriculture policy reform with the Environment, Food and Rural Affairs Committee. We look forward to continued dialogue with the UK on trade, investment and economic policy reform – including through the Australia-UK Trade Working Group[10] – as the UK establishes its own, sovereign trade policy posture post-Brexit.

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