The European Union (EU) is Australia's largest economic partner. It has been so for more than twenty-five years. Yet, the EU remains the only major trading and investment partner with which Australia does not have an Economic Integration Agreement, either in force or under negotiation. This article analyses the legal and policy issues that affect their trade and investment relations.
Despite the existence of an EU-Australia Partnership Framework, a declaration in the process of revision into an agreement, the article considers that attention diversion from larger trading and investment partners, for the EU, and opposition to the distortive effects of the Common Agricultural Policy (CAP), for Australia, are the two main reasons for the low priority that each party attaches to bilateral trade and investment liberalization with the other. Nonetheless, an Economic Integration Agreement is, it argues, a mutually beneficial strategy: there remain duties and other restrictive regulations of commerce on trade between the EU and Australia that are amenable to bilateral elimination in the interest of further trade creation without the subsequent potential for any significant trade diversion.
This article, aware of the difficulty of compromise over agriculture, makes a flexible and pragmatic call for a bilateral agreement on trade in services and trade-related investment measures. Services trade and investment are not sensitive areas for either party and an agreement to facilitate them would duly recognize the EU as Australia's largest partner for trade in services and its largest source and destination of foreign direct investment. It concludes that barrier reductions, if not their elimination altogether, in these two non-sensitive areas are likely to make up a significant proportion of the likely benefits of a comprehensive agreement. Their delay (or even loss) might outweigh the possible benefits from barrier reductions to sensitive sectors. Agriculture and other sensitive sectors that require further negotiation over a longer period of time could be the subject of built-in agendas.European Foreign Affairs Review