Australia's free trade deal with the EU could be in trouble after scrapping French submarines project

The government is “hoping and praying” French anger over Australia’s decision to scrap a $90 billion submarine contract with the country will not spill over into its other trade negotiations with Europe.

Overnight, the European Commission president Ursula von der Leyen told CNN the EU was seeking answers about Australia’s decision to abandon the French deal and establish a new submarine program with the US and UK.

“One of our member states has been treated in a way that is not acceptable, so we want to know what happened and why,” Ms von der Leyen said.

“First of all, clarify that before we can keep on going with business as usual.”

German MP Bernd Lange, who is also chair of the European Parliament’s Committee on International Trade, went further, telling ABC Radio National “the trust is missing” between Australia and some European nations.

“It is a serious issue because [the submarine deal] is a kind of attack against European interests and European industry,” he said.

“It’s not just a case of France, also a German company is involved in this submarine project, so it is a question of how serious and how reliable Australia is.”

Acting Prime Minister Barnaby Joyce this morning said he hoped the French and other EU members would not hold a grudge against Australia.

“We hope and pray circumstances simmer down and things move on,” Mr Joyce said.

He defended Australia’s decision, saying that European nations would have made similar choices “if the tables were turned”.

But Mr Lange said EU nations were discussing the best way to respond and that the forthcoming trade deal between Australia and the EU could be delayed as a result of the deal.

“It is more complicated; we see some member states are not really able to find compromises, specifically in the agriculture sector … and of course the question of trust is now occurring,” he said.

“Some members could ask for more safety nets or more safeguards … so I guess the dialogue and the negotiation will take more time.”

What deal are the EU and Australia negotiating?

Negotiations for a free trade agreement (FTA) between Australia and the EU launched in June 2018, but were delayed due to the COVID pandemic and had not been expected to conclude before the end of the year.

It is now unlikely an agreement could be reached before Australia’s federal election.

Australia is seeking an elimination of tariffs on all its exports to the EU, and in return will cut tariffs on EU imports to Australia.

In particular, Australia wants tariffs dropped on agricultural exports such as beef, sheep meat, sugar, cheese and rice — though some products will be hard to achieve. 

Two-way trade between the EU and Australia is valued at almost $85 billion, and an FTA is expected to open up a market of almost half a billion consumers for Australian exporters.

Australian farm and export groups are reluctant to comment about how the submarine deal may affect negotiations with the EU, pointing out France is just one of 27 EU member states.

Privately they say they will wait for “the smoke to clear”, and expect to have a better indication of what, if any, impact France’s disdain for the submarine deal will have.

That will become clearer when negotiations resume between Australia and the EU on October 12.

One interested party suggested Australian trade negotiators may welcome more time to reach a deal, as debate remains over some of its conditions.

The EU does not want Australian exporters to sell foods trademarked under geographical indicators, such as prosecco and feta — which might become known as salty white cheese — and the Australian grains industry will fight to ensure its ability to use chemicals such as glyphosate is not hindered.

Despite trade tensions with China, Australian farmers are enjoying high global demand for their produce and many exporters are more inclined to trade with Asia, or in some cases the US, before considering the EU because they are closer to home.

Others will hope a new trade deal will stimulate greater European investment in Australia.

While Australian exporters hope the EU trade deal will improve trade with the bloc, many see it as a market that may not have its potential realised for many years to come.

For that reason, they will be hoping the Australian negotiators are not rushed but can determine a better deal for the long term.

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