May 31, 2023
UK/Australia and New Zealand Free Trade Agreements enter into force
AUKFTA, signed on 16 December 2021, is something of an historic milestone for the UK, due to its status as the UK's first "brand new" trade agreement following exit from the European Union (EU). For Australia, AUKFTA is a notable agreement that presents opportunities and gains for digital and services trade, highlighting the importance of innovation and technology in both countries. It also reflects the importance of services trade in both countries' economies and the bilateral trade relationship.
Other noteworthy areas include tariff reductions, customs process facilitation, expanded market access to government procurement, and investment opportunities. Finally, AUKFTA includes a number of provisions to make trade more accessible for small to medium-sized enterprises (SMEs), recognizing their importance for economic growth.
The NZ-UK FTA, signed on 22 February 2022, includes similar outcomes and benefits on tariff reductions, supporting SMEs, growing investment, services and digital trade, and making commitments on climate and the environment. For New Zealand, it represents the best market access deal secured in any trade agreement.
Both agreements include provisions to support Indigenous Australia or Maori economic and trade interests. They also go further than previous agreements on both environment and gender matters, reflecting the changing nature of global trade.
Trade in goods, customs and rules of origin
Over 99% of Australian goods exports to the UK will benefit from immediate tariff elimination (meaning 0% tariffs at entry into force (EIF)).
Included in the immediate tariff elimination for Australian exports are agricultural products such as wine, short- and medium-grain rice, honey, nuts, olive and food supplements tariff lines. Industrial goods with immediate tariff elimination include auto parts, electrical equipment and fashion goods. Some agricultural sectors (e.g., Australian sheep meat, beef and dairy) will see tariffs reduced in stages with some safeguards in place until year 15 from EIF.
British exports to Australia, which already benefit from low tariffs, will be able to access 98% of tariff reductions at EIF and 100% by year six from EIF. Tariffs on some exports of UK cheese and steel will be eliminated over five years.
Under NZ-UK FTA, 100% of UK goods exports will have their tariffs removed at EIF, which includes reductions for clothing, footwear and vehicles such as buses and bulldozers.
Most (96.7%) New Zealand goods exports to the UK will be subject to immediate tariff reduction, which will apply to New Zealand goods such as wine and some agricultural and seafood products. Similar to Australian agricultural products, there are staggered tariff reductions for imports into the UK.
Tariff-rate quotas for exports into the UK
As set out above, not all Australian and New Zealand exports will be subject to immediate tariff reduction. Some key agricultural lines will be managed through staggered reductions in the form of tariff-rate quotas (TRQs). Examples follow:
Product-specific safeguards apply to Australian and New Zealand exports of beef meat and Australian lamb to manage the volume outside of the TRQ amount during the transition periods
Both agreements include a bilateral safeguard, which allows temporary measures to limit the trade of any good that has increased significantly in quantity due to tariff reduction (or elimination) under AUKFTA or NZ-UK FTA. The change in tariffs and volume of imports must have the potential to cause injury to a sector. This safeguard is bilateral, meaning the UK, Australia or New Zealand can use it to apply measures to any tariff line during the transition period.
Rules of origin
Both AUKFTA and NZ-UK FTA build on the tariff reductions in each agreement by offering flexible rules of origin (ROO). In practice this means ingredients and parts of non-British origin can qualify for low or zero tariffs under the agreement. The same concept applies for non-Australian or non-New Zealand parts used in final products exported to the UK. Both agreements also simplify and reduce costs associated with proving the originating status of goods to qualify for preferential access.
Provisions for digital systems and document exchange, which will reduce the amount of paperwork and information supplied for border processes in agreement party countries, are included in AUKFTA and NZ-UK FTA. This includes a requirement for goods to be released within 48 hours (with fast-track parcels and perishable goods released within six hours), if all import requirements are met.
The agreements also include provisions to encourage UK, Australia and New Zealand to use a risk-based approach for border inspections to facilitate movement in both high- and low-risk consignments.
Both agreements recognize the existing bilateral agreements made between the countries in 2019 on mutual recognition of conformity assessments.
The AUKFTA includes text that encourages conformity assessments conducted in one party country to be accepted in another country, with a specific annex on cosmetics. Cooperation on medical devices, and human and veterinary medicines are not listed in the agreement but are included in side-letters, with commitments to reduce trade barriers. The NZ-UK FTA includes cosmetic conformity assessments in the body of the agreement text but includes an annex on wine and spirits.
Services, investment and digital trade
Services trade is key to the Australian, New Zealand and UK economies and a defining feature of their bilateral trade relationships. There are provisions in the respective FTAs to facilitate services trade, including mutual recognition commitments for professional services and qualifications, which are intended to remove bureaucracy and cost to the movement of people. Combined with improved market access and national treatment for non-domestic services providers, the FTAs facilitate growth in trade particularly for professional services, financial services and telecommunication sectors.
The AUKFTA has a standalone chapter on professional services — a first for both countries. The NZ-UK FTA cross border services trade chapter includes an annex on Professional Services and Recognition of Professional Qualifications.
Some interesting sectoral benefits attributable to the agreements include:
The AUKFTA includes a promise from the UK to match future offerings to Australia if the UK offers better market access to other partners. Both agreements include commitments to ensure regulatory transparency for all services sectors and make sector-specific rules and domestic regulation clear through cooperation.
Mobility including mutual recognition of qualifications
To further support services trade, there are reciprocal arrangements for the temporary movement of skilled persons. Under the AUKFTA this includes intracorporate transfers, services- supplier access matching access given to EU nationals (provided by UK), and access to short-term visas without having to demonstrate compliance to Australian regulations for filling vacant roles. Similarly, British businesses will be able to offer access without needing to demonstrate sponsorship reasons.
Under NZ-UK FTA, the UK will gain access to a new tailored visa route that will allow UK professionals, such as lawyers and accountants, to work and deliver contracts in New Zealand more easily. Company transferees will not be subject to economic needs tests or quantitative restrictions. New Zealand will also allow family members to join company transferees in New Zealand for the duration of their visa.
These mobility and qualifications provisions are important for knowledge and skill transfers, and will support growth in Australian and New Zealand sectors including legal, accounting, engineering, surveying and urban planning, architecture and research and development services. As set out above, AUKFTA also includes commitments to develop systems for recognizing professional qualifications in both countries. These will apply to a number of areas, including for:
Under the NZ-UK FTA, regulators of all regulated professions are encouraged to develop routes for mutual recognition.
The AUKFTA establishes an "Innovation and Early Careers Skills Exchange Pilot" to encourage movement of people early in their career and people involved in innovation between the two countries.
The UK, Australia and New Zealand are significant investors in each other's jurisdictions and their respective agreements provide protections for investors to strengthen this relationship.
For the first time, the UK has included investment protections covering portfolio as well as direct investments, allowing access for Australian pension funds and insurance companies. Australia has granted broader and deeper market access compared to previous offers. The AUKFTA also includes a minimum standard of treatment and freedom to make transfers relating to investments that are consistent with relevant legislation.
There is no investor-state dispute mechanism in either agreement. Australia and New Zealand have regimes in place to screen investments for national security reasons or if made in a sensitive sector. Under the FTAs the screening threshold by which UK investments would be captured has been increased.
Both agreements include provisions to remove digital trade barriers and, combined with provisions for data protection for both countries' businesses and consumers, will help business access more opportunities.
These provisions also clarify what information can be processed, stored and used without applying data localization requirements. This is important, particularly for businesses that rely on the free flow of data.
Both agreements also include digital mechanisms for trade processes, such as the recognition of digital signatures, electronic signatures and electronic trust services.
The Digital Trade chapter in NZ-UK FTA will be reviewed in two years' time to ensure it remains aligned with Maori rights and interests.
Government procurement opportunities under AUKFTA appear significant, opening numerous avenues previously not available to UK or Australian businesses. For example, UK legal services will be able to access Australian Government contracts for legal services, and UK transport services be provided the most substantial access Australia has offered in an FTA. Nonetheless, Australian indigenous businesses will continue to benefit from Australian Government indigenous procurement policy. The AUKFTA also endeavours to enable equitable access to procurement information.
The NZ-UK FTA is less flexible than the AUKFTA. Although the NZ-UK FTA commits New Zealand and the UK to expanding the scope of coverage in some areas, to build on what is offered under the WTO's Government Procurement Agreement, access to New Zealand's sub-federal procurement is limited due to New Zealand's domestic regulation. The NZ-UK FTA commits to considering further modifications in the future if this regulation changes.
The AUKFTA and NZ-UK FTA provide protections for intellectual property (IP) which are important for creative and cultural goods trade. There are reciprocal arrangements to protect artists, for example providing remuneration for sales in each other's markets, and cooperation on issues that challenge IP protection, such as addressing online infringements. The data protection and access provisions also support digital growth in the creative sector. Both agreements will make it easier and more efficient to register and renew IP protections for goods trade in the form of trademarks. This will reduce the costs and time that companies and designers need to expend to protect their IP.
The NZ-UK FTA increases the length of New Zealand's term of copyright and rights for creative arts (i.e., performance, sound recordings) to 20 years to align with the UK's length. This will be implemented within 15 years of EIF.
Geographical indications (GIs) are currently protected through IP processes in Australia. However, both Australia and New Zealand are expected to introduce a scheme for protecting agri-food in the coming years to allow British businesses to register products.
Sustainability, SMEs and gender empowerment
The two agreements support sustainability in various ways, making trade in green technology and goods more attractive and accessible. This includes innovation commitments on low-emission technology, tariff reduction for green goods (electric vehicles, components needed for renewable technology, etc.), and regulatory commitments for sustainable economic development. Of the two agreements, the NZ-UK FTA has (at time of signature) the largest environmental-goods lists for tariff reductions, eliminating 293 tariff lines for environmentally beneficial goods.
Small- and medium-sized enterprises (SMEs)
The AUKFTA and NZ-UK FTA recognize the importance of SMEs to economic growth and are particularly supportive of SMEs in trade, with various references to SMEs in the agreement text. For example, the right to bid for procurement opportunities, regardless of their size, on UK Government, goods and construction contracts encourages SME involvement. Both agreements also include provisions that make procurement more accessible for SMEs, such as by making tender documents available free of charge and simplifying various administrative processes.
Both agreements include a chapter on trade and gender equality to support women through trade and investment by encouraging access for businesses led by women and putting in mechanisms to monitor trade and gender equality. These efforts exceed any previous commitments Australia has made in trade agreements and represent the first time that New Zealand has signed a bilateral agreement that includes a chapter on gender equality.
Implications for business
The AUKFTA and NZ-UK FTA appear to present many opportunities for businesses involved in goods or services trade to explore. The nature of the agreements allows businesses to adjust their supply chains, the geographical reach of their portfolio and their workforce to include Australian, New Zealand or British involvement.
Many provisions in both the AUKFTA and NZ-UK FTA align with those in the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP). As Australia, New Zealand and the UK are now members of CPTPP, once CPTPP is implemented in the UK certain benefits such as rules of origin can be multiplied. CPTPP allows for intermediate goods to be considered "local" across member countries; this means Australian, New Zealand and UK components present in a final product exported to another CPTPP member that meets product-specific rules can qualify for preferential access.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United Kingdom)
Ernst & Young (Australia), Melbourne
Ernst & Young Limited (New Zealand), Auckland
For other queries or comments please email email@example.com.
Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor