The essentials of the UK-Australia free trade deal

The UK and Australia have agreed on a free trade agreement that in principle virtually eliminates tariffs on originating goods traded between the two countries. 

The UK government hails the deals as an opportunity to sell “iconic British products like cars, Scotch whisky, biscuits and ceramics” more cheaply to the Australian market. 

Australian goods imported into the UK will also benefit from tariff-free trade, but there will be certain constraints on specified goods. For instance, there will be a gradual tariff-rate quota increase on Australian beef and lamb, rather than zero-quota zero-tariff trade.

How significant is the UK-Australia free trade deal?

From a consumer perspective, the deal may not be anything to write home about (crunching the numbers reveals that the savings to the British public works out to about £1 per household). Of course, for London-based Vegemite addicts, the benefits may be higher.   

But for companies that trade between the UK and Australia, the opportunity to take advantage of tariff-free trade could provide an important boost.

For instance, the UK government says that Scotland exported £126m worth of beverages to Australia in 2020. The deal potentially enables the scotch whisky industry an opportunity to increase sales by removing the 5% tariff on distilled goods.

That said, some industry observers have questioned how much of a difference the reduction will make, given the already relatively low applicable tariff rates. However, the cut may be important in terms of ensuring a level playing field for UK exports. A scotch whisky industry spokesperson pointed out that while whisky exports to Australia have steadily increased, the products faced a competitive disadvantage compared to American whiskey, which is not subject to tariffs. 

Beefing up trade

Observers will keenly watch how the deal accounts for checks on agricultural goods. One obvious point of potential contention is antibiotic use in Australian beef production. Australia has fewer restrictions on the use of antibiotics in farming, which could have implications for which goods are permitted to be imported.

What about import VAT?

Note that eliminating tariffs doesn’t affect your obligation to account for import VAT. In order to secure significant competitive advantage, traders need an import VAT solution that eliminates VAT leakage and optimises cash flow.

Get in touch with VAT IT, the VAT recovery specialists, for a complete import VAT solution, whatever the terms of trade.