Brexit is set to have wide-reaching consequences across the globe. As trading partners to the UK, Australia and New Zealand can expect their relationships with the UK to change. So what are the likely impacts?  

Brexit will allow the UK, Australia and New Zealand, plus much of the rest of the Commonwealth, to re-establish a trading pattern uniquely suited to all parties, says Bryan Gould, author of Rescuing the New Zealand Economy and former member of Labour UK’s shadow cabinet.

“The UK would have access to the most efficiently produced food and raw materials, so that British costs could remain lower than those of their major manufacturing competitors, and they would – in return for providing guaranteed markets to Commonwealth suppliers – obtain preferential markets for British manufactured goods in those Commonwealth countries,” says Gould.

Brexit negotiations – the UK’s exit from the European Union – are set to begin this year. On 29 March 2017, the UK triggered Article 50 of the Treaty of Lisbon, meaning it is leaving the EU and has two years to begotiate an exit deal.

The EU has already put Australia on notice about working with the UK on FTAs prior to Brexit being finalised, says Anna George, adjunct professor at the Sir Walter Murdoch School of Public Policy and International Affairs at Murdoch University.

Assuming that Australia and New Zealand have similar interests in exporting agriculture and meat products, the UK will either adopt in total EU Food and Product regulations and standards, or  “cherry-pick” export markets and create an internal segmented market subject to different regulations.

“This is a sensitive area that could rebound on Australia in its EU FTA negotiations, as it appears to be actively supporting the UK, including sharing trade expertise.The perception of an ‘anglofile’ approach to trade and economic policy may increase within the EU as difficult Brexit negotiations get underway,” says George.

Selwyn Black, partner at lawyers Carroll & O’ Dea, warns that the full impacts of Brexit are not yet known as we wait for Brexit to formally occur. “However, Australia and New Zealand have limited banking exposure to the UK and Europe, and therefore our financial system is relatively insulated from any fallout,” says Black.

Australian and New Zealand trade with the UK has also reduced in importance over the last 50 years, as the focus shifts towards the Asia-Pacific region. “Any slowdown in the UK economy and UK imports of Australian or New Zealand goods and services arising from Brexit will have a relatively muted effect on Australia and New Zealand.”

Tourism in Australia and New Zealand may well suffer the most from Brexit, as the UK accounts for a significant proportion of tourism exports.

Giovanni Di Lieto, who lectures on international trade law at Monash University in Melbourne, says the UK’s so-called “hard Brexit” line, where the UK does not even retain membership of the Single Market (called the “soft Brexit” option), will negatively impact the Australian economic position in global value chains that rely on ease of trade and investments in the European single market.

It is in Australia’s best economic interest to prioritise a preferential partnership with the EU over a new free trade agreement with the UK, according to aggregated trade and investment data, says Di Lieto.

 “The market volatility created by the hard Brexit will have a significant direct bearing on the Australian financial market and, given the high levels of home bias, a significant indirect bearing on Australian portfolios.”

Charles Finny of government relations and public policy firm Saunders Unsworth, who has previously worked in New Zealand’s Department of Trade and Industry and Ministry of Foreign Affairs and Trade, says short-term changes in UK immigration and education policies may make it more difficult for New Zealanders and Australians to work and study in the UK.  

Trade implications

As the UK exits the EU trade bloc, it will be the implications for trade that consume much of the discussion in coming years. While this is a complicated process for the UK, Gould suggests that from Australia’s and New Zealand’s viewpoint, Brexit could mean a renewed opportunity to sell into a tariff-free market in the UK – though they will also seek free-trade arrangements with the EU. 

“For Britain, there is the chance to beat the EU to the punch and negotiate free-trade agreements with both countries, and with the rest of the Commonwealth, notably India,” says Gould. 

Black says the opportunity for Australia and New Zealand to negotiate a free trade agreement directly with the UK may provide a boost to the Australian and New Zealand economies. “Given the similar cultures and close historic ties between the nations, we expect a deal can be struck. We note that discussions for a free trade agreement are currently ongoing, but any deal may need to wait for Brexit to formally occur,” says Black.

Finny says the trade equation is very complicated: “This is not just a huge exercise for the UK, it will stretch the EU negotiating resource and it will be a challenge for Australia and New Zealand.  

New Zealand, as an example, needs to continue the existing process with the EU, which will hopefully see an FTA in place in two or three years. It will need to press for a FTA with the UK in such a way that it does not result in any push back from the EU.

Steve Guy, general manager, market access, of Wine Australia, says there will be many opportunities to discuss mutually beneficial trade through a free trade agreement or technical treaty for trading wine. “Australia currently has a bilateral agreement on trade in wine with the European Union, which provides various non-tariff market access benefits. Once the bilateral treaty no longer applies in the United Kingdom, we will need to ensure these benefits are maintained for Australian wine,” he adds.