The collapse of the proposed preferential trade agreement (PTA) between Australia and the European Union (EU) after five years of negotiations signals a broader shift in global trade dynamics. The breakdown, particularly over agricultural issues, reflects the rising wave of protectionism and a retreat from liberal trade policies within the EU. This setback, coupled with recent developments in EU preferential trade agreements, offers valuable lessons for both Australia and the Asia-Pacific region.

Protectionist Winds and Agriculture:

Agriculture, a historically contentious sector in trade talks, played a pivotal role in the collapse of negotiations. The EU's resistance to opening its market to Australian beef and sheepmeat, coupled with protective geographical indications limiting the labeling of Australian products, highlighted deep-rooted issues. The Eurobarometer Poll of July 2022 revealed a growing positive sentiment towards protectionism among Europeans, contributing to the challenges faced in the talks.

EU Protectionism and Agricultural Policy:

The failure of negotiations mirrors past challenges in multilateral trade talks, specifically the Doha Development Round, where agriculture remained a stumbling block. Despite some reforms in the Common Agricultural Policy, the World Trade Organization (WTO) reports that substantial industry assistance persists, with tariffs on EU farm imports remaining high. Australia's concerns about market access for beef, sheepmeat, and protection of geographical indications reflect the ongoing challenges in the EU's approach to agricultural trade.

Strategic Factors and Asymmetry in Tariffs:

While both the EU and Australia have strategic interests in a successful trade agreement, the immediate prospects for resuming talks are slim. A fundamental asymmetry in tariff levels poses a significant hurdle, with Australia maintaining low tariffs on non-agricultural goods while facing substantial barriers to key exports like beef. This tariff asymmetry, coupled with upcoming European Parliament elections, dampens the likelihood of immediate progress.

Lessons for the Asia-Pacific Region:

The breakdown in EU-Australia trade talks offers crucial lessons for the Asia-Pacific region. Firstly, the pursuit of gains in agricultural exports through PTAs with the EU may be elusive, especially in sectors with high protectionism. Secondly, in dealing with geographical indications, strict transparency and due process obligations, as seen in the Regional Comprehensive Economic Partnership (RCEP), become essential.

Risks of Social and Environmental Sanctions:

The EU's recent PTA with New Zealand introduces a potentially worrying precedent, explicitly allowing trade sanctions for noncompliance with labor and environmental standards. While these objectives are commendable, relying on trade weapons to enforce them may risk protectionist tendencies and hinder economic growth. The threat of such sanctions looms over Asia-Pacific nations with existing or planned PTAs with the EU.

PTAs: Gains and Drawbacks:

While there are potential economic gains from PTAs, they should not be overstated. The modest impact of the EU-Japan trade agreement on long-term GDP highlights the limitations of preferential deals compared to multilateral liberalization. Concerns about trade diversion, regulatory proliferation, and confusion further emphasize the need for a renewed focus on multilateral, nondiscriminatory efforts within the World Trade Organization.

The collapse of EU-Australia trade talks reflects a broader shift towards protectionism in global trade policies. The lessons learned from this setback underscore the challenges posed by asymmetries in tariff levels, agricultural protectionism, and the potential risks associated with social and environmental sanctions. Instead of solely pursuing preferential trade agreements, the Asia-Pacific region should consider reinvigorating efforts within the WTO to strengthen the global trading system on a multilateral, nondiscriminatory basis.