Down (Under) to Business: The EU and Australia Sign New Trade Agreement
By Marshall Reid and Maša Ocvirk
The European Union (EU) is continuing its streak of free trade agreements (FTAs) after concluding its latest with Australia on March 24. The signing ceremony in Canberra, however, did more than eliminate trade barriers. It showcased a new strategic impetus in EU-Australian relations amid ongoing geo-economic and geopolitical tensions.
A Long Road
Negotiations for the free trade agreement began in 2018. Perhaps unsurprisingly, European concerns about market access for agricultural products long proved to be a roadblock as the continent’s farmers increasingly resisted relaxing import restrictions. The new FTA nevertheless provides significant market access for both sides. It eliminates 99% of tariffs on EU exports to Australia and opens the bloc’s market to a variety of Australian exports, mostly agricultural products. In 2024, the EU was Australia’s fourth-largest trading partner, behind only China, the United States and Japan. The agreement is expected to boost bilateral trade by up to 30% over a decade and nearly double EU investment in Australia in the same period. Australian Minister for Trade and Tourism Don Farrell has speculated that the EU could become Australia's second-largest trading partner, replacing the United States.
Not everyone shares the enthusiasm. Farmers on both sides have, as expected, criticized the FTA’s European market access provisions. Such opposition has derailed the implementation of trade agreements in the past. It led the European Parliament to throw into doubt a signed EU-Mercosur pact (after a quarter-century of negotiations) by sending the accord to the EU Court of Justice for legal review. This EU-Australia FTA now becomes the latest test case for the power of trade and geopolitical uncertainties over greater market access.
More Than an FTA
Concurrent with the signing, the EU and Australia agreed to expand cooperation in research and innovation, security and defense, and access to critical raw materials. The last is of particular significance for the EU. Australia holds large reserves of raw materials crucial for Europe’s green and tech sectors, making the country an attractive alternative to China. Beijing’s near-monopoly on these resources has raised concerns about strategic vulnerabilities. The new FTA reflects Brussels’ efforts to diversify its sources and enhance its economic security.
The new security and defense partnership makes Australia the newest member of the €150 billion EU Security Action for Europe (SAFE) loan mechanism. Canberra’s defense industry can now cooperate with EU member states on procurement and production projects supported by the program’s funds. Increasing threats from Russia and China, and strains with the United States, have led the EU and Australia to invest heavily in defense and deterrence. This new agreement provides a framework to upgrade cooperation and interoperability to better tackle (hybrid) threats in the Euro-Atlantic and Indo-Pacific theaters.
Australia has also begun negotiations to join Horizon Europe, an EU science and research funding program. A successful conclusion to the talks will open new avenues for researchers from both parties to research on supply chain resilience and advanced and clean technologies.
Why Now?
A future with free trade is a priority for Australian and EU policymakers, especially since their biggest trading partners, the United States and China, are increasingly challenging long-standing norms. Brussels and Canberra have reacted by reevaluating their partnerships and dependencies, spurring a desire for deeper bilateral cooperation that translates shared values into concrete deliverables.
The broader significance of their FTA should consequently not be underestimated. For the EU, it is another important geopolitical milestone in broadening its relationships with ever more strategically important Indo-Pacific countries. So far, Brussels has struggled to have a meaningful impact in the region. But with the recent trade deals with India and Indonesia, and now Australia, the EU has found a way how to become a desired partner for these countries.
The FTA could prove to be similarly consequential for Australia, which has long sought greater access, especially for agricultural goods, to the vast European market. Mounting tensions with China have only made the push more urgent in recent years. As Farrell noted after signing the accord that it should provide critical stability “at a time when Australian exporters are navigating choppy trade waters”.
It is those same choppy waters that are driving change across the global trade landscape. For the EU, Australia and other actors, pragmatism and expediency increasingly dictate trade policy. With more U.S. tariffs looming, multilateral institutions fraying and multiple armed conflicts disrupting supply chains, Brussels and Canberra cannot afford to sit idly by. If they can fully implement their new agreement, they will take a substantial step towards safeguarding themselves from all the rising instabilit