Beef beats minerals: Political economy of the failed EU-Australia trade deal

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The planned free trade agreement (FTA) between the EU and Australia fell apart over the weekend because the interests of red meat producers are politically stronger than the interests of important industries.

Everything was ready. Australia was ready to accept geographical indications (GI) and implement a domestic GI system.

It was prepared to move on its tax on expensive imported cars, which hurt European car manufacturers. And an agreement that would facilitate EU access to Australia’s abundant critical raw materials while increasing European investments into Australia’s raw materials sector was in sight as well.

Negotiators on both sides were unusually optimistic about the negotiations ahead of what was supposed to be the final meeting between the European Commission’s trade and agriculture commissioners, Valdis Dombrovskis and Janusz Wojciechowski, and Australia’s Trade Minister Don Farrell

And then, nothing.

The negotiations could not even start as the talks unravelled on Sunday (29 October) before the EU’s and Australia’s negotiators could put their heads together for the concluding negotiating round on the sidelines of the G7 meeting in Osaka.

The stories of what exactly happened differ substantially.

EU officials, who said they were “in a state of shock” after the failure of the trade talks, claimed that, in a meeting between Minister Farrell and the EU commissioners on Sunday, Farrell re-iterated agricultural market access demands from last December, which would roll back nearly a year of the negotiating process.

Australian officials, meanwhile, disagree with this reading.

“Australia did not re-table demands in Osaka that backtracked on previous talks. The requests made by Australia to the EU were entirely consistent with discussions between officials prior to the meeting in Osaka,” an Australian embassy spokesperson said.

From the Australian perspective, the EU commissioners presented Farrell the EU’s final market access offer for Australian beef and sheep meat on Sunday, which Australia simply deemed unacceptable.

In the end, it’s not very important who is right or wrong, and much of the drama could be due to the fact that nobody wants to take the blame for messing up a trade deal between two partners that seem geopolitically so aligned, nearly destined to collaborate.

The important fact is: The trade deal failed over the interests of red meat producers, both in Europe and in Australia.

The EU Commission felt it could not go further as the French and Irish governments jealously defend their meat producers’ interests, maybe even more than before due to the recent agrarian backlash against greener agricultural policies and a shift towards the right in many elections.

And the Australian government felt it could not compromise any further, maybe even more so two weeks after losing an important referendum on indigenous rights thanks to conservative and rural opposition.

It is not new that agricultural interests are key in trade negotiations. But it’s still strange to see a trade deal held up by an industry that should arguably shrink quite substantially in the future, in Europe as well as in Australia, if the planet is to avoid overheating.

In Europe, the specialised food producers protected by GIs lost out, German car manufacturers, who desperately need alternative markets, lost out, and most importantly, advanced industries relying on critical raw materials lost out too, all to save European beef production.

Maybe this is another argument for a more active industrial policy. The more the Commission and governments support certain industries economically, the stronger these industries will get politically. Maybe one day the green industries will become stronger than beef producers.

The next possible date where these interests can clash in EU-Australian free trade negotiations is about two years from now, after the European elections in 2024 and Australian elections in 2025.

What do we absolutely not want to see happening in the middle of a climate crisis? Correct: Wind energy producers going bust!

And what do we absolutely not want to see happening in the face of rising geopolitical tensions and more unreliable global supply chains? Correct: Domestic wind energy producers going bust!

And what do we see? Well, domestic wind energy producers at the brink of going bust.

Today’s chart of the week shows the stock price of the Danish energy company Ørsted – the world’s largest offshore wind developer.

The share price has tumbled since peaking in early 2021, plagued by rising prices in its supply chain as well as rising interest rates.

With the US government unwilling to adapt project agreements that have turned unprofitable due to the recent surge in production prices and interest rates, coupled with low energy prices, Ørsted walked away from two large offshore wind projects in the US this week.

One reason why governments feel like they cannot pay more for wind projects is the tightened monetary policy that made government debt much more expensive.

Moreover, the rating agency S&P warned that it might downgrade Ørsted’s credit rating, saying that “management might have been too aggressive in its expansion plans”.

From a point of view that prioritises preventing the planet from boiling over, there cannot be “too aggressive” an expansion plan for offshore wind. Alas, that’s not the point of view of markets, nor of central banks, nor of governments.

Ørsted is not the only company suffering from the current situation. Siemens Energy, for example, is in talks with the German government to get some state guarantees.

The European Commission has realised that EU wind power is at a critical point and has recently presented a “wind power package,” as my colleague Kira Taylor explained in this article. For example, the Commission wants to redesign public procurement to favour European providers over Chinese ones and make permitting procedures faster.

The central obstacles to Europe’s energy transition, the EU’s monetary policy and its fiscal policy geared towards creating artificial scarcity, remain unaddressed, however.

You can find all previous editions of the Economy Brief Chart of the week here.

German trade unions push for industrial subsidies. Representatives of German trade unions have criticised the government for not yet introducing a subsidised electricity price for energy-intensive industries. “For months, the federal government has been engaged in a public debate about the bridge electricity price, with no result in sight,” Jürgen Kerner, deputy head of Germany’s biggest trade union IG Metall, told journalists on Tuesday (31 October), calling the decision “overdue”. If no decision is taken, trade unions will take to the streets, he announced. Read more.

US official defends IRA against EU criticism. US Deputy Treasury Secretary Wally Adeyemo, speaking in Berlin on Tuesday, defended the Inflation Reduction Act against criticism from the EU. The aim of the scheme was not to turn towards protectionism or start a subsidies race, but to reach climate targets, he said. “Our political system is different than yours and requires us to use different tools to accomplish the same goals,” Adeyemo said. Unlike the US, the EU is primarily using carbon prices to decarbonise its industries. Read more.

French economic growth remains positive in Q3 2023. French economic growth increased by +0.1% in the third quarter of 2023 compared to the second quarter “in spite of high interest rates […] that led to sometimes-severe recession in other EU countries,” Economy Minister Bruno Le Maire told journalists on Tuesday (31 October). Both consumption and investment levels are on the up, as inflation starts to go down – due to fall below the 4% bar by year-end. The government is confident its 2023 1% annual growth forecast is now very likely to be reached.

UN calls on the EU to align due diligence rules with international standards. On 27 October,  the UN High Commissioner for Human Rights Volker Türk called on the EU to make sure the EU corporate accountability law, currently under interinstitutional negotiations, is aligned with the voluntary UN standards on business and human rights. In particular, according to the UN human rights office, the EU law should include effective civil liability and a risk-based approach, avoid over-reliance on contracts and audits to certify due diligence compliance, and ensure stakeholder consultations. An agreement on the law between member states and the European Parliament is expected to be finalised in the coming weeks.

Finance Watch warns that economic models underestimate climate risks. The economic models used to calculate the risks of climate change to economic growth and financial stability are “disconnected” from climate science and perpetuate an inaction bias in policymakers, a new report by the financial policy NGO Finance Watch warned. The NGO also called on the EU Commission to extend the time horizon of a study on climate-related financial stability risks to beyond 2030. Read more.

What the EU doesn’t get about economic security.

Multi-solving, trade-offs and conditionalities in industrial policy

Pension investment in renewables may be undermining a just transition

Profiling relations of European countries with China

Additional reporting by Silvia Ellena,  Jonathan Packroff, Théo Bourgery-Gonse.

[Edited by Zoran Radosavljevic]

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