The UK and Australia’s incoming free trade agreement (FTA) includes several wins for investors, including immigration exemptions and improved access to government procurement markets.
The agreement signed on December 17 is a milestone for the UK, as its first FTA to be negotiated from scratch since leaving the EU, and opens a new chapter for trade and investment between the two Commonwealth nations.
“From our initial assessment, for both the UK and Australia, these are the most ambitious terms they have agreed to in any FTA,” said George Riddell, director of trade strategy at professional services firm EY in London.
Once it is ratified by both parliaments and takes effect, which is expected to occur later this year, the pact promises to deepen the countries’ already solid investment relationship. Data from fDi Markets shows that Australia is UK investors’ third biggest target destination, while the UK is Australia’s second most-popular target.
Among the FTA’s most significant investor benefits is increased mobility. There will be mutual recognition of professional qualifications and both countries have relaxed their normally stringent visa restrictions. For example, Australian individual investors establishing branches or subsidiaries in the UK can stay for up to a year — currently, Australian nationals can visit the country for six months without requiring a visa, although technically only for tourism purposes.
Meanwhile, Australia has exempted UK service professionals — such as architects, scientists, lawyers and accountants — from its so-called skilled occupation list, which determines visa eligibility based on current labour shortages. “It’s difficult to overstate these changes,” said Samy Mansour, a Sydney-based partner at law firm Clayton Utz. Increased mobility makes it easier to finalise investment decisions, attract talent and commit to long-term contracts.
Mr Riddell believes the FTA’s focus on professional services is driven in part by the need for legal and business advisers to have knowledge of both markets to support bilateral trade and investment. “There is a lot of expertise being built up in order to help facilitate those transactions,” he said.
Increased mobility is particularly useful in setting up regional headquarters, notes Mr Mansour. Australia’s trade and investment minister Dan Tehan has stated that the FTA encourages UK firms to use the country as a launchpad to expand into the Asia Pacific region by leveraging its regional network of trade pacts, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that the UK is trying to join.
UK and Australian investors will now be on equal footing when bidding for government contracts in either country, including for major infrastructure projects. Guaranteed access to public procurement markets worth around £300bn in the UK and £37bn in Australia each year “would increase foreign direct investment (FDI) in the affected industries,” said Mark Melatos, associate professor in economics at University of Sydney.
Australia will lift its A$0 foreign investment screening threshold to A$1.25bn (£662m) for UK acquirers; however, it retains the right to review deals worth less than that on national security grounds.
Notably, there is no mention to an investor-state dispute settlement (ISDS) in the FTA, a mechanism that Mr Melatos says is “now a standard clause in most FTAs”. While ISDSs have been criticised for allowing investors to challenge legitimate local laws, Mr Melatos said its absence could “create expensive legal headaches down the track” given many multinationals in highly-regulated industries are headquartered in the UK.
Investment aside, the FTA’s biggest change is the elimination of essentially all tariffs. The UK government forecasts this can potentially unlock £10.4bn in bilateral trade, but Mr Melatos notes this could also disincentivise FDI to the extent there is no need to circumvent tariffs.