Europe poised to overtake US as Australia’s second-biggest trade partner as Albanese signs EU deal

A landmark free trade agreement between Australia and Europe sends a powerful message that there is strength in co-operation and respect to a changing world in which “great powers are using tariffs as a leverage and supply chains as vulnerabilities to be exploited”, European Commission Ursula von der Leyen has said.

Neither Ms von der Leyen nor Anthony Albanese directly named Donald Trump in their remarks in Canberra on Tuesday, but the spectre of the US President and his ongoing and erratic trade war loomed large over proceedings.

“In our story, open, rules-based trade delivers positive-sum outcomes. Trust matters more than transactions,” Ms Ms von der Leyen said.

“It is a story of building strength at home and diversifying abroad through a reliable network of agreements that we respect and uphold. And this is what collective resilience is.”

Mr Albanese too alluded to the fact that “free and fair trade is under scrutiny and under pressure” as a result of Mr Trump’s wide-ranging tariffs.

“This is both the European Union and Australia asserting that we believe in free and fair trade, that we understand that trade advances the prosperity of both trading entities who are involved, that it is in our interest to get this done,” the Prime Minister said.

“Trade is what has lifted people out of poverty around the world, and that complementarity is a message to the world. My government unequivocally believes in free and fair trade.”

Trade Minister Don Farrell predicted the deal will see Europe overtake the United States as Australia’s second-biggest trading partner.

Mr Farrell made the bold prediction in his only joint interview with his EU counterpart, Maroš Šefčovič, granted exclusively to The Nightly ahead of the agreement’s official signing on Tuesday.

The pair hailed the deal as “remarkable”, and a demonstration to the rest of the world that trade deals could be struck in the turbulent global environment and that free and fair trade boosts growth and wages.

The EU Trade Commissioner said that while Australia was on the “top of the list” following Ms von der Leyen’s re-election last year, the “turbulence” in the global trading relations pushed Europe even harder to clinch the deal now.

The deal eliminates 99 per cent of tariffs or around €1 billion (A$16.6b) in duties, with an immediate $10 billion windfall to the Australian economy and an 87 per cent surge in predicted European investment into the country. Duties will remain on steel.

As The Nightly has previously reported, the deal includes a security and defence partnership that will enable Australia to co-buy and produce weapons under the European Union’s €150b (A$250b) Security Action for Europe (SAFE) rearmament program.

It will also involve a critical raw minerals deal that enables European buyers to purchase the components, currently monopolised by China, with zero tariffs.

And after a last-minute breakthrough in talks late last week, the EU is open to granting Australia entry into the EU’s prized Horizon Europe research program, a move that could allow thousands of Australian researchers to live and work in Europe.

It hasn’t been easy.

But farmers are likely to be unhappy. The deal will only allow 30,600 tonnes of beef meat into the EU, and only 16,830 tonnes will be duty-free and is restricted to grass-fed producers. The rest will be subject to a 7.5 per cent tariff. The quota will take 10 years to reach capacity.

The sheep and goat meat quotas will be limited to 25,000 and will have to be grass-fed. Meat producers had been wanting a quota of nothing less than 50,000 tonnes.

Sugar producers will get a tariff-free import quota of 35,000 tonnes. The dairy industry will only be able to export 8000 tonnes more skim milk powder, 5000 tonnes of butter and 2000 tonnes of whey.

And in the highest cost to the budget, Australia has agreed to forgo around $200 million in revenue to relax the luxury car tax and tariffs, in a big win for European carmakers who have struggled to compete with China’s flooding of the international market with highly subsidised cheap EVs.

The luxury car tax threshold will increase from $90,000 to $120,000, meaning new car buyers will pay no extra taxes on electric cars valued below this threshold.

Celebrating the result at Molto restaurant on Canberra’s Kingston foreshore, Commissioner Šefčovič and Minister Farrell said it was a huge win for both sides that would deliver huge sums to each other’s economies.

“I think in the first year, we should expect a boost of $10 billion in extra trade, and I think within a very short space of time, Europe will overtake the United States as our second largest trading partner,” Senator Farrell told The Nightly.

“Yep, big call.”

Australia exported $17.3 billion in goods and $8.6 billion in services to Europe in 2024, according to the Department of Foreign Affairs and Trade.

Commissioner Šefčovič said that Europe anticipated growing its exports to Australia by one-third over the decade.

“The fact that we will have almost 100 per cent of the tariff-free in goods with the exception of some small steel tariff lines is absolutely remarkable,” he said.

“And we expect that our investment, which is already quite significant, around €120 billion (A$200b), will increase by 87 per cent in the next few years, so these are huge numbers and this just shows how important this agreement is for both of us.

He said the hardest concessions the EU had to grant were around agriculture.

The EU Parliament recently decided to delay its final vote to approve a separate deal the Commission struck with Latin American countries amid anger from the protectionist French and Irish farming blocs who oppose any increase of foreign meat into the single market.

“For Don it was too little, for me it was too much so I would say these sensitive commodities, they were the most difficult to negotiate but in the end I believe we got a fair deal,” he said.

“I appreciate the understanding from Australian partners that they realised how difficult it is to negotiate agricultural sensitive commodities, therefore it was the last thing we actually settled.

“But I believe that we are pretty confident that these circumstances and the comprehensiveness of the deal that clearly indicate we did a good job, that this is fair for both sides and that we will get it by our member states and by European parliament.”

He said there was particular interest in accessing Australia’s critical minerals, which the Trump Administration has already started financially backing.

“We want to underline the complementarities in our economies, in goods but also in the very important topic, which was maybe not so pronounced a few years ago and this is critical raw minerals because Australia has everything,” he said.

“Australia has everything, we have a huge interest, we have the capital, we have the technology and what we want to do is have a fair deal with Australia.

“What we can do together as investors, as uptakers, as project promoters, is to simply make sure that we will fit well in the 21st Century and to develop this huge natural wealth Australia has.”

He said Europe wanted to be much more present in Australia and the region, which was the fastest-growing in the world.

Much of the negotiating areas have been well documented over the many years the negotiations have been in the works.

But one unexpected development is the potential access for Australia into the EU’s €95.5 billion (A$160b) science and research program Horizon.

Around 3000 Australian researchers and engineers could get special visa access to live and work in the EU to help develop dual-use technologies to power next-generation weapons and capabilities, as well as breakthroughs in clean tech and quantum computing.

The program would require Australia to pay to enter. Senator Farrell would not reveal how much that could entail but Commissioner Šefčovič said Australia would not regret buying in.

“Everyone wants to be part of it, you get a lot of funding for the research and the researchers love it because you have this unfettered access to this huge research and innovation community from the European Union but also the Canadians and many other countries associated with this program,” he said.

“I never heard any country complaining about being in Horizon because of its focus on research, on university cooperation so I’m sure this is great news for Australia and Europeans and they will love it.”

Mr Albanese and President von der Leyen signed the deal at Parliament House in Canberra, after eight years of negotiations. Eight years in the making, it is by far the biggest trade deal the Albanese government has clinched.

Senator Farrell walked out on the negotiations at the final hurdle in 2023 over a dispute about beef. He said of the final breakthrough: “It hasn’t been easy.”