EU-Australia trade deal runs aground over submarine furor

Europe’s trade negotiations with Australia are at risk of collapsing over France’s fury at losing a multibillion-dollar submarine deal with Canberra.

Paris reacted with outrage to Australia’s decision last week to ditch a French contract to build diesel-electric submarines and instead form a pact with Britain and the United States to acquire nuclear-powered vessels. In a sign of the extraordinary level of French anger, President Emmanuel Macron has recalled his ambassadors from Washington and Canberra.

Clément Beaune, France’s European affairs secretary, told POLITICO that Europe could hardly continue talks for a free-trade agreement after such a breach of trust. Brussels has held 11 rounds of talks with Canberra to date, and Australia originally hoped to conclude the accord before the end of the year.

“Keeping one’s word is the condition of trust between democracies and between allies,” he said. “So it is unthinkable to move forward on trade negotiations as if nothing had happened with a country in which we no longer trust.”

In theory, the European Commission has exclusive powers to conduct trade talks on behalf of the 27 member countries. But it would be impossible for Brussels to plow on in the face of outright French opposition.

Indeed, France has a highly successful track record of killing the EU’s trade agenda through outspoken hostility. In 2016, then-President François Hollande effectively torpedoed the Transatlantic Trade and Investment Partnership talks with Washington, and Macron is similarly making clear that he will not allow the Mercosur agreement with South American countries to come into force.

France is traditionally highly defensive about trade agreements with major agricultural exporters, and Canberra is certainly no exception. Without France’s backing, the European Commission will not be able to grant Australian farmers preferential market access for their beef and dairy products — the heart of the deal for Australia.

If there were any doubt that the accord is on the ropes, German MEP Bernd Lange, chair of the European Parliament’s international trade committee, said the deal was in trouble, for reasons that stretched beyond France’s opposition. “The willingness to compromise, on the European side, has now certainly decreased,” Lange told POLITICO, arguing that Australia’s recent U-turn also hit German interests.

“In addition to Australia’s security policy orientation, the deal with the U.S. also sends industrial policy signals against the EU,” said Lange, noting the new pact also affects the German company Atlas Elektronik, which is part of Thyssen Krupp Marine.

“Industrial policy cooperation and technology transfer, which are part of the EU’s Indo-Pacific strategy, have become more complicated,” Langue added. “And there are clear differences with the U.S., especially in terms of sustainability and social responsibility — which, by the way, was part of the French-European offer for submarines.”

Lange said the response should be to “expand the EU’s open strategic autonomy and define our own economic, political and security interests.”

But the French criticism is unlikely to go down well with more free-trading EU countries such as Sweden, Ireland or the Netherlands. 

Irish Minister for Trade Promotion Robert Troy told POLITICO he wanted to see progress in the EU’s negotiations with Australia, regardless of the Indo-Pacific deal reached between Australia, the U.S. and the U.K. 

“I’m sure this will play a role, it will influence future discussions,” Troy said.

But he still advocated a pragmatic approach: “In the long-term interests, it is still going to be hugely beneficial to conclude the free-trade agreement between the EU and Australia. I don’t envisage any divergence from that.”

The European Commission last week predicted that the blow-up over the submarines would not have an “immediate” effect on the trade deal.



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