Australia is the world's 15th largest economy, a developed Western nation and an open economy with which Europe shares deep economic ties.
The European Union already has a large trade surplus with it, even as negotiations over a free trade agreement with Canberra have been stalled since 2023. But recent political signals indicate a final push to conclude it might be imminent.
At such a critical moment, the EU should adopt a pragmatic trade policy, and an FTA with Australia would mark a significant step forward. The time to finalize it is now.
What it means for the EU
The EU needs to conclude this FTA for several reasons. First, Australia is extremely rich in vital natural resources. It ranks third globally for rare earths and high among leading producers of critical minerals such as cobalt, manganese, zircon, tantalum, vanadium and uranium.
In the current geopolitical context, as U.S.-EU ties come under increasing strain, it is key for Europe to develop such treaties with a partner like Australia that would not weaponize access to these resources.
In addition, a deal between the EU and Australia would restore a level playing field — a common set of rules for everyone — in market access with countries that, in turn, have FTAs in place with Australia, including China, the U.K., the U.S., Japan and South Korea. The same argument applies both ways. Indeed, Australia's access to the EU market has eroded over time because recent EU trade deals have granted preferential access to competitors.
After the approval of Mercosur and the agreement with India, an FTA with Canberra would show that another significant economy seeks to be anchored to Europe within a rules-based, orderly approach to international trade.
Western countries would be better off stengthening their trade alliances rather than weakening them — the opposite direction of the approach taken by U.S. President Donald Trump. Europe, building on its historic heritage, could serve as a rallying point if it acts decisively.
A win-win agreement
Canberra is facing increasing economic and trade dependency on China, and is currently exposed to the global overflow of Chinese goods due to trade diversions from the U.S.
Any certainty about relying on the U.S. as an economic partner and security guarantor is now gone. Therefore, Australia has a vital interest in diversifying its export markets and strengthening reliable partnerships.
There is no better partner than the EU and its vast market, despite its imperfections.
Any deal is, in fact, asymmetric in favor of Australia, which gains access to a much larger market. Therefore, beyond agriculture, much of the catch-up on the trade deficit can occur in goods and services.
With a strong chapter on market access for EU investments, Canberra can also become a launchpad for European businesses in Southeast Asia, as EU companies would be even more comfortable using Australia to manufacture and provide services to the region.
Potential hurdles
Although the agreement would benefit both European and Australian economies, areas of potential dispute remain, as I recall from my time as rapporteur for EU-Australia trade relations from 2017 to 2019.
In particular, very sensitive products such as beef and lamb need to be traded through so-called tariff rate quotas — a mechanism under which a set quantity of imports is subject to lower duties and higher tariffs are applied beyond that threshold. Phasing in TRQs would show that the EU is concretely protecting its farmers' products. Most concessions should take effect towards the end of the transition period, giving European producers time to adapt.
Moreover, a compromise should be found on geographical indications. Two potential solutions could be implemented: grandfathering and coexistence arrangements.
These clauses would allow existing Australian producers already using the same names as European products to keep doing so, while EU "originals" are protected and both can coexist in the market. New Australian producers would instead be prevented from using those names. The EU has often reached such arrangements on a case-by-case basis.
Finally, another bone of contention is Australia's luxury car tax: Australian policymakers should consider whether it now protects Chinese manufacturers from European competitors, rather than serving as a genuine tax on luxury.
All these divergences are not insurmountable — and concluding this deal is a key priority for the EU, given the dramatic geopolitical context.
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