European Union Brief

Australia's Relations with the European Union

Overview

Australia and the European Union enjoy a constructive and substantial bilateral relationship built on a shared commitment to freedom and democratic values and a like-minded approach to a broad range of international issues. Key amongst these are the global efforts against terrorism and the proliferation of nuclear and conventional weapons, together with the promotion of peace, sustainable development, good governance and human rights.

The European Union, as a single entity, is Australia’s largest trade and investment partner (see below). Australia and the European Union cooperate increasingly closely in the Asia-Pacific region, including to enhance security, stability and good governance, and to improve the coordination of development cooperation assistance among donors to the region. The European Union is a significant provider of aid to the Pacific and South East Asia. Australia has a number of formal bilateral agreements with the European Union and its institutions. Some of the key recent agreements are described in this brief.

For information on Australia's bilateral relations with the individual member states of the European Union, please click on to the appropriate country listed below.

Political Overview

Key EU Institutions

The main institutions of the European Union are the Council, the Commission and the Parliament. The Council of the European Union is the pre-eminent decision-making body. It provides a forum for member state representatives to meet regularly at all levels, including ministers and heads of government/state (meeting as the European Council). Under current arrangements, the Presidency of the European Union rotates between member states on a six-monthly basis and is responsible for organising and chairing meetings, as well as acting as EU spokesperson and international representative. The European Commission, currently consisting of one Commissioner from each member state and led by a President, is the Union’s executive body and public service. It shares policy and decision-making powers with the member states through the European Council and with the European Parliament and is responsible for budget management. The European Parliament is the only institution directly elected by EU citizens. It shares decision-making power with the Council on most internal market policies and has budget approval powers. The Parliament has the right to approve or reject the nomination of Commissioners and must be consulted on other policy decisions.

Under current arrangements, the European Commission and the European Council share responsibility for managing the European Union's external relations. The European Council’s High Representative for Common Foreign and Security Policy (Dr Javier Solana) represents EU member state interests in foreign policy and security matters. Other foreign policy powers rest with the European Commission. Responsibilities are divided between the European Commissioner for External Relations and the European Neighbourhood Policy (Dr Benita Ferrero-Waldner) and European Commissioner for Development and Humanitarian Aid (Mr Louis Michel).

Recent Political Developments

The European Union’s weight as an international actor was reinforced by its most recent enlargement in January 2007 to 27 member states. Three countries are formally recognised by the European Union as future accession candidates - Croatia, Turkey and the Former Yugoslav Republic of Macedonia. The European Union signed Stabilisation and Association Agreements, an important step on the path to candidacy, with Serbia in April and Bosnia and Herzegovina in June 2008. Other potential accession candidates are Albania, Montenegro and Kosovo. Under its Instrument for Pre-Accession Assistance (IPA) the EU will provide € 7.58 billion over the period 2007-11 to accession and potential accession candidates to enhance political and economic reform and development, on their path towards EU membership.

The European Union is undertaking a treaty reform process intended to promote more streamlined EU decision-making and a more effective foreign policy. Among measures proposed under the Reform or Lisbon Treaty are: a longer-term President for the European Council, fewer Commissioners, a single foreign policy representative, reform of the Union’s internal voting system and stronger powers for parliaments, both national and European. The process was thrown into doubt, however, when Ireland rejected the Treaty in a referendum on 12 June 2008. The treaty must be approved by all 27 member states before it can come into force.

For further information on the European Union, please see the European Union’s information gateway or the website of the European Commission Delegation in Canberra.

Economic Overview

EU member governments run their economies according to similar principles of economic management - the Economic and Monetary Union (EMU) - which is a comprehensive strategy of macroeconomic, microeconomic and employment policies. Member states draw up national reform programmes within this framework, using the tax and social welfare policy mix they think best suits national circumstances.

The Stability and Growth Pact (SGP) prevents member states from taking policy measures which would unduly benefit their own economies at the expense of other EU countries. A key principle of the Pact is the rule that all member states keep their budgets close to balance or in surplus. Deficits must not exceed 3% of gross domestic product (GDP) and that the debt-to-GDP ratio should not be more than 60%.

Fifteen of the 27 member states have taken integration a step further by adopting the same currency, the Euro: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain. Slovakia has confirmed its readiness to join the Euro zone in January 2009. Denmark and the United Kingdom have so far opted to remain outside the Euro. Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Sweden have no target date for joining. The entry criteria for the Euro include two prior years of exchange rate stability via membership of the ‘Exchange Rate Mechanism’ (ERM). Five EU members are in the ERM: Denmark, Estonia, Latvia, Lithuania and the Slovak Republic. Other criteria for adopting the Euro relate to interest rates, budget deficits, the inflation rate, and the debt-to-GDP ratio.

The European Central Bank (ECB) has responsibility for monetary policy throughout the Euro area, including setting benchmark interest rates, managing the Euro area’s foreign exchange reserves and ensuring payments move smoothly across EU borders.

The European Union’s 27 member states have a total population of 491.9 million people and a combined economy worth $17 trillion (around 18 times the size of Australia’s economy). The EU has a combined GDP greater than the United States and includes five of the world’s ten largest economies (Germany, the UK, France, Italy and Spain).

The EU’s Autumn Economic Forecasts for 2007-08 predict economic growth in the European Union to decelerate from 2.9% in 2007 to 2.4% in 2008 and for the thirteen countries of the Euro area from 2.6% to 2.2%. Unemployment is expected to fall from 7.1% in 2007 to 6.7% in 2008 in the EU generally and from 7.3% to 7.1% in the Euro area. The current account deficit is predicted to fall in 2008 to 0.9% of GDP for the European Union while the current account is predicted to be in balance for the Euro area, although fourteen Member States are running deficits above 3% of GDP. Inflation in 2007 was 2.3% and is forecast to rise to 2.4% in 2008.

Bilateral relationship

Australia and the EU have launched the development of a new Partnership Framework to shape the future direction of bilateral cooperation. The new framework is expected to be completed in mid-2008 and focus on practical cooperation in the areas of:

shared foreign policy and global security interests;
the multilateral rules-based trading system and the bilateral trade and investment relationship;
the Asia-Pacific region;
energy issues, climate change and other environmental priorities;
science and technology, education and training.

The new framework is intended to update and replace the June 1997 Australia-European Union Joint Declaration on Relations and the subsequent March 2003-08 Agenda for Cooperation.

Recent Ministerial and Head of State visits

Prime Minister Rudd visited Brussels on 2 April 2008 where he had a meeting and joint press conference with EC President Manual Barroso and met with the High Representative for Common Foreign and Security Policy and Secretary-General of the Council of the EU, Javier Solana. During his visit Mr Rudd also made a speech to the European Policy Centre on EU-Australia relations. Australia and the EU hold regular Ministerial Consultations with the rotating EU Presidency, which provide an important opportunity for the Australian Foreign Minister to discuss current priority issues with high-level European representatives. The most recent formal Australia-EU Presidency Consultations took place in Helsinki, Finland, in September 2006.

The Australian Parliament has maintained official contact with the European Parliament for many years. The European Parliament is an increasingly important conduit for advocacy of Australia's interests and has an Inter-parliamentary Delegation for Relations with Australia and New Zealand. Regular reciprocal visits by parliamentary delegations provide opportunities for round-table discussion on policy decisions of national interest. A delegation from the European Parliament last visited Australia in February 2007. Australian Parliamentary delegations visited Europe in April 2006 and April 2008.

Australian and European Union representatives regularly meet for discussions and consultations at Ministerial and officials level in the margins of international conferences, in addition to regular officials-level bilateral forums covering specific policy issues, such as the Trade Policy Dialogue, the Agricultural Trade and Marketing Experts' Group (ATMEG) talks and the Australia-EU Troika Talks on Asia (Co-ASI).

The European Union has been represented in Australia since 1981 by a Delegation of the European Commission, which is headed by His Excellency Ambassador Bruno Julien. The Delegation’s role is to represent the Commission; to further develop bilateral relations in the political, economic, commercial, environment, social and cultural fields, including new opportunities for cooperation; to inform the Commission on political, economic, trade and development matters in both Australia and New Zealand; and to promote and protect the EU's interests and values and to spread knowledge and raise awareness of the EU in Australia and New Zealand. The Delegation is not responsible for trade promotion or consular matters, which are handled by the embassies, consulates, trade commissioners or national tourism offices of EU member states.

Community Presence in Australia

People-to-people links between Australia and Europe are deep and longstanding. Australia's cultural identity draws heavily on our predominantly European heritage. Nearly 70 per cent of Australians have European ancestry. Almost 19,000 new European migrants arrive annually and over 1.3 million Europeans visit Australia each year, while around 1 million Australians travel to Europe. The great sacrifices made by Australians during two world wars in Europe are an integral part of our national history and identity, and represent a strong Australian contribution to Europe's evolution over the past century.

Key Areas of Cooperation

Security

Australia and the European Union face similar challenges to global peace and prosperity, including terrorism, the proliferation of weapons of mass destruction, and failing states. Australia and the European Union work cooperatively and in practical ways on many fronts to promote international peace and security. For example, Australia and the EU have a cooperation agreement to facilitate the exchange of information between the Australian Federal Police and EUROPOL, the European Union’s law enforcement agency.

In our region, the European Union makes an important contribution to promoting development and security outcomes for East Timor and for the countries of the Pacific region (see also Development Cooperation below). The European Union provided support for the Jakarta Centre for Law Enforcement Cooperation (JCLEC), a joint Australian - Indonesian initiative to enhance the expertise of South-East Asian law enforcement agencies in combating terrorism and transnational crime, and for the Bali process on enhancing regional cooperation on people smuggling, trafficking in persons and related transnational crime. Australia has welcomed the European Union’s constructive role in Aceh where, along with five ASEAN countries, the EU deployed a Monitoring Mission (AMM) for the implementation of the peace agreement signed between Indonesia and the Free Aceh Movement in August 2005 in Helsinki, Finland.

Development Cooperation

The European Union is an important partner for Australia in development cooperation activities in the Pacific region. It is a significant donor to the region. The tenth European Development Fund (EDF10) will provide the Pacific with an estimated Euro500 million (approximately $800 million) in funding over the period 2007 – 2013. The European Union’s Pacific policies are set out in its Pacific Communication, adopted in May 2006. The Communication outlines the European Union’s commitment to strengthening political relations with Pacific countries; bringing greater focus and coordination to its development activities, including through more emphasis on regional cooperation; and improving the effectiveness of aid delivery, including through closer coordination with other partners, in particular Australia and New Zealand.

The European Investment Bank (EIB) - which provides development loans to African, Caribbean and Pacific (ACP) countries - opened its Pacific regional headquarters in Sydney in December 2007. The opening of this office will help improve donor coordination between Australia, the European Union and developing country partners and enhance overall aid effectiveness in the Pacific region.

Further information on Australia's development policies and programs can be obtained from the AusAID website.

Environment and Energy

Australia and the European Union hold high-level consultations to strengthen cooperation in advancing environmental protection, both through policy dialogue and by facilitating joint projects to address specific environment-related issues. Australia and the European Union agreed in 2007 to hold a regular officials-level forum on energy security and climate change, which will provide the opportunity to consolidate and build on existing collaboration and to explore ways of addressing climate change and broader environmental issues that complement each other’s current activities. Australia and the EU share a common concern about the importance of mitigating and adapting to climate change. The first official act of the current Australian Government was to ratify the Kyoto Protocol. Australia is a leading player in international negotiations under the United Nations Framework Convention on Climate Change. Australia joined the EU-initiated International Carbon Action Partnership (ICAP) on 7 April 2008. As a permanent coordinator of the Umbrella Group (a grouping of the non-EU developed countries) Australia looks forward to continuing to closely engage the EU on climate change matters.

Science and Technology, Education and Training

Under the 1994 Science and Technology Agreement between Australia and the European Union, Australian researchers are able to join their European counterparts as full participants in research programs which are managed by the European Commission under the European Union’s Framework Program (the 7th Framework Program commenced in 2007 and concludes in 2013). The Agreement also encourages European participation in Australian research activities. A Joint Science and Technology Consultative Committee (JSTCC) was established under the Agreement to discuss ways to enhance research collaboration. The joint Forum for European-Australian Science and Technology cooperation (FEAST) keeps Australian and European Union researchers up to date on advances in bilateral science and technology cooperation.

Bilateral cooperation in education is underpinned by the 2007 Joint Declaration on Cooperation in Education and Training. The Joint Declaration provides opportunities for tertiary students to move between institutions in Australia and Europe, promoting greater compatibility between respective education systems and policy dialogue and cooperative projects between higher education and vocational institutions in the European Union and Australia.

Bilateral economic and trade relationship

In 2007, the European Union, as a whole, was Australia’s largest two-way trading partner, our second-largest market for exports (behind Japan and slightly in front of China) and our largest source of imports. Australia’s total two-way trade with the European Union in 2007 was valued at $79.1 billion, with total Australian exports of goods and services to the European Union worth $27.9 billion, a three per cent decrease from 2006. Australia’s imports of goods and services from the European Union in 2007 totalled $51.2 billion, up ten per cent from 2006.

Total merchandise exports from Australia to the European Union decreased in 2007 by 7 per cent over 2006 merchandise exports to $19.2 billion, representing 11 per cent of total merchandise exports. Australia’s major merchandise exports to the European Union included coal (the EU is Australia’s second-largest market for coal after Japan), gold, wine and mineral ores.

Merchandise imports from the European Union in 2007 totalled $41.1 billion, a rise of 13 per cent, and accounted for 22 per cent of Australia’s total merchandise imports. Australia’s merchandise imports from the European Union were dominated by manufactured goods, with the top categories including medicines, passenger motor vehicles, gold, goods vehicles, aircraft and parts, civil engineering equipment and measuring and controlling instruments.

Services exports to the European Union grew by 5 per cent in 2007 to reach $8.7 billion. Solid increases were recorded in our exports of recreational travel, transportation, education, business services and computer and information services. Australia’s services imports from the European Union rose 2 per cent in 2007 to $10.1 billion, with rises in recreational travel, computer and information services and other business services being major drivers.

Market access to the European Union market is generally open, with the exception of the agriculture sector. The EU Common Agricultural Policy (CAP) creates distortions and instability on world agricultural markets. Internal prices remain higher than the international market level for many commodities and access to the EU market continues to be very limited. CAP reforms agreed by EU member states in 2003 and 2004 have begun the process of separating farm support from production, thereby reducing incentives to over-produce and making the EU farm sector more market-oriented. But these reforms have not reduced the total level of EU farm support, improved market access or addressed export subsidies. These issues are central to Australia's ambitions for a successful outcome in the WTO Doha round of multilateral trade negotiations.

Investment

The European Union as a single entity is Australia’s biggest foreign investor. At the end of 2007, EU direct foreign investment in Australia totalled $136 billion – about $44 billion more than from the United States, our second-largest foreign investor. UK companies dominate EU direct foreign investment in Australia (accounting for 47 per cent of the EU total). The Netherlands (19 per cent), Germany (13 per cent), and France (10 per cent) are also significant investors.

The European Union is the second-largest destination for Australia’s direct investment abroad (behind the United States), accounting for $56.3 billion of Australian direct investment as at 31 December 2007. Our largest direct investments were in the United Kingdom (50 per cent of Australian investment in the EU) and Germany (20 per cent).

Export Opportunities

With the recent entry of Bulgaria and Romania, the European Union has a total population of almost half a billion people and a combined economy worth $17 trillion (around 18 times the size of Australia’s GDP), including some fast growing member state economies. This offers prospects for expanded trade and investment opportunities. With its abundant resources of coal and uranium, Australia is well placed to be a reliable and efficient supplier of energy to Europe for many years to come. Europe is now a major market for Australian wine and for medicines. The EU services market, particularly in the education and tourism sectors, is a major market for Australian service providers. Product niches are being found in the food and beverage industries.

The latest Export EU publication serves as a guide to doing business with the European Union. It provides useful information about EU institutions, regulations, policies, and the issues influencing Australia's trade with the European Union.

For assistance with market access and trading with the European Union, see the Austrade country profiles for the various member states.

Trade Successes

In 2007, Australia exported $1.4 billion worth of wine to the EU, with the United Kingdom being the dominant export market (receiving 71 per cent of total Australian wine exports to the European Union). Australian wine exporters are also actively and effectively increasing their presence in the continental EU wine market. The 1994 Australia-European Community Trade in Wine Agreement has been a valuable tool in facilitating Australia access to the EU wine market. A Revised Wine Agreement, initialled on 5 June 2007, is expected to come into effect in 2008. The Agreement allows for greater market access to the European Union for Australian wines, in exchange for phasing out EU geographic terms used to describe Australian wine products, providing benefits for both Australian and European wine producers.

Tradeinfo Contacts

If you would like more information on the trade and economic conditions in the European Union please email the Department of Foreign Affairs and Trade: Tradeinfo@dfat.gov.au

Last updated: 21/08/2008