European Union Brief

Australia's Relations with the European Union

Overview

Australia and the European Union (EU) 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 among these commitments are support for global efforts against terrorism and the proliferation of nuclear and conventional weapons, and the promotion of peace, sustainable development, good governance and human rights.

The EU, as a single entity, is Australia's largest trade and investment partner (see below). Australia and the EU 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 EU is a significant provider of aid to the Pacific and South East Asia. Australia has a number of formal bilateral agreements with the EU 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 EU, please click on to the appropriate country listed below.

Political Overview

Key EU Institutions

The main institutions of the EU are the Council, the Commission and the Parliament. The Council of the EU 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 EU 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 (EC), 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 EU'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 EU'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 EU as future accession candidates - Croatia, Turkey and the Former Yugoslav Republic of Macedonia. Montenegro lodged an application for EU membership on 15 December 2008 with the European Council, which must decide unanimously whether to grant candidate status. The EU signed Stabilisation and Association Agreements, an important step towards candidacy, with Serbia in April and Bosnia and Herzegovina in June 2008. Albania formally submitted its application for candidate status to the EU on 28 April 2009. Iceland and Kosovo are potential accession candidates 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 EU 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. Only Ireland, Germany, Poland and the Czech Republic are yet to finalise their ratification processes of the Lisbon Treaty. The Irish Government has announced it will hold a second referendum on the Lisbon Treaty before the end of 2009.

European parliament elections took place in EU member states between 4-7 June and the new parliament is expected to take office in mid-July.

For further information on the EU, please see the EU'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 programs 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 the debt-to-GDP ratio should not be more than 60%.

Sixteen of the 27 EU 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, Slovakia, Slovenia and Spain. 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 EU's 27 member states have a total population of 495.9 million people and a combined economy worth US$18 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, France,the UK, Italy and Spain).

The Eurozone entered recession in 2008 and the EU's spring economic forecast for 2009-2010 (released May 2009) indicates the extent of the downturn. GDP in the EU is expected to fall by 4% in 2009 across all EU countries. Unemployment is expected to rise to 9.4% in 2009 with a further increase to 10.9% in 2010. Public finances will also be affected, with the headline deficit expected to more than double in the EU to 6% in 2009 (up from 2.3% in 2008). The forecast however predicts GDP will stabilise in 2010 with a subdued recovery gradually taking hold on the back of improving financial conditions, stronger external demand, and supportive macroeconomic policies.

Bilateral relationship

Australia and the EU have developed a new Partnership Framework to shape the future direction of bilateral cooperation. The new framework was launched during the Australia-EU Presidency Consultations in Paris on 29 October 2008 and focus on practical cooperation in the following areas:

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 fisheries and forestry;
science, research, technology and innovation, education and culture and facilitating the movement of people.

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 and the Commissioner for External Relations 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 Paris on 29 October 2008.

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 2009. Australian Parliamentary delegations visited Europe in April 2006 and April 2008.

Australian and EU 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 EU has been represented in Australia since 1981 by a Delegation of the European Commission. 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 30,000 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 EU face similar challenges to global peace and prosperity, including terrorism, the proliferation of weapons of mass destruction, and failing states. Australia and the EU 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 EU's law enforcement agency.

In our region, the EU 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 EU provides 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 EU'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 EU 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 EU's Pacific policies are set out in its Pacific Communication, adopted in May 2006. The Communication outlines the EU'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 presence of the EIB office will help improve donor coordination between Australia, the EU 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 EU 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 EU 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. On 19 May in Melbourne, EU Energy Commissioner, Mr Andris Piebalgs, signed an MOU associating the EC with the Global Carbon Capture and Storage Institute. 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 EU, Australian researchers are able to join their European counterparts as full participants in research programs which are managed by the EC under the EU'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 EU 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 EU and Australia.

Bilateral economic and trade relationship

In 2008, the EU, when treated as a single market, was Australia's largest two-way merchandise trading partner, representing 16 per cent of Australia's total merchandise trade. Australia's total two-way merchandise trade with the EU in 2008 was valued at $71 billion, with total Australian merchandise exports to the EU worth $23.6 billion, a 23 per cent increase from 2007. Australia's merchandise imports from the EU in 2008 totalled $47.5 billion, up 15 per cent from 2007.

Total merchandise exports from Australia to the EU represented 11 per cent of total merchandise exports. Australia's major merchandise exports to the EU include coal (the EU accounted for 13 per cent of Australia's coal exports), gold, wine and nickel ores and concentrates. Merchandise imports from the EU in 2008 accounted for 21 per cent of Australia's total merchandise imports. Australia's merchandise imports from the EU 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 analysing instruments.

In the latest available figures, services exports to the EU grew by 2 per cent in 2007-08 to reach $8.7 billion. Solid increases were recorded in our exports of transportation, education, and other business. Australia's services imports from the EU rose 3 per cent in 2007-08 to $10.4 billion, with rises in communication, other business and personal, cultural and recreation services being major drivers.

Market access to the EU 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; causes internal EU prices to be higher than the international market level for many commodities and limits access to the EU agricultural market. 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. Nevertheless, the trend towards a more market-friendly EU agriculture policy presents opportunities for more constructive bilateral engagement, as is reflected in the brochure on agricultural reform (pdf) DFAT has produced for distribution in Europe.

Investment

The EU as a single entity is Australia's biggest foreign investor. At the end of 2008, EU direct foreign investment in Australia totalled $133 billion – about 33.9 per cent of Australia's total inwards foreign direct investment. UK companies dominate EU direct foreign investment in Australia (accounting for 45 per cent of the EU total). The Netherlands (19 per cent), Germany (10 per cent), and France (10 per cent) are also significant investors.

The EU accounted for $42.6 billion of outwards Australian direct investment as at 31 December 2008. Our largest direct investments were in the United Kingdom (54 per cent of Australian investment in the EU), Germany (19 per cent) and the Netherlands (13 per cent).

Export Opportunities

Though the EU is already Australia's largest trade and investment partner there are opportunities to expand the trade and investment relationship, particularly in continental Europe. 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 EU. It provides useful information about EU institutions, regulations, policies, and the issues influencing Australia's trade with the EU.

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

Trade Successes

In 2008, Australia exported $1.2 billion worth of wine to the EU, with the United Kingdom being the dominant export market (receiving 70 per cent of total Australian wine exports to the EU). Australian wine exporters are also actively and effectively increasing their presence in the continental EU wine market. The 1994 Australia-European Community (EC) Trade in Wine Agreement has been a valuable tool in facilitating Australia access to the EU wine market. A new Australia-EC Wine Agreement, initialled on 5 June 2007, was signed by the Australian Foreign Minister, Stephen Smith, and the EC Commissioner for Agriculture and Rural Development, Mariann Fischer-Boel, in Brussels on 1 December 2008 and is expected to come into effect in 2009. The Agreement allows for greater market access to the EU 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 EU please email the Department of Foreign Affairs and Trade: Tradeinfo@dfat.gov.au

Last updated: 10 June 2009