French submarine dispute could torpedo EU-Australia trade talks

By Diksha Madhok, CNN Business

France is threatening to block talks on a planned free trade agreement between Europe and Australia after the Australian government ditched a huge deal to buy French submarines.

The French government has been seething ever since Australia abandoned its $90 billion Australian dollars ($65 billion) deal last week with France in favor of a new military agreement with the United States and the United Kingdom.

“Keeping one’s word is the condition of trust between democracies and between allies,” France’s European affairs secretary Clément Beaune told Politico. His remarks were confirmed on Monday by a spokesperson. “So it is unthinkable to move forward on trade negotiations as if nothing had happened with a country in which we no longer trust,” Beaune added.

As part of the security pact, known as AUKUS, Australia will be supplied with the technology to construct a fleet of nuclear-powered submarines, considered to be superior to the conventionally powered vessels Canberra had previously agreed to buy from Paris. In response to the move, France recalled its ambassadors to the United States and Australia on Friday.

Negotiations on a free trade agreement between the European Union and Australia were launched in June 2018, and so far 11 rounds of talks have been held, covering areas such as removing barriers to exports and intellectual property rights. The next round is scheduled to take place later this fall.

While the European Commission has the power to conduct trade talks on behalf of the 27-country bloc, it is unlikely to go ahead with the deal if the French are opposed to it.

In an exclusive interview with CNN’s Christiane Amanpour, European Commission President Ursula von der Leyen said Monday that “a lot of questions” must be answered about the collapse of the submarine deal.

“One of our member states has been treated in a way that is not acceptable, so we want to know what happened and why,” von der Leyen said, adding that the situation must be clarified “before you keep on going with business as usual.”

The Commission’s chief spokesperson Eric Mamer said earlier that the next round of EU-Australia talks had been scheduled for October and that the Commission was currently analyzing “the impact that the AUKUS announcement would have on this schedule.”

The European Union was Australia’s third largest trading partner in 2020, according to the European Commission. Goods trade between the two amounted to €36 billion ($42 billion) that year while trade in services was worth €26 billion ($30 billion) in 2019.

The deal could add between €1.8 billion and €3.9 billion ($2.1 billion and $4.6 billion) to EU GDP by 2030, according to the European Commission.

The threat to an EU trade deal comes at a time when Australia is looking to develop new export markets after relations with China, its largest trading partner, soured recently.

Australian coal, wine, barley and beef have all already been affected by trade tensions with China, and experts say that AUKUS has antagonized Beijing even further.

Meanwhile, China has been looking for a way into Australia’s other big trade agreement — the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which is an 11-country free trade pact that came into force in December 2018. China formally applied to join it last week.

— Joseph Ataman and Saskya Vandoorne in Paris, and James Frater, Wesley Oliver and Maddie Araujo in London contributed to this report.

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