AUSTRALIA is preparing for another trade deal after the European Union said it would begin work on a free trade agreement in the coming months.
As part of a new trade and investment strategy announced on Wednesday, the European Commission said it would seek authorisation from its 28 members to open separate negotiations with "close partners" Australia and New Zealand.
Any deal with the EU would have big implications for Australian farmers which have long been pushing for lower tariffs and greater access to a European market of 500 million customers.
However, the EU announcement said any deal would need to take into account "agricultural sensitivities" with European farmers likely to oppose any substantial relaxation of protectionist measures for sheep, beef and dairy imports.
Agriculture in the EU is heavily subsidised, with payments under the Common Agriculture Policy accounting for 40 per cent of the EU's budget.
According to the European Commission, Australia ranked as the EU's 21st biggest trading partner while the EU represented Australia's third biggest after China and Japan in 2014. Total trade in goods amounted to €38.7 billion ($61 billion) in 2014.
Australia's exports to the EU have traditionally been dominated by mineral commodities and energy as well as agricultural products while EU's exports to Australia are predominantly manufactured goods such as cars.
The European Commission said the new trade and investment policy was a direct response to the "current intense debate on trade in the EU - including on the Transatlantic Trade and Investment Partnership".
Australia has recently signed the Trans-Pacific Partnership Agreement, which will create a free-trade area covering 40 per cent of the global economy aimed at addressing "21st-century trade issues" such as intellectual property protections, digital trade rights and protections for investors. The TPP followed another high-profile free trade deal struck with China in June.
Trade Minister Andrew Robb said a deal with the EU was a "missing piece" after the conclusion of the other agreements.
A number of steps must be completed for formal negotiations to begin. First, the EU will conduct an impact assessment of the FTA. Second, it will commission a study to examine areas of negotiation.
The European Council's 28 members must also give their permission to open negotiations but EU officials are confident previous consultation mean this stage is a formality.
One of the goals of the EU trade policy is to "expanding measures to support sustainable development, fair and ethical trade and human rights".
The potential focus on human rights clauses has been a source of tension in the past.
Former EU ambassador Brendon Nelson has previously argued Australia should never sign a free trade agreement with the EU if talks included demands for tough clauses on human rights, democracy and the rule of law.
A trade deal with Europe was discussed at last November's G20 meeting in Brisbane.
