With the Brexit reality, Canada is embarking on re-setting trade relations with both the UK and Europe.
Buttressed by a historic bilateral trade and political relationship that goes back several centuries, the Trudeau government is heeding widespread calls from the Canadian business community to demonstrate a British-style stiff-upper-lip during the transition period to December 31 that the UK remains a member of the European Union. In brief, don’t rush into a post-Brexit deal – and keep calm.
Until the end of this year, Britain remains bound by the sweeping EU-Canada free trade pact with Canada on goods and services, the Comprehensive Economic and Trade Agreement known as CETA that came into force in September 2017. While there have been informal discussions in the past year on rolling over elements of CETA into a bilateral accord, no date for formal negotiations have yet been set.
A New Era?
Given the dimension of the Canada-UK trade and investment relationship, there is obviously strong mutual motivation to embark on a new era. In fact, there appears to be leverage on both sides to make a deal, whereas analysts consider that Britain has virtually zero leverage in upcoming trade talks with the United States and the EU.
Latest available complete figures show Canada-UK trade totaling C$25.2 billion in 2018 and Canada-EU trade surpassing C$117 billion. Canadian trade with the UK represents nearly 21% of all Canada’s trade with the 28 EU member countries. Much of this trade passes to and from the Port of Montreal.
Thus, by far, the UK is Canada’s biggest trading partner in Europe (with Germany second) and its third most important market destination (exports of C$17 billion) in the world after the United States and China. In addition, the UK is Canada’s third largest destination for foreign investment abroad. Similarly, the UK exports and invests more in Canada than any other EU member.
Otherwise, generally speaking, the UK’s exit from the EU has profound implications for Canada-UK trade relations. According to a recent research report, the two countries are linked via the EU to at least 94 treaties and international agreements. And the two countries have treaties in seven broad categories, including trade, transportation and agriculture.
A spokesman for Canada’s International Trade Department has stressed that any future trade accord between Canada and the UK would be influenced by the evolving UK-EU relationship “as well as by any unilateral UK approaches.”
Not so Fast…
That is putting things into proper perspective, says Brian Kingston, vice-president of the Business Council of Canada, which represents business leaders in many regions and sector of the country. He suggested shortly before Brexit’s final bell that rushing into adopting a possible new bilateral version of CETA would be a tactical error.
“It’s difficult to negotiate a trade deal with the UK when we don’t know what the relationship with Europe will be. That is their most attractive feature – being part of this massive common market.”
Under the best-case scenario, the EU and the UK would negotiate (by December 31) “a comprehensive trade deal that allows businesses based in the UK to access the EU market. This would also benefit Canadian companies that have operations in the EU.”
“A more concerning outcome,” Kingston went on, “is when the UK and the EU do not negotiate a comprehensive trade deal. In this situation, the UK will crash into the European common market and may face barriers when companies try to access that market.
A CETA-like UK-Canada Agreement on Horizon?
“As for Canada’s bilateral relationship with the UK, we see two potential outcomes. The first is that Canada and the UK negotiate a CETA-like agreement that allows the trade relationship to grow and prosper with little interruption. If Canada and the UK fail to negotiate a bilateral trade agreement, there is the risk that the UK may apply tariffs on Canadian products and vice-versa.”
However, Kingston sees as “highly unlikely” a collapse in bilateral negotiations. “The UK will be very hesitant to do additional damage to their economy and will want to keep tariff levels as low as possible.”
In this connection, he affirms that Britain recently released a tariff schedule governing trade with Canada that would apply regardless of the terms Britain leaves Europe under. “They’ve decided to cut tariffs to zero on 87% of their imports (from Canada). That covers virtually all of Canada’s exports into the UK. So, it’s not as though we’re going to be falling off a cliff – we’ll pretty much maintain duty-free access.”
Kingston underlines “there will be many moving parts over the coming months in transition negotiations and what they will mean for Europe, Canada and the world.”
Another business leader, Jason Langrish, executive director of the Canada-Europe Roundtable for Business, suggests that if the UK crashes out without a Brexit deal, this could offer Canada a negotiating advantage because the UK will need a bilateral deal even more.
Deeper Ties
For its part, the British High Commission in Ottawa has made it abundantly clear that Brexit could usher in still deeper ties between the UK and Canada. At an event, a few weeks ago in Calgary hosted by the Canada West Foundation, Andy Barr, head of economics and trade policy for the British High Commission, noted that “our preference would be to lock in the terms of trade that are currently accorded by CETA into a Canada-UK agreement and then begin to tweak those provisions so they make more sense for that UK-Canada relationship in the medium and long term.”
But it remains to be seen when ‘tweaking’ time will actually begin…
