What can the UK learn from Canada's trade agreement with the EU?
What can the UK learn from Canada’s trade agreement with the EU? Research commissioned by ICAS suggests it could provide a valuable blueprint for a post-Brexit deal, as David Wood and Robert Outram report.
Getting to an agreement on the future relationship between the UK and the European Union, post-Brexit, is arguably even more important than negotiating the terms of the UK’s departure. Up until now no member state of significant size has ever left the EU. Is there any precedent to which we can turn, to assess what a future deal might look like? Perhaps there is. A report, just published by ICAS – CETA, Brexit and Beyond: The Canadian experience with the Comprehensive Economic and Trade Agreement and its usefulness as a model for Brexit – considers lessons from the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU.
ICAS commissioned the report from Dr James Ogilvy, a former member of the Canadian International Trade Tribunal and an adviser to the Government of Alberta during the CETA negotiations. ICAS hopes that it will be useful for the UK Government in its discussions with the EU, and initial discussions were held with the Government at the end of October. The report should also provide useful information to members and the wider public.
The CETA is the most current and advanced trade accord in which the EU participates. It represents a coming together between two parties, each starting from widely different positions. The UK, in its negotiations with the EU, starts from a position of commonality and barrier-free access in many areas of trade and other activity. Even so, the UK could benefit from using the CETA in a number of ways: as a basis for comparison; a blueprint for defining subject matter; an indicator of the EU’s preferences and sticking points; and a guide to those issues that may prove especially tricky.
CETA, the report argues, could provide the foundation for a “Canada-plus” framework that could be tailored to the specific needs of the UK. It could provide the basis for a bespoke agreement, supporting the desire of the UK for full self-determination while keeping it close to its biggest trade partner.
James said: “For the UK, it is going to be really important to look beyond the CETA, but I am convinced that the CETA is a good starting point. It is a good platform to work from.”
Key lessons from CETA
Trade negotiations are complex and can take many years. The UK is currently facing two major disadvantages. There is likely to be huge time pressure as the deadline for leaving the EU approaches. Also, Canada had an established team of trade negotiators, while for the UK team will, in comparison, be less experienced.
CETA took three years in pre-negotiations, followed by seven years of formal negotiations and a further year for provisional implementation. James believes, however, that the UK’s deal could be struck in slightly less time.
As he puts it: “In the seven years it took to negotiate the CETA, both sides were inventing new things and new approaches, and looking at issues that had never been looked at in that way before. Also, the EU team know the UK well, so they will not have to go through all the same learning phases they had to with Canada. To suggest that talks could be concluded in two years, however, is very optimistic indeed.”
Since the 1940s, multinational trade agreements such as the General Agreement on Tariffs and Trade (GATT) and World Trade Organisation (WTO) rules have reduced tariffs, but they remain a cost for international trade.
James said: “It’s a real success for the CETA that, for Canada and the EU, the great majority of tariff lines have simply been eliminated.”
“Non-tariff” barriers can, however, form significant impediments to trade. These often appear in the form of regulations and standards. Agreements covering such issues, as well as government procurement, played an important part in CETA and will also be critical for the UK’s talks. Although previous trade deals had covered government procurement, the terms applied only at the national level; CETA expanded the scope of previous agreements to cover procurement by the sub-national governments of both Canada and the EU member states.
“Rules of origin” cover parts, and partly finished goods, which can move around many times before a product is ready for sale. The CETA approach to this is simpler than that of, for example, the North American Free Trade Agreement (NAFTA), but even so, this will be a sensitive issue for highly integrated sectors such as the automotive industry. The UK will need to negotiate vigorously to reach the simplest possible rules of origin.
Canada's federal approach
Canada’s provinces and territories have been able to exert a significant degree of control over their economies and this has led over time to a number of non-tariff barriers to intra-Canada trade. The intra-Canada Canadian Free Trade Agreement (CFTA), enacted earlier this year, seeks to create a more open trade regime within Canada.
As a federation, it was useful to have the provinces and territories involved in the CETA negotiations. In some cases, this involved representatives of the provincial governments being in the room during talks, even if they were not “at the table”.
James said: “Generally, the provincial governments and the federal government were pretty much on the same page. When the Canadian negotiators came to the table they had a single agenda to pursue. It was a salutary lesson in the way that these things can work.”
People and services
CETA achieved reciprocal privileges for professionals and business people to move between the EU and Canada on a temporary, or sometimes visa-free, basis. While these may be suitable for Canada’s purposes, however, freedom of movement for people will be a much bigger issue for the UK and EU. The distances are much less, and the current level of cross border movement means that the UK (and EU) will probably wish to go beyond CETA.
CETA also opens up both EU and Canadian markets to the reciprocal provision of services. It also adopts a “negative list” approach under which services are included within the scope of the Agreement unless specifically excluded (though quite a number have been specifically excluded). The service sector is even more important to the UK than it is to Canada; the UK is likely to wish to go beyond CETA to achieve an agreement that better meets the needs of the UK service sector, especially for financial services.
The chapter of the CETA on financial services was not included in the provisional “coming into force” agreement of 21 September 2017 and so has no immediate effect. Its adoption depends on ratification of the full agreement by all the EU Member States, a process that is currently ongoing.
CETA creates an independent dispute settlement body to deal with investor-state disputes. Again, this chapter was not included in the “coming into force” agreement, but on full ratification it will effectively create a new, independent court. Given the UK’s concerns about the jurisdiction of the European Court of Justice, this could provide a useful model, which might be acceptable to both the UK and the EU27.
About the author
Dr James A Ogilvy, author of CETA, Brexit and Beyond, is a former member of the Canadian International Trade Tribunal (CITT), and provides consulting services on a wide range of matters relating to trade and administrative justice. During the negotiation of the Comprehensive Economic and Trade Agreement with the EU, he was an adviser to the Government of Alberta’s team. Dr Ogilvy lives in Ottawa, Canada.