With the unthinkable – being increasingly discussed – of Britain withdrawing from the EU, questions are asked as to what this means for Canada. What are the implications for the Canada UK trade? And how does it affect the Canada-EU trade agreement?
The answer is simple. Brexit will mean a lot of uncertainty on the trade and investment front – and years of it.
Tariffs and Duties
If Britain exists, it will no longer apply the EU’s common external tariff. So Canadian exports to the UK will face a different set of duties. Those would be the same duties imposed on imports from other countries into the UK under a separate UK tariff schedule, including imports from the remaining EU countries.
Pretty simple? Not really.
First, the EU as an entity has bound its tariff rates under the WTO Agreement. The UK has no separately bound WTO tariff schedule. It would have to re-negotiate to bind its newly independent duty rates as part of the WTO process. Really complicated.
For Canada, unless the new UK tariff schedule replicated the existing EU tariff (unlikely), some Canadian exports could face higher tariff rates in the UK than on Canadian goods that are shipped into the European Union. Under WTO rules, any loss of concessions with Brexit requires compensation from the UK. This would take some time to sort out.
Equally problematic, UK companies will no longer have free access to the European market, whether we’re talking about duties on goods or access to EU financial and capital markets. So any Canadian companies based in the UK, including Canadian banks, will face new market impediments.
It is likely that there will be quick attempts to resolve these issues between Britain and the EU. Certainly both sides would try their best to avoid uncertainty in capital and financial markets. But until these are resolved between a departing Britain and the EU headquarters in Brussels, uncertainty will reign.
New Trade Agreements
The Leave Campaign argues that if the UK left the EU, it would negotiate a whole slew of new bilateral trade agreements with other parties, including with EU, Canada and the United States. Yes. Entirely possible. But these deals take time, even assuming the other side is open to sitting down. More uncertainty.
Impact on CETA
Brexit will cause no end of complications for the future of CETA, as that trade agreement awaits signature and ratification (and currently stalled in Europe for a variety of reasons).
Trade agreements are the product of negotiations. I give you something in my market in return for something you give me in yours. These aren’t necessarily in the same area or sector but overall, after all the horse-trading is over, each side has to feel confident that the exchange of concessions makes for a balanced deal.
For Canada the CETA deal was all about access to a large market of 28 countries, including the UK, in exchange for which Canada gave EU parties access rights to the Canadian market. These included duty-free entry of goods but a whole range of other things, such as access to financial, consulting and other services, to government procurement, to preferential treatment of electronic commerce, intellectual property, etc.
If Brexit occurs, however, the UK will not be bound by any of the preferences that Brussels agreed to. So Canada will lose out on the concessions it made in the CETA negotiations which presupposed the large UK market was part of the agreement.
At the very least, there will have to be a “re-balancing” of concessions between Ottawa and Brussels. That would overlie any rebalancing needed between Ottawa and London.
Even if this doesn’t mean going back to the negotiating table and opening the entire CETA in a formal sense, this kind of rebalancing will take time.
In the meantime, ratification of the CETA by the remaining 27 EU member countries will be held up even longer. Whether treaty ratification – without the UK – will be at risk across the Atlantic remains to be seen. At the very least, we’ll have a lot of uncertainty here as well.
These are just a few of the major questions surrounding Brexit. And this only scratches the surface.
With the unthinkable – being increasingly discussed – of Britain withdrawing from the EU, questions are asked as to what this means for Canada. What are the implications for the Canada-UK trade? And how does it affect the Canada-EU trade agreement?
The answer is simple. Brexit will mean a lot of uncertainty on the trade and investment front – and years of it.
Tariffs and Duties
If Britain exists, it will no longer apply the EU’s common external tariff. So Canadian exports to the UK will face a different set of duties. Those would be the same duties imposed on imports from other countries into the UK under a separate UK tariff schedule, including imports from the remaining EU countries.
Pretty simple? Not really.
First, the EU as an entity has bound its tariff rates under the WTO Agreement. The UK has no separately bound WTO tariff schedule. It would have to re-negotiate to bind its newly independent duty rates as part of the WTO process. Really complicated.
For Canada, unless the new UK tariff schedule replicated the existing EU tariff (unlikely), some Canadian exports could face higher tariff rates in the UK than Canadian goods that are shipped into the European Union. Under WTO rules, any loss of concessions with Brexit requires compensation from the UK. This would take some time to sort out.
Equally problematic, UK companies will no longer have free access to the European market, whether we’re talking about duties on goods or access to EU financial and capital markets. So any Canadian companies based in the UK, including Canadian banks, will face new market impediments.
It is likely that there will be quick attempts to resolve these issues between Britain and the EU. Certainly both sides would try their best to avoid uncertainty in capital and financial markets. But until these are resolved between a departing Britain and the EU headquarters in Brussels, uncertainty will reign.
New Trade Agreements
The Leave Campaign argues that if the UK left the EU, it would negotiate a whole slew of new bilateral trade agreements with other parties, including with EU, Canada and the United States. Yes. Entirely possible. But these deals take time, even assuming the other side is open to sitting down. More uncertainty.
Impact on CETA
Brexit will cause no end of complications for the future of CETA, as that trade agreement awaits signature and ratification (and currently stalled in Europe for a variety of reasons).
Trade agreements are the product of negotiations. I give you something in my market in return for something you give me in yours. These aren’t necessarily in the same area or sector but overall, after all the horse-trading is over, each side has to feel confident that the exchange of concessions makes for a balanced deal.
For Canada the CETA deal was all about access to a large market of 28 countries, including the UK, in exchange for which Canada gave EU parties access rights to the Canadian market. These included duty-free entry of goods but a whole range of other things, such as access to financial, consulting and other services, to government procurement, to preferential treatment of electronic commerce, intellectual property, etc.
If Brexit occurs, however, the UK will not be bound by any of the preferences that Brussels agreed to. So Canada will lose out on the concessions it made in the CETA negotiations which presupposed the large UK market was part of the agreement.
At the very least, there will have to be a “re-balancing” of concessions between Ottawa and Brussels. That would overlie any rebalancing needed between Ottawa and London. Even if this doesn’t mean going back to the negotiating table and opening the entire CETA in a formal sense, this kind of rebalancing will take time.
In the meantime, ratification of the CETA by the remaining 27 EU member countries will be held up even longer. Whether treaty ratification – without the UK – will be at risk across the Atlantic remains to be seen. At the very least, we’ll have a lot of uncertainty here as well.
These are just a few of the major questions surrounding Brexit. And this only scratches the surface.