OTTAWA – Last week, International Trade Minister Chrystia Freeland declared mission accomplished in Canada’s efforts to seal an all-encompassing deal with its European partners.
But it’s now increasingly entirely possible that Britain, our biggest customer within the biggest trading region around the globe, might soon no longer be part of that agreement.
There’s every chance that citizens of the Uk could, in some months, vote to depart europe and go it alone – forcing the country to search out separate agreements with its current trading-group partners.
One of these is Canada, which would need to negotiate a new pact using the U.K. outside of the Comprehensive Economic Trade Agreement – or CETA – which was signed off on through the EU and Canada on Feb. 29, and set in the future into effect as soon as mid-2017.
So far, Freeland hasn’t spoken publicly on the U.K. referendum issue, nor will Canadian ministry officials discuss its likely effect on trade relations, at least not ahead of the British vote.
It’s unlikely, however, that Canada would be the top priority for brand new negotiations when an english exit – nicknamed “Brexit” – from the current 28-nation union is approved on June 23 within the national vote.
For one thing, the U.K. government – led by Pm David Cameron, who does not support Brexit but decided to place it to a ballot after many years of debate – will have to deal with the immediate economic uncertainty that unquestionably will follow a decline in formal ties with the EU.
“It will be negative for the economy, no doubt,” says Charles St-Arnaud, an economist at Nomura Global Research working in london, adding there would be a huge knock-on effect for that country’s powerful financial sector.
In particular, “how much cash would need to be gone to live in (other) EU countries? In france they and also the Germans could be more than pleased to see Frankfurt and Paris get the business – and have those cities as the financial capital of Europe.”
At the same time frame, the U.K. in some form “will be attempting to arrange quickly a free-trade agreement with the rest of Europe and also the United States – before Canada,” St-Arnaud says.
“They will go using the big trading partners first.”
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The Brexit issue, by other name, has existed for many years. Actually, disgruntlement using the union began almost as soon as Britain joined in 1973 – once the grouping was known as the European Economic Community.
Now with 28 member nations, 18 which use the euro currency, the EU makes up the world’s largest economy – when considered a single entity -ahead of the U.S. and China, and followed by Japan, Germany, Britain and France.
With more than half a billion people, the EU has a total annual economy of more than US$18 trillion.
For perspective, the U.K.’s GDP is the world’s sixth biggest (factoring in the EU overall) at almost US$3 trillion – compared with Canada, which is in 11th place at US$1.8 trillion.
Britain, however, remains the EU’s No. 2 growth engine after Germany. A U.K. exit would shave about 16 percent from the group’s gdp.
The so-called “In-Out” referendum question comes down to a single line: “Should the United Kingdom remain part of europe or leave the European Union?”
The issues range from whether the U.K.’s connection to the EU should remain as is, or proceed to an “ever-closer union” – something the “out” side is in opposition to – as well as possible restrictions on child benefits for migrant workers living outside the U.K. and limits on welfare payments to migrant working within the country.
As well, citizens of the U.K. could lose the mobility to freely travel and operate in other EU states.
“If the anti-European side wins the referendum, it will certainly muddy the waters people – both internally with the EU but also for relations between countries like Canada, and it’ll complicate things so far as CETA is concerned,” says Lawrence Herman, a Toronto-based international trade and investment lawyer.
“It will take many years to summarize or settle the conditions of england leaving the ecu Union…. But Canada will have a treaty with the EU, whatever the EU reaches that specific time,” Herman says.
“Canada might wish to go back to the table and say to the European Commission, ‘Look, we’d a deal with the EU as it then was. The commercial advantages now are not because they were at the time, and we wish to enter into some renegotiations.'”
Regardless of how the Brexit issue plays out, given the current uncertain economy in Canada and many other nations, we’ll have to move quickly to reach out and expand our trading markets.
“What we need now are solid trading partners – and that we need them fast,” says Will Dubreuil, director of public affairs in the Canadian Chamber of Commerce.
“There’s without doubt we are concerned about the time it would decide to try re-establishing some form of trade agreement using the U.K.,” he says. “There’s not really a specific game plan at this point. We are in a situation where we’ll wait and see.”
If this sounds like dj vu, that is because, for many Canadians, it’s.
In this country, the problem of independence continues to be provincial – but no less divisive – with Quebec holding referenda to split up in 1980 and 1995, each of which ended with the “no” side winning, although the 4g iphone would be a nail-biter.
The parallels between the independence movements in both countries are hard to overlook.
“It sounds so much like Quebec’s (last) referendum,” says Nomura’s St-Arnaud, a Quebec native who stayed in the Bank of Canada and Finance Department in Ottawa.
“It’s exactly the same arguments which are made by each side – just change Britain for Quebec and the EU for Canada, and you may almost take quotes from 1995 and opt for that. The story reads exactly the same.”
But the way the U.K. story ends is anyone’s guess right now.
The pollsters and bookies show the EU vote could be close. Right now, the “no” side has got the edge – by a margin of 55 per cent to 45 percent.
But those numbers have fluctuated between the two camps recently, as they have over the past many years.
“There is extremely little that people can set up in front of the actual decision and find out how that’s going to play out,” Dubreuil says.
Financial Post
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