Even more on Brexit: the UK as another Canada? What should Canada be doing?

Martin Wolf, a highly regarded financial journalist, writing in the Financial Times, says that European officials are looking Britain as being just another Canada as far as the EU is concerned. “Michel Barnier, the EU’s chief negotiator,” he reports, “has explained why the UK’s future trading relationship with the EU will be similar to that in the EU-Canada Comprehensive Economic and Trade Agreement, or Ceta. This agreement allows both sides to enter into separate deals with other partners. It also puts Canada outside the EU’s customs union and single market. Thus Ceta provides limited benefits to providers of services.” The United Kingdom has drawn a number of “red lines” in these negotiations: some of those likes are shared by other nations but, in aggregate, they might leave no model other than the CETA for the UK.

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Mr Wolf’s report says that “As Mr Barnier notes, the UK’s “red lines” — no jurisdiction by the European Court of Justice, no free movement, no substantial ongoing financial contribution, and regulatory and trade policy autonomy — preclude membership of the European Economic Area. These red lines also rule out an agreement similar to that with Switzerland. The UK’s opposition to ECJ jurisdiction and the demand for regulatory autonomy precludes an association agreement like Ukraine’s. The demand for an independent trade policy precludes even a customs union agreement, such as the one with Turkey. When everything impossible is ruled out, what is left is an agreement like that with Canada.

Martin Wolf also says that “Mr Barnier is likely to be proved right. One reason for believing so is that he usually is. Another is that the red lines are deeply embedded in the UK. Malcolm Rifkind, a former Conservative foreign secretary, is correct to say that the UK is unlikely to accept an obligation to follow EU regulations without a voice in them. If it were prepared to do so, it would make more sense for it to withdraw its application to leave the EU … [but] … The Ceta model would impose real economic costs. In particular, UK suppliers of goods to the EU would have to meet rules on local content, while British suppliers of services would lose existing favourable access. But to avoid these outcomes, the UK would need to change its red lines or persuade the EU to change its position on essential matters.

the_hard_brexit_2916165Britain is between the proverbial rock and a real, looming hard place: the “hard Brexit.” The British people made a choice: one that seems to be considered sacrosanct by most MPs. Was it a good choice? I thought not back in 2016 but the British people believed in the “appeal to emotion” and made a choice. Prime Minister May has weakened her own negotiating position and now the “hard Brexit” seems more and more and more likely.

Martin Wolf explains, in the FT, that “The most likely journey, then, via a temporary standstill of up to two years, is to a Canada-style deal. True, that might leave the problem of the Irish border unresolved. It would also impose substantial costs … [and] … The recently leaked UK government analysis concludes that, under such a deal, UK gross domestic product might be 5 percentage points lower than it would otherwise be, after 15 years — a loss of about a fifth of the potential increase in output by that time. In this respect, of course, the UK’s position is very different from Canada’s: Ceta benefits Canada; such a post-Brexit deal would harm the UK. But that is the result of the decision to leave … [even though] … Once outside, the UK would, like Canada, have greater freedom over its regulatory regime. But it is a safe bet that a bonfire of UK regulatory, tax and public spending commitments is not going to occur. In the UK, as in Canada, little support exists for such radical policies.

He adds that “Again, like Canada, the UK will want to strike new trade deals. It will seek to join existing free trade agreements and create new ones. The difficulty here is that the important deals (with the US, China or India) will be tough and the easy deals (with, say, Australia or Canada) will be unimportant. [Ouch! That stings, but it’s true] Furthermore, the iron law of trade applies: other things being equal, trade halves as distance doubles. That explains why the UK is as important a trading partner to the EU as the US, and the EU, in turn, is the UK’s dominant partner. New deals cannot offset what it will lose. Moreover, contrary to views advanced by the Legatum Institute in London, the UK will not be the new leader in global liberalisation. It is not big enough for that.

The Economist repots that, in a March 2nd speech,  Prime Minister May “duly called for a trade deal that is deeper and more comprehensive than any other the EU has with non-members. It was her most detailed Brexit speech yet, as well as her most realistic. She warned that “no-one will get everything they want”—a statement of the obvious, perhaps, but one which some Brexiteers have been reluctant to acknowledge. Yet critics around the EU are still likely to complain that her speech lacked specifics and that, although she denied the charge of cherry-picking, which she said applied to all trade deals, she is still in fact doing it.” The British European negotiating teams might, reluctantly in both cases, come to the conclusion that a “hard Brexit” does little good for anyone but “cherry-picking” a few soft points will still not alter that fact that Britain will be outside of the world’s biggest trading block and will need to look for new opportunities elsewhere.

There are lessons in Mr Wolf’s analysis for Canada:

  • First, get the “easy” deals done, quickly, and get them working ~
    • The CETA is done ~ both partners need to make it work,
    • Finish the TPP, and
    • Do a free trade and freedom of movement deal with the UK ~ as a prelude to a bigger, better CANZUK deal. The Brits should be ready and willing to make a good (for Canada) trade deal because they will need something … we need to be ready with a fair offer;
  • Next, salvage what we can from NATFA ~ recognizing that we may have to wait until the Trump era is over before we can renew it in any meaningful way; and
  • Finally, do the “big deals” with China and India ~ the former will require Team Trudeau to drop it juvenile campaign rhetoric about “progressive” trade, the latter will require a “reset” of the Indo-Canadian relationship after Prime Minister’s Trudeau’s monumentally stupid words and deeds during and after his recent trip.

All of those things can be done, they are not beyond the wit of man, not even beyond the wit of Team Trudeau, but they require a government that has some notion about Canada beyond just how to win 40% of the popular vote in the 2019 election.

 

 

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