Brexit & EconomyBrexit: Lessons to learn from the EU-Canada free trade agreement

Brexit: Lessons to learn from the EU-Canada free trade agreement

As the EU's free trade agreement with Canada is "the most current and advanced trade accord in which the EU participates", we take a look at lessons to be learned and how it can be used as a blueprint

After several months of fitful Brexit negotiations, talks have resumed this week tackling citizens rights, the Northern Ireland border and the divorce bill.

Top of the agenda for Downing Street continues to be discussing a future trade deal with the EU, which has been delayed but is within “touching distance”, according to Theresa May.

Formulating an appropriate trade deal will be no simple feat, with the only pre-existing trade models to follow being a Norway-style model involving European Economic Area membership or a traditional Free Trade Agreement such as the one negotiated between the EU and Canada.

The government has ruled out joining the European Economic Area, so a fresh free trade agreement is likely to be the way forward, and the Canada-EU agreement, the Comprehensive Economic and Trade Agreement (CETA), can provide important guidance to the process.

CETA is “the most current and advanced trade accord in which the EU participates”, according to the Institute of Chartered Accountants Scotland (ICAS). In the ICAS-commissioned report “CETA, Brexit and Beyond”, James Oglivy looks at the lessons to be learned from CETA and how the deal can be used as a blueprint for UK-EU negotiations. These are the biggest take-aways from the report.

UK disadvantages

The UK enters the negotiation process with some disadvantages. First, the time constraint. CETA took seven years to negotiate, while the UK is working under a ticking clock following the triggering of Article 50 in March.

However, the UK does not begin from the same starting point as Canada, having an unprecedented position of commonality and cohesion with the EU on many rules and regulations, meaning these negotiations should be somewhat simpler than CETA.

A second disadvantage for the UK is the lack of experienced negotiators compared with Canada. For the past two generations the UK has relied on the EU to take the lead on trade negotiations, and UK negotiators are now finding themselves at the opposite end of the table from their previous representatives.

Tariffs & technical barriers

One of CETA’s greatest achievements, according to the report, is the reduction and elimination of tariffs on almost all goods to which customs duties would have previously applied, to 0% on all manufactured goods and on approximately 95% of agricultural goods.

While this would not be a new gain for the UK, following the vast benefits previously afforded by EU membership, it can serve as a gauge of the EU’s willingness to negotiate on tariffs and give UK negotiators something to point to.

However, the report explains that an agreement in the style of CETA would not simplify the administrative burden relating to rules of origin, which will be more complex after leaving the single market. These rules relate to parts of goods that are often moved around several times before sale.

“This will be a sensitive issue for highly integrated sectors such as the automotive industry”, the report says, stressing the importance of streamlining these processes as far as possible.

Non-tariff barriers in the form of regulations and standards can also be an impediment to trade that the UK should be mindful of. Oglivy explains: “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.”

Dispute settlement

A continued source of strain in Brexit negotiations is discussions of jurisprudence and dispute settlement. CETA can provide guidance on this, as Oglivy explains: “It is in the matter of investment disputes, specifically investor-state complaints, that the CETA has broken ground.”

While general disputes follow a traditional model (notification, consultation, the option of mediation, and ultimately the appeal to a panel constituted from an existing roster), CETA has formed a dedicated investor-state dispute settlement (ISDS) tribunal.

The report outlines two strengths of an ISDS tribunal. First, its make-up; panel members are chosen from a roster, and inclusion to the roster requires individuals to be qualified jurists in their own jurisdictions, with expertise in public international law and preferably a capability in international investment law.

The tribunal’s second strength is its permanence, differing from other similar tribunals which often operate on an ad hoc basis. The tribunal’s roster is permanent.

Although the tribunal deals specifically with investment disputes, the report prompts the UK to consider forming a similar tribunal with a wider mandate.

Government procurement

The UK has been subject to the WTO’s Agreement on Government Procurement (GPA) as part of the EU. Going forward, the UK will need to reaffirm its continued participation in the GPA if it intends to continue using the WTO as a baseline for trade.

CETA takes GPA terms one step further, opening the market further and providing greater access to the valuable market it represents.

The report adds: “Given the size of the total GPA market and the possible accession of the Russian Federation and China to the GPA, the UK must be ready to negotiate vigorously in this area or risk losing a great deal of its access both to the EU and to the rest of the world.”

Negative list

Trade deals can include either a “positive list” or a “negative list”, either positively listing the items covered by the agreement, or else excluding specific items.

Agreements are likely to take a hybrid approach, and CETA incorporates an extensive negative list. The negative list is “progressive in nature”, according to Oglivy, as it does not freeze the agreement in time.

“By adopting the CETA, and specifically its incorporated negative list, the parties have undertaken to ensure that all future procurement measures will be designed to comply with the principles of the Agreement.”

Conclusion

The UK has their work cut out for them in approaching trade talks, with a multitude of factors to consider, and this type of deal being unchartered territory for both negotiating parties.
The comprehensiveness of CETA will be useful for the UK in providing a road-map to some areas of negotiations, particularly by revealing the EU’s sticking points and areas of leniency when it comes to trade deals.

Although issues such as freedom of movement and services will be more contentious for the UK than Canada, the UK’s starting point of commonality will also mitigate some of the more complex aspects of Canada-EU negotiations.

Related Articles

Mid-sized businesses defy Brexit uncertainty

Brexit & Economy Mid-sized businesses defy Brexit uncertainty

3w Austin Clark, Reporter
How to Brexit-proof your business

Brexit How to Brexit-proof your business

1m Rebecca Wilkinson, Menzies
5 key takeaways from Theresa May’s Florence speech

Brexit 5 key takeaways from Theresa May’s Florence speech

2m Alia Shoaib, Reporter
Nicky Morgan elected Chair of the Treasury Committee

Politics Nicky Morgan elected Chair of the Treasury Committee

4m Alia Shoaib, Reporter
The UK’s post-Brexit trade policy options

Business Regulation The UK’s post-Brexit trade policy options

5m Emma Smith, Managing Editor
UK at risk of Brexit talent brain-drain

People Practice UK at risk of Brexit talent brain-drain

3m Alia Shoaib, Reporter
Government publishes post-Brexit customs arrangements policy paper

Politics Government publishes post-Brexit customs arrangements policy paper

3m Alia Shoaib, Reporter
Less than a third of UK businesses have made formal Brexit plans

Politics Less than a third of UK businesses have made formal Brexit plans

4m Alia Shoaib, Reporter