More good news for the UK’s post-Brexit trading future, progress on the negotiation of a Canada-UK Free Trade Agreement (FTA) is encouraging. The Canadian Minister of International Trade, Mary Ng, announced last week in the Canadian parliament that her team is working on a transition agreement for UK-Canadian trade once the Brexit implementation period ends in the new year. This sentiment has been echoed by the UK Department of International Trade. Since the immediate aim appears to be to achieve continuity for businesses, this suggests that initial arrangements will constitute a rollover of the Comprehensive Economic and Trade Agreement (CETA) which Canada concluded with the EU four years ago.
Without such an agreement in place, Canada and the UK would deal with each other on World Trade Organization (WTO) Most Favoured Nation (MFN) terms, losing out on the enhanced access achieved by the EU under CETA.
The status-quo objective is promising in one sense, since at one point Canada appeared to have lost interest in pursuing post-Brexit FTA negotiations with the UK, partly because UK’s initial WTO tariff listings were quite generous – with the updated version only slightly less so. There may have even been a suspicion, arguably justified given the turmoil in Westminster last year, that the UK would change its mind and end up staying in the EU. On the other hand, there have been more recent indications from Canadian Prime Minster Justin Trudeau that an eventual Canada-UK agreement would go beyond CETA, offering greater coverage on a range of matters. This was thought by some potentially to include access to Canada’s closely guarded dairy sector as well as, most importantly, services. There has been some impetus to include free movement between Canada and the UK as part of the broader CANZUK (Canada, Australia, New Zealand, UK) initiative, although the chances of this becoming reality are slim since tighter control over immigration was one of the driving forces behind the UK’s decision to exit the European Union. However, reciprocal reduced immigration requirements for workers is entirely feasible and would likely be more politically palatable in the UK.
Under Trudeau’s leadership, Canada’s focus in trade negotiations appears to be the pursuit of ‘progressive’ values including the environment and labour rights. This is most evident in the re-branding of the Trans Pacific Partnership mega regional FTA as the Comprehensive Progressive Agreement for Trans Pacific Partnership (CPTPP). There are also hints of this in the new United States Mexico Canada Agreement (USCMA) which includes wage thresholds in its rules of origin as well as an environmental chapter. Whether this approach would persist should Trudeau’s Liberals be replaced by a Conservative government in the event of a Federal election is another matter. Such an agenda does not appear to conflict with that of Boris Johnson’s administration, which is as progressive as any in recent memory.
It is sometimes suggested that Canada will be unwilling to concede more to the UK than it did to the EU under CETA for two reasons: first, on its own the UK is a smaller market and as such offers less to Canadian suppliers; second, CETA’s forward-looking MFN clause could mean that any treatment which Canada offers to the UK would need to be granted to the EU. On the former point, the UK is Canada’s fifth largest trading partner and largest in Europe. Canada’s exports to the UK, especially of metals, are sizable. Moreover, depending on the nature of the UK’s ultimate arrangements with the EU, the UK is viewed by many Canadian companies as the gateway into Europe. On the risk of extending FTA benefits to the EU unintentionally, the practical effect of CETA’s MFN provision may be limited since UK services suppliers are probably distinguishable from those of the EU on the basis of their skills and competencies, precluding the application of the standard on the grounds that they are not ‘like.’ This argument would be harder to make in the case of goods.
Access for services suppliers will be a top priority for the UK in pursuing an FTA with Canada, since this is where the UK’s economic strength lies. The UK will accordingly want access to Canada’s financial sector, especially the insurance industry. Progress here will not be easy since Canada’s financial services market is tightly controlled, but the UK’s widely-respected regulatory standards in this area could help persuade Canada to open its doors. Enhanced mutual recognition of professionals, including lawyers, would mark improvements from CETA which only grants very basic commitments. A shared legal heritage makes a strong case for further liberalization on this front than was achieved by the EU. The Canada-UK FTA could also include greater commitments on digital trade than were contained in the CETA, reflecting both countries’ interest in liberalizing this sector – in Canada’s case as part of a broader strategy of diversification (away from its reliance on the extractive sector) and in for the UK to ensure its continued role as a world leader in technology and the burgeoning digital services economy.
With negotiations for the UK-Japan FTA now concluded, quick progress on an FTA with Canada, even on a CETA-rollover basis, could facilitate the UK’s hoped accession to the CPTPP. While this would require agreement of all 11 of that agreement’s signatories, support from Japan and Canada could pave the way for the UK’s joining the lucrative mega-regional, currently covering 13% of global GDP, within a year or two. With CPTPP membership in place, the UK would be precluded from onerous bilateral negotiations with other significant states including Mexico, Singapore and Vietnam.
It’s an understatement that UK trade negotiators have a lot on their plates at the moment, but they should not lose sight of the UK’s eighth largest non-EU trading partner and long-standing ally of the Anglosphere. The willingness to work on a Canada-UK FTA is clearly evident on both sides and continued preferential access is in everyone’s interest. Fresh from the success of its FTA with Japan, the UK is poised to secure an FTA with Canada which is at least as good as CETA, and hopefully better, by the end of the year.
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