Canada, U.K. weigh new trade ties post Brexit

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Canada and Britain are quietly laying the groundwork for a new relationship in a post-Brexit era, which could include a trade deal that goes beyond the Canada-European Union agreement.

Canadian High Commissioner Janice Charette said officials from both countries have been meeting for months to discuss trade relations after Brexit. Canadian trade experts have even offered their British counterparts advice on how to negotiate a deal with the EU and others. But getting a Canada-U.K. trade deal won't be easy and will take time, since Britain will have to sort out its relationship with the EU first.

"We've been having conversations with both the members of the cabinet as well as senior members of the civil service," Ms. Charette told The Globe and Mail in her first interview since taking up the post last September. As for Canadian officials offering advice on trade negotiations, she added: "Yes, going back to when [former international trade minister Chrystia Freeland] was meeting with [Britain's Trade Minister Liam Fox] back in the summertime, there has been ongoing conversations about how Canada might be able to assist the U.K."

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The British government plans to begin the process of pulling the country out of the EU before the end of March, kicking off a two-year negotiating period. Prime Minister Theresa May is expected to announce on Tuesday that Britain will make a complete break with the EU and negotiate a new relationship with Europe. Chancellor of the Exchequer Philip Hammond also hinted at a complete break with the EU, suggesting to a German newspaper that Britain would "change our model to regain competitiveness" if the country did not get a good deal with Europe.

Ms. May's pitch will be to create a "global Britain" and she is expected to highlight reaching trade deals with other countries. That will put her at odds with many business people who have been urging Britain to keep unrestricted access to the European single market. Also Britain doesn't have much experience negotiating trade agreements since currently all of that is handled by the EU on behalf of member states.

"We have a very deep and comprehensive trading relationship with the U.K.," said Ms. Charette, "and so we'll want to be working very hard with them to make sure that they can benefit from [the Canada-EU deal] but also that as they sort out what kind of a trading relationship they are going to have with the EU, that we can preserve and even enhance market access for Canadian companies in the U.K. in whatever they are going to look like or be like in a post-Brexit world."

Canada and Britain already have political and trade ties that date back centuries. Britain is Canada's third-largest trading partner, after the United States and China, and the country has been an important base for Canadian companies mainly because of its membership in the EU. Canadian businesses employ more than 50,000 people in the U.K. and the revenue generated in Britain by Canadian firms is more than the value of our exports, which is around $16-billion annually.

One option under consideration is to take the Canada-EU deal, known as the Comprehensive Economic and Trade Agreement, or CETA, and use it as the framework for an arrangement between Canada and Britain.

That wouldn't be simple. CETA has taken nearly 10 years to complete and it is a sweeping agreement that covers thousands of tariffs and services. It also includes a new dispute-settlement court that has been controversial in parts of Europe because opponents say it could override local regulations. While CETA has yet to be approved by all EU member states, the European Parliament is expected to ratify it soon, meaning most of it will go into effect on a provisional basis.

Britain has been a strong proponent of CETA and Ms. Charette said it is definitely under consideration as a model for any Canada-U.K. deal. "When you look at the U.K., it may be that there are areas where we can even go beyond what is, we think, the gold-standard agreement right now as a modern progressive trade agreement," she said. "We might even go beyond CETA in a new Canada-U.K. trade relationship and trade agreement. But it's not too soon to start thinking about it, but it's probably too soon to be talking about it."

Reaching a CETA-like deal could take years to sort out, says Jason Langrish, executive director of the Canada Europe Roundtable for Business, who was involved in the early stages of CETA. He believes it will take Britain up to 10 years to negotiate a deal with the EU, and talks with Canada can't begin until that's finished. Only then will Canada know what kind of arrangement Britain has with the EU and how attractive the U.K. will be as a place to invest. For example, he said that if Britain loses unfettered access to the European single market, that will make the country a less attractive place for Canadian businesses to invest.

"The question will be, to what degree will the appeal of the U.K., as a trading and investment partner, be diminished once they leave the EU? We don't know the answer but we can predict that it will be diminished," he said. "If we could be one of the first countries to get a deal with the U.K. then we'll have an advantage in that marketplace as well. It's hard to say. There are so many factors."

Glen Hodgson, a senior fellow at the Conference Board of Canada, said Canada needs to diversify its trade now more than ever and the Canadian government should be preparing to strike a deal with Britain. "I think we've now reached a maturity point with the U.S.," he said. "We have to diversify. We have to reach out to Asia but also reach out to Europe. And Britain has been our biggest trading and investing partner in Europe for a very long time."

However, Mr. Hodgson added that Canadian businesses will change their outlook toward the U.K. once it is out of the EU. "If you a wealth manager, if you are an insurance company, if you are in advanced manufacturing, and you want to sell in Europe, Britain is not the same friendly platform that it was, unless they can somehow maintain as much of the EU conditions as possible."

That's the calculation going on now for the more than 300 members of the Canada-U.K. Chamber of Commerce. Many members are weighing their options with Brexit looming, said chamber president William Swords, a former managing director at the Bank of Nova Scotia in London. Many companies in Britain are pushing for some kind of transitional agreement between the U.K. and the EU to take effect once Britain pulls out. Both sides could then negotiate a more permanent trade deal.

"The expectation is that it's unlikely that a far-reaching and comprehensive free-trade agreement or relationship between the U.K. and the EU can be agreed to within the two-year time period," Mr. Swords said. "Most firms are looking for clarity sooner rather than later as to what is the likely shape of the near-term future. Are we looking at a two-year to Brexit then a sort of five-year transition period? Or are we looking at two years to a cliff? Either which way, I think firms are looking for clarity as soon as they can get it so they can plan."

Ms. Charette, a former top mandarin in Canada, said it would likely be more manageable for Britain to keep a tight focus on the two-year time frame. "If your focus is negotiating the terms of departure, that may be more manageable in the two-year window than trying to negotiate all aspects of the future relationship," she said, adding that British and EU officials will have to decide what can be accomplished in two years.

Whatever the decision, Ms. Charette expects to be dealing with the fallout from Brexit throughout her four-year term. "I think this is going to be a defining issue for my whole time here," she said.