Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.
The European Union and Canada begin a two-day summit in Montreal Wednesday. Centre stage in the discussion will be the landmark bilateral trade agreement that many Brexiters believe is the best template for a future EU-U.K. deal, despite the plethora of potential pitfalls for the United Kingdom.
The Comprehensive Economic and Trade Agreement (CETA), covering about a fifth of the global economy, took the better part of a decade to negotiate and was signed in October, 2016. It saw the elimination of some 98 per cent of all tariffs on goods traded between Canada and the EU and has been billed as “the most ambitious trade agreement the EU has ever concluded.” Most tariffs were removed when the deal came provisionally into force in 2017; the key remaining step, full ratification, could take several more years.
The EU has negotiated a wide range of external trade agreements for member states, but for many Brexiters it is the “Canadian model” that stands out. Part of the reason for this is that, in their eyes, it would allow Britain to completely leave the Brussels-based club, including the Customs Union and Single Market, and allow London to do free-trade deals with other countries.
However, glorified as CETA is by these same Brexiters, it would come with significant costs for Britain, given the different starting positions of Ottawa and London (a member of the EU for more than four decades and embedded into many of its structures) vis-à-vis the EU. Whereas CETA represents a net level of integration of the EU and Canadian economies, a similar deal for Britain would represent a sharp break (or “hard Brexit”) with the EU.
Moreover, CETA does little to enable some key business sectors. Take the example of financial services, a huge part of the British economy, which sees neither Canadian nor EU firms getting so-called “passporting” rights to allow their firms to sell their products in each other’s markets. CETA also does not eliminate border controls – although it does incentivize the use of advanced electronic checking to expedite customs clearance.
A further potential challenge comes with the fact that a Canadian-style deal would end Britain’s preferential access to more than 50 markets outside Europe with which the EU has trade agreements. While there would be an opportunity to renegotiate these bilaterally, there are no guarantees that London would obtain terms as good as those today, despite what Brexiters say, as current U.K.-Japanese trade discussions indicate.
While Brexiters also suggest that negotiating a Canadian-style deal would be relatively easy, this belies the challenges involved. Indeed, in 2016, after some seven years of discussions, there was a near-complete collapse of CETA talks. This came when the legislature in Wallonia – a region of Belgium with a population of about 3.5 million – indicated to Canada that its opposition to key provisions of the proposed deal were “red lines.”
What this exemplifies, on both economic and political fronts, is that all the various alternative models to Britain’s membership in the EU involve key trade-offs. And this is why, since the Brexit referendum in 2016, the British government has found it so very hard to find a single alternative model that can secure consent from other key parties and comes even close to providing the same balance of influence and advantages that London gets from its current status inside the 28-member union.
For all the EU’s flaws – and it has many that need to be better tackled – it allows Britain to enjoy a uniquely positive position in the world’s largest political and economic union. For instance, London has all the benefits of the Single Market economic powerhouse, but is not part of the euro zone; it has retained a budgetary rebate and ensured it cannot be outvoted by euro zone countries against British interests; and it is not part of the Schengen border-free area, which means it operates border controls with other member states.
The stark reality is that, while bilateral agreements with the EU vary, all have key disadvantages. None necessarily grants full access to the services sector, which accounts for 80 per cent of the British economy. This is potentially true even of a Norway model, a “softer Brexit” at the opposite pole to CETA, which could provide continuing access to the Single Market.
While the Norway model is widely championed in Britain, including by former Remainers, it has other key drawbacks, too. For instance, in exchange for access to the Single Market, Oslo is a “rule taker” rather than a “rule maker” – required to adhere to EU rules without having a vote on them, as EU members such as Britain do now. It must accept the free movement of people, make contributions to EU programs and budgets, and do customs checks on goods crossing into the EU.
While CETA contains many benefits for the EU and Canada, the balance of advantages and disadvantages would be very different for Britain. Its continued membership in a reformed EU would be a better option.