Politics·Analysis

Now that Brexit's a go, how about that Canada-U.K. trade deal?

Thursday's U.K. election might have settled the question of whether Brexit will proceed, but it didn't settle how it will work, so trade partners such as Canada aren't any farther ahead. 

Canada pulled back from talks, uncertain that making concessions makes sense

Once Britain's exit from the European Union is finalized, the government of British Prime Minister Boris Johnson, left, will have to take over the responsibility of negotiating free trade agreements with other countries - something the EU handles while the U.K. remains in the union. (Francisco Seco/The Associated Press)

Thursday's U.K. election might have settled the question of whether Brexit will proceed, but it didn't settle how it will work, so trade partners such as Canada aren't any farther ahead. 

When the mandate letter for Canada's new minister of small business, export promotion and international trade was published on Friday morning, it didn't list a bilateral trade deal with Britain among Mary Ng's priorities.

Canada's an ally that wants to keep working on good terms with both sides in the U.K.-EU divorce. And until the details are worked out — what tariffs apply to existing supply chains, how customs will operate and how much harder it will be to deliver services across the English channel — it's hard to proceed.

"They're going to have to make some decisions. And we're going to continue to take a close look at that," Ng said on Parliament Hill Friday, pledging to stand up and work for Canadian businesses during this transition.

But for now, there's no hustling back to the table.

Canada's negotiators decided to take a walk earlier this year, after an economically anxious Britain, faced with the prospect of a "hard" exit (with no preferential trade agreement), suddenly announced it had lowered nearly all its import tariffs for every country, not just partners with whom they enjoy trade deals now as a member of the European Union.

What would be the rush, Canadian officials reasoned, of offering to let the concessions they'd made to Europe stand, if a desperate U.K. was already planning, at least for a transition period, to offer the entire world low- or no-tariff access to its market, without requiring any preferential treatment in return?

Surely, it would have been far easier for Canada's trade if the U.K. had opted to stay in Europe. But the lines of communication remain open.

Prime Minister Justin Trudeau issued a statement congratulating Boris Johnson on his electoral victory Friday, pledging to co-operate on "issues that matter to both of our countries" but notably not listing bilateral trade as one of them.

How this could work: the short term

Susan le Jeune d'Allegeershecque, Britain's high commissioner in Ottawa, told CBC's Power & Politics Friday that the election result was a statement from the British people that they'd "had enough of the paralysis that had happened in Parliament."

The U.K. is a "resilient country," that would get back to where it was before Brexit uncertainty began stunting both its politics and its prosperity, she said.

Although the U.K. now looks set to leave the European Union on Jan.31, an "implementation period" will maintain its existing trade agreements through to Dec. 31, 2020.

During that time, Johnson's government has set itself the ambitious, and likely unrealistic, task of sorting out not only the terms of its trade with Europe, but all its other trading partners, too.

Johnson's government must sort out its trading relationship with Europe before it can move on to striking an agreement with Canada. (Alberto Pezzali/The Associated Press)

For Canada, that means that the existing Comprehensive Economic and Trade Agreement (CETA) will cover trade with Britain for another 12 months. After that, it's murky.

For le Jeune d'Allegeershecque, it's evident that little progress will be possible until Canada can see what Britain's relationship with the European Union will look like. 

In addition to time pressures, there's also a "capacity problem" — a shortage of experienced British negotiators. (Brussels used to take care of this.)

Former British prime minister Theresa May instructed her officials to focus on "rolling over" existing EU trade deals for an independent Britain.

Johnson has expressed an interest in signing trade deals with big markets like the United States, whose president, Donald Trump, left, Johnson considers an ally. (Peter Nicholls/The Associated Press)

When Johnson took over, he was more interested in landing new deals with big markets, such as Donald Trump's United States, which doesn't have a trade agreement with Europe.

"There are a lot of other new agreements that the new government has said it wants to pursue. So partly, things will have to be slotted in," le Jeune d'Allegeerschecque said. "But there's no shortage of goodwill to get it done."

"I think we have to be optimistic about it," she told host Vassy Kapelos.

If no bilateral trade deal is reached with Canada, trade will continue under the terms of the World Trade Organization — helped by those dramatic tariff cuts Britain offered last spring.

Why things might not work

"The idea that they're going to get a bespoke trade agreement with the EU by the end of the year is ridiculous," said Jason Langrish, who's been trying to act as a go-between in all this, to minimize the negative impact on businesses in his role as the executive director of the Canada Europe Roundtable for Business.

"There is no chance that that would happen. There's no resolution here on Brexit."

All that's ruled out at this point is staying in the European Union, he said.

Just because a withdrawal agreement now seems likely to pass at Westminister doesn't mean there's any certainty on reaching a deal with Brussels or keeping Britain together in the face of unrest in both Scotland and Northern Ireland.

Langrish said British trade policy is still a mess.

"They still have no idea what they're really doing" in areas where Canada needs assurances, he said.

The British election may be settled, but Britain remains divided. Anti-Johnson demonstrators in central London show their displeasure at the election result on Friday. (Kirsty Wigglesworth/The Associated Press)

No one should think that just because Canada was close to a deal a year ago, it would automatically land quickly.

Take negotiations on financial services, for example. Depending on how things go with Brussels, the powerful U.K. banking industry may want more access to Canada's market. 

"Is Canada going to be willing to give them something in that area? No," Langrish predicts. "The Canadian banking and financial services sector is quite highly regulated and restrictive and clubby."

Then there's agriculture, Canada's perennial offence in all trade talks, as it aggressively seeks new markets for farm exports. 

British farmers are already lambs set for Brexit's slaughter: losing subsidies they receive under the EU's common agricultural policy, and facing competition they're not used to, as the protectionist wall around Europe's farm sector retreats. Could they accept a liberalizing trade deal with Canada that sets a precedent for more?

Across rural England, "these are the people who are part of Boris Johnson's base," Langrish said.

This election result removes uncertainty "to a degree," he said, but "there's still a lot of it there."

For businesses in the meantime, "it's hard to make any significant moves."

About the Author

Janyce McGregor

Parliamentary Bureau

Janyce McGregor has covered Canadian politics for CBC News since 2001. Send news tips to: Janyce.McGregor@cbc.ca

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