Life after Brexit: What happens to Canada's trade deal with Europe?
Canada negotiated CETA with the European Union based on the U.K. being in, not out, so now what?
International Trade Minister Chrystia Freeland used to live in the United Kingdom, so she'll be familiar with the Second World War slogan that might make a good mantra on the morning after the Brexit referendum result: Keep calm and carry on.
Early Friday morning, she spoke to her European Union counterpart, Cecilia Malmstrom, and reiterated that Canada's commitment to ratifying their "gold-plated" trade deal remains firm.
But is that wishful thinking? Have British voters derailed a key to the Liberal government's trade agenda?
The European Council was hoping to approve the deal this summer. A signing ceremony was tentatively scheduled for October, while the European Parliament in Brussels was on track towards a ratification vote late in 2016 or early 2017.
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The summer agenda in Brussels is now in flux, depending on how quickly the British move to begin divorce proceedings with the European Union.
"It has to complicate it in the short term," trade lawyer Mark Warner said. "I think this is going to push things back."
'There are mulligans'
From the European point of view, a calm determination to carry on with business as usual may be a good strategy: forge ahead and sign the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom as part of the deal this fall, and then manage the unclear timelines of the British exit negotiation as they come.
Besides, the U.K. may negotiate to keep its free trade. It may not want a full divorce.
"It is a serious event. But let's keep in mind that national referendums [in other EU countries, such as those rejecting its constitution] have been lost before and there have been do-overs. There are mulligans in the European Union," Warner said.
Canada does far more business with the U.K. than other EU countries, but that's the point. It wanted to pry open new market opportunities for Canadian goods and services, particularly in central and eastern Europe, where it lacks traditional trading relationships.
SO... about that Canada-EU Free Trade deal? The UK is basically *half* of Canada's EU exports. <a href="https://twitter.com/hashtag/cdnecon?src=hash">#cdnecon</a> <a href="https://t.co/3KJskGGYD6">pic.twitter.com/3KJskGGYD6</a>—@trevortombe
Beyond the broad scope of its economic potential, the deal was politically significant for the EU. It was portrayed as a precedent for deals with other priority markets, like the United States.
But CETA was based on tradeoffs and calculations that included British consumers and businesses — compromises that were sometimes painful and prolonged.
Can the deal pass as is, or does Pandora's box have to reopen?
Concessions based on U.K.'s inclusion
"I would imagine if I'm a French beef farmer or hog farmer ... or Irish, I'm probably going to be doing some lobbying in Brussels to say those quotas we gave to Canada are too big now, 'cause some of that was supposed to go to the U.K.," said John Masswohl, a director with the Canadian Cattlemen's Association who's been active in both negotiating and now lobbying for CETA's ratification.
"I imagine [Europeans are] going to want to renegotiate some things.... That may trigger some things that Canada wants to change," he said.
In his beef sector, the U.K. might represent about 10 per cent of the market they were hoping to gain — but then again, if Scotland votes to split off and remain in the EU instead, that could change.
Canada's concessions at the table were balanced by what it hoped to gain. The fisheries or financial services components of the deal may be less valuable for Canada without the U.K., and tempting to revisit.
The deal was already reopened during its legal scrub to revise the investor-state dispute settlement provisions — a compromise Freeland said she was pleased to make because it both improved the deal and won over critical support in Germany.
Losing ally 'a blow'
But reopening adds more delays. Ratifying the existing text may be, on balance, more beneficial than new talks where anything could happen.
"I believe the CETA agreement does not now need to be reopened," said Adam Taylor, who worked for former international trade minister Ed Fast when CETA was negotiated.
"There were certainly provisions and chapters within it that were heavily influenced by the U.K.'s participation in the negotiations, but I don't think that means those chapters would need to be reopened," he said.
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Canada's chief negotiator, Steve Verheul, had a similar message when the prospect of a Brexit was raised during his appearance before the Commons international trade committee earlier this year.
"If the scenario that we wouldn't like to see [Brexit] occurs, then our agreement with the EU would remain," he told MPs. "We have already had some discussions with the U.K. about the implications.
"I think the U.K. will first of all be looking to negotiate some kind of arrangement with the EU, and then they will want to be replicating some of the agreements that the EU has as well, so that they don't lose access."
'Take a breath over here'
With critical ratification votes ahead, the real problem may be losing the U.K. as Canada's political ally in Brussels, one that was very helpful generating support for the deal in more reluctant European capitals.
"Britain was a driving force in the EU from Day 1 to get this deal done. And losing them is a blow on that front alone," Taylor said.
"Do other EU states start to get cold feet ahead of ratification?"
Votes in the European Parliament in Brussels can be unpredictable. Freeland has been open about the need for Canada to keep lobbying to overcome resistance to ratifying in some countries.
Her campaign — and she calls it that — may be made longer, or harder, with a Brexit. But it's not lost.
"We need to take a breath over here and let the dust settle on things we can't control," Masswohl said.