Canada’s relationship with Europe is complex and includes a host of security and cultural ties that are independent of this agreement. There can be little doubt, however, of the sheer importance of the Comprehensive Economic and Trade Agreement (CETA). This agreement between Canada and the EU is important to Canadians for a host of commercial and symbolic reasons. Unfortunately for the pact’s supporters, its ratification has been endangered by Brexit. Andrew Smith suggests historians may regard Brexit as an event that fundamentally changed Canada’s relationship with Europe.
Trade agreements have long had tremendous cultural significance for Canadians, as Francine McKenzie has shown in her research. This agreement is no exception. While earlier free trade agreements between Canada and its North American neighbours were controversial because they raised fears of US economic domination, the concept of free trade with the European Union is popular across the Canadian political spectrum. Even today, polling shows that Canadians have very mixed feelings about North American free trade. When the centre-right government of Stephen Harper announced that a tentative agreement had been reached in 2013, opinion polls showed that Canadians of in all regions and of all political stripes generally supported the measure. Indeed, even the left-wing Council of Canadians, which is usually opposed to international trade agreements, was careful to point out that while it opposed the details of Harper’s trade deal, it supported the general idea of stronger trade ties with Europe. The centre-left Liberal Party, which gained power in 2015, has continued to work towards finalizing the agreement. In a sense, CETA offers something to everyone in Canada. For Canadian businesses, an agreement with the EU is appealing because it offers access to more than five hundred million consumers. Moreover, the idea of trade liberalization is inherently appealing to Canada’s CEOs who are generally neoliberal in outlook. For those Canadians whose views are left-of-centre (the vast majority of the electorate), free trade with Europe is appealing because it would reduce trade dependence on the United States. Moreover, many Canadians identify with the social-democratic values espoused in most European countries and this colours thinking about economic diplomacy.
As of this date, it is not entirely certain that the UK will actually invoke Article 50 and initiate the process of leaving the European Union. The British parliament may well ignore the results of the referendum. We also do not know whether there will be a “soft” or a “hard” Brexit or whether the UK would join the European Free Trade Area, a trading bloc that has had a limited, “first generation” tariff-reduction agreement with Canada since 2012. However, it is reasonably clear that the prospect of Brexit creates additional obstacles for the ratification of CETA, at least in its current form. Even before the Brexit vote, there was mounting opposition in the EU to CETA, and not just for the usual suspects in the anti-globalization movement. The government of Romania and Bulgaria threatened to block the deal unless Canada lifted the visa requirement it imposes on citizens of those countries. Sub-national units within the EU such as the regional government of Wallonia, have also used threats to derail the agreement as leverage in bargaining over unrelated issues. Moreover, the precise procedure for ratifying agreements of the complexity and magnitude of CETA and TTIP (Transatlantic Trade and Investment Partnership, the similar trade between the EU and US), is not entirely clear. EU Trade Commissioner Cecilia Malmstrom recently conceded that she was unsure about whether the ratification process requires just a vote in the European Parliament or further input from all 28-member countries and some devolved regional governments. Ms. Malmstrom also declared that she opposed holding national referenda on CETA and other similar agreements. Her reluctance to give voters in any EU country a direct say in the ratification of this trade agreement is entirely understandable, given the recent rejection by Dutch voters of the proposed trade agreement between the EU and Ukraine.
At the roundtable on CETA at the European Business Summit in early June, many observers expressed pessimism about whether CETA would actually be ratified by the end of 2017. It should be pointed out that the process of getting all of Canada’s subnational units to sign off on the agreement was itself tortuous. Throughout the protracted negotiations for CETA, Canada had an important ally within the corridors of power in Brussels: the UK, the outward-looking, liberal market economy that represents about half of Canada’s trade with the EU. A Britain that is in the process of exiting the EU will no longer be able to influence the making of EU trade policy.
An EU that does not include the United Kingdom would also be less attractive to Canada as a trading and diplomatic partner for reasons that are at least as much cultural as economic. Canada’s relationship with Britain has tremendous importance to English-speaking Canadians, particularly those of British ancestry. The fact that Canada, Britain, and fifteen other nations share Queen Elizabeth as their head of state colours how many Canadians view the country’s place in the world. It has also shaped Canadian economic diplomacy for generations. The historian Bruce Muirhead has written about how Canadian policymakers concerned about growing trade dependence on the United States were long attracted to the so-called “Anglo-European Option” (i.e., a trade deal that would include Britain and perhaps Western Europe as well). French-speaking Canadians lack this emotional bond to the UK and have instead focused on building ties with France, which helps to explain the existence of various France-Quebec bilateral agreements and the role of former Quebec Premier Jean Charest in promoting CETA. Similarly, many Canadians whose families arrived from continental European countries such as Italy and Greece during the postwar immigration waves have had a reason to support CETA, since any agreement with Brussels would cover trade with their home countries as well. As long as Britain and France were in the same trading bloc, the trade policies favoured by Anglophile and Francophile Canadians were broadly congruent in that both groups had powerful non-economic reason to support a Canada-EU trade agreement. Brexit risks exposing differences within Canada’s diverse population over trade policy. In theory, Canada could negotiate separate trade agreements with both the UK and the EU, which would be pleasing to both of Canada’s main ethno-linguistic communities. However, the diplomatic resources of the Canadian government are scarce after approximately nine years of cost-cutting under the previous Conservative government of Stephen Harper. Although the current Canadian government appears to be committed to rebuilding the capacity of the Canadian diplomatic corps, it might be difficult for Canada’s small group of experienced trade diplomats to manage simultaneous negotiations with both the UK and the EU along with agreements with fast-growing economies in other parts of the world.
During the EU referendum campaign, Leave supporters frequently referred to the rapidly growing economies of the Commonwealth of Nations as an alternative trading partner for Britain. As the BBC reported in November 2015, ‘Whenever the word “Brexit” is mentioned, the word “Commonwealth” is usually not far behind’. One can certainly understand why the Commonwealth option appealed to many Brexiteers, particularly those old enough to remember the system of Commonwealth preference that Britain was forced to abandoned when it joined the EEC. The Canadian media have covered the Commonwealth Freedom of Movement Organization’s call for free mobility within the nations of the Old Commonwealth(i.e., the UK, Canada, Australia, and New Zealand), an idea that has some attractions for some young Canadians. However, it is not at all certain whether Canada and other Commonwealth countries would actually want to take concrete steps to cement ties with post-Brexit Britain, especially if British political culture evolves in a direction that undermines the impression in Canada that Britain shares such Commonwealth ideas as tolerance and multiculturalism.Australia’s republican movement has reported a surge in membership since the Brexit vote, as some Australians have concluded that Britain is xenophobic and is thus unworthy to share a head of state with them. If Canadians interpret the Brexit vote to mean that Britain is now turning against inclusiveness, than a free trade deal with Britain would lose part of its appeal. As I have shown above, the making and breaking of trade deals is driven by far more than purely economic considerations: if Canadians believe that they are no longer linked to Britain by a community of values, Britain will likely be moved to the back of the queue for future trade agreements.
This article first appeared on Dahrendorf and it gives the views of the author, and not the position of BrexitVote, nor of the London School of Economics. Image credit.
Dr. Andrew Smith is the Director of Studies for International Business and Senior Lecturer in International Business at the University of Liverpool Management School.
I am inclined to disagree with the article’s negative assessment of the opportunities for creating Canada Britain trade relations, where bilateral trade is already well established. I think it will be unlikely, even from the day after the Brexit outcome, that Canadians as a whole will feel Britain is becoming less tolerant or no longer sharing common values.
Canadians will be informed well (by Stats Canada as well as their trade officials) that the UK is its biggest customer of merchandise exports in Europe by far, with 30% of all such EU trade. Canada’s second largest merchandise export market is Germany – just one quarter of the UK export value! In fact the UK is Canada’s third largest merchandise export customer globally, after the US and China. Yet more, Canada has a huge positive trade balance with the UK – in fact the largest trade balance it has with any country on the planet. These facts blow the negative sentimental argument completely out of the window, don’t you think!
It should not be forgotten also that Canada’s economy is struggling. Economic decline, even recession, is forecast through to 2019. Canada needs dramatically to improve its effectiveness in international trade and foreign investment promotion. The new government’s priorities have been clearly expressed. It is looking for a step change in international business and trade relations. The Canadian Department of Global Affairs may have limited resources. However it is full of talented individuals with a great sense of dealmaking and quite limited amounts of bureaucracy for an economy of its size. Its ministers Stéphane Dion, Marie-Claude Bibeau and Chrystia Freeland, are determined to make things happen.
I could reinforce the argument with multiple other facts relating to trade in services, agreements on R&D and IPR, culture exchange, more flexible key worker exchange arrangements, dispute settlements, environment issues etc. However, in my experience Canada will be well advised to remain keen to make alliances with both the UK and the EU. After nine years of discussion, and with 27 country ratifications pending, the EU-Canada CETA is still two plus years away progress continues to be snaillike and may run into ratification problems. The EU without the UK will now be one country fewer and 16% smaller in nominal GDP terms. So it is likely that the CETA agreement will have to go back to the drawing board for further revisions and rebalancing. Whereas, an interest to fast track UK-Canada relations is already there in parts of the Canadian government. It’s even possible, startling as this may be, that a Canada-UK deal will be enacted before the EU-Canada CETA. Watch this space.