How a possible ‘Brexit’ could change the game on the Canada-EU trade pact

OTTAWA – Last week, International Trade Minister Chrystia Freeland declared mission accomplished in Canada’s efforts to close an all-encompassing cope with its European partners. 

But it’s now increasingly entirely possible that Britain, our biggest customer in the biggest trading region of the world, might soon not be part of that agreement. 

There’s every chance that citizens of the United Kingdom could, in a few months, vote to leave europe and go it alone – forcing the nation to search out separate agreements with its current trading-group partners.

One of these is Canada, which would need to negotiate a new pact with the U.K. outside of the Comprehensive Economic Trade Agreement – or CETA – that was signed off on by the EU and Canada on Feb. 29, and hang in the future into effect as soon as mid-2017.

So far, Freeland hasn’t spoken publicly on the U.K. referendum issue, nor will Canadian ministry officials discuss its likely effect on trade relations, at least not ahead of the British vote. 

It’s unlikely, however, that Canada would be the main concern for new negotiations in the event that an english exit – nicknamed “Brexit” – from the current 28-nation union is approved on June 23 in the national vote.

For something, the U.K. government – led by Prime Minister David Cameron, who does not support Brexit but agreed to place it to some ballot after many years of debate – would need to cope with the immediate economic uncertainty that unquestionably will follow a cut in formal ties with the EU.

“It is going to be negative for the economy, no doubt,” says Charles St-Arnaud, an economist at Nomura Global Research in London, adding that there will be a huge knock-on effect for the country’s powerful financial sector.

In particular, “how much cash would need to be gone to live in (other) EU countries? The French and the Germans would be more than happy to see Frankfurt and Paris get the business – and have those cities as the financial capital of Europe.”

At the same time frame, the U.K. in some form “will be attempting to arrange quickly a free-trade agreement with the remainder of Europe and the Usa – before Canada,” St-Arnaud says.

“They goes with the big trading partners first.”

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The Brexit issue, by any other name, has existed for many years. Actually, disgruntlement with the union began almost as soon as Britain joined in 1973 – when the grouping was known as the European Economic Community. 

Now with 28 member nations, 18 which use the euro currency, the EU makes up the earth’s largest economy – when considered a single entity -ahead of the U.S. and China, and followed by Japan, Germany, Britain and France.

With more than half a billion people, the EU includes a total annual economy of more than US$18 trillion.

For perspective, the U.K.’s GDP is the world’s sixth biggest (factoring in the EU overall) at almost US$3 trillion – compared with Canada, that is in 11th place at US$1.8 trillion.



Britain, however, is still the EU’s No. 2 growth engine after Germany. A U.K. exit would shave about 16 per cent off the group’s gross domestic product. 

The so-called “In-Out” referendum question is dependant on a single line: “Should the United Kingdom remain part of europe or leave europe?”

The issues vary from if the U.K.’s association with the EU should remain out of the box, or move to an “ever-closer union” – something the “out” side is opposed to – as well as possible restrictions on child benefits for migrant workers living outside the U.K. and limits on welfare payments to migrant working within the country.

As well, citizens of the U.K. could lose the mobility to freely travel and operate in other EU states.

“If the anti-European side wins the referendum, it will certainly muddy the waters people – both internally with the EU but in addition for relations between countries like Canada, and it’ll complicate things so far as CETA is concerned,” says Lawrence Herman, a Toronto-based international trade and investment lawyer.

“It will require several years to summarize or settle the circumstances of Britain leaving the European Union…. But Canada will still have a treaty using the EU, regardless of the EU reaches that particular time,” Herman says.

“Canada may well wish to return to the table and say to the European Commission, ‘Look, we’d an offer with the EU because it then was. The commercial advantages now aren’t as they were at the time, and we wish to enter into some renegotiations.'”  

Regardless of how the Brexit issue plays out, given the current uncertain economy in Canada and lots of other nations, we’ll have to act quickly to achieve out and expand our trading markets.

“What we need now are solid trading partners – and we need them fast,” says Will Dubreuil, director of public affairs at the Canadian Chamber of Commerce.

“There’s no doubt we’re concerned about the time it would take to re-establishing some type of trade agreement using the U.K.,” he states. “There’s not really a specific strategy at this point. We’re in times where we’ll wait and find out.”

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