UK should not copy Canada

by Jack Schickler | 29.02.2016

Asked what relations a post-Brexit UK should have with the EU, eurosceptics used to point to Norway and Switzerland. But now the weaknesses of both models are becoming apparent – having to follow EU laws without a vote, agree to free movement and pay into the budget – they have started to talk of Canada as a template.

The EU and Canada have described their Comprehensive Economic and Trade Agreement (CETA) as ambitious and ground-breaking. But, while a step forward for EU-Canada relations, such a deal would be a significant setback for the UK.

An ambitious deal for goods and services

CETA slashes or removes almost all taxes on imports. Such tariffs will disappear on around 98.6% of tariff lines, saving €628 million in industrial product duties a year.

The deal also liberalises services across the Atlantic, so (say) an Albertan architect can more easily work for a Parisian client.

And, while Canadian companies still need to comply with EU regulations, Canadian authorities may get the right to certify that (say) a toy meets EU standards – a procedure that is cheaper, simpler and quicker.

but hurdles remain

Even with CETA, trade hurdles remain. Under the rules of origin regime, a Canadian exporter would have to show its product is – at least in part – made in Canada. This avoids a Chinese company, for example, avoiding tariffs by sending a product to Canada and then shipping it on to the EU.

In contrast, the EU sets tariffs as a bloc, so this potential loophole doesn’t exist for intra-EU trade. Nor do cumbersome rules of origin. Eurosceptics who complain about industry being strangled by red tape shouldn’t want that.

The agreement also contains a controversial new court regime for investors. Since national governments and courts have a habit of favouring their own companies if there is a dispute with foreign investors, CETA introduces investor-state dispute settlement – a more neutral tribunal where investors can take legal challenges.

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    A court that can override national law ought to ring bells with Britain’s eurosceptics. That, after all, is one of the things they don’t like about the EU. But, if they follow the Canadian model, they won’t escape such infringements of sovereignty. Such arrangements are found in 93% of bilateral investment treaties.

    Plenty of gaps in the deal

    What’s more, CETA gives Canada much less access to the EU market than Britain currently gets. Canadian exporters will still face tariffs on 6.2% of agricultural tariff lines, such as poultry and eggs.

    The deal also largely leaves out financial services. Canadian banks or insurers are treated just like those from any non-EU country.

    That would be a worry for the UK. Not only are financial services our biggest export. International banks cite as a major attraction of London the passport they have to access the single market. Follow the Canada model and we would not have one.

    This is why eurosceptics such as Norman Lamont, the former Tory chancellor, say they want a Canada-plus deal. The snag is the deeper you want economic relations to be, the more you have to put up with common rules, supranational courts and the like. Before you know it, you’ll be back to the Norway model or even recreating the EU.

    Edited by Hugo Dixon

    This article was published shortly before the EU and Canada announced changes to the proposed system of investor-state dispute settlement, in particular clarifying each party’s right to regulate – and introducing tribunal members appointed in advance, rules to avoid conflicts of interest, and an appeal structure.  In the words of the EU Trade Commissioner, these changes make the system “work like an international court”.

    3 Responses to “UK should not copy Canada”

    • Canada has long experience with working alongside a big neighbor – the USA. That works very well and you don’t go thru customs everytime you cross the border.
      If the EU puts tariffs on our goods then we can reply with tariffs on theirs.

    • So we quit a single market of 500m people, from which we get (according to the CBI) a net annual benefit of at least £40 billion, in order to have a trade war. Brilliant!

    • James, do you really think extrapolating a sample of professional sports people is appropriate. I can think of a whole series of confounding factors.