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Will a Canadian style agreement really work for the UK post Brexit?

Does the Canadian agreement hold the key for Britain?

You may have heard that a Canadian style trade agreement is the type of agreement that the UK is wanting to agree with the EU after Brexit. But what is it? I came across an article on the BBC which outlined some of the key points about it.

The Canadian trade agreement with the EU was signed in 2016 and it is called the Comprehensive Economic and Trade Agreement (CETA). It came into force last year in September. So how does it work?

How the Comprehensive Economic and Trade Agreement works (CETA)

  • Nearly all (circa 98%) tariffs on goods traded between Canada and the EU have become duty free. All tariffs are set to be removed within 7 years.
  • Both the EU and Canada will open up public contacts to each other. so, for example, a Candian company can submit a proposal to build a French hospital and vice versa.
  • It preserves the EU’s ‘geographical indications’ which means that Canada couldn’t make a cheese called ‘Camambert’ and then import it. No, Camembert  cheese can only be made in France. 

Tariffs 

  • EU tariffs on Canadian goods was reduced to zero (previously it was over 50% for Oats, 8% for maple syrup and 4.5% on auto parts)]
  • Canadian tariffs on EU good reduced to zero (previously chocolate was 10%, clothing 16% , medical equipment 8% and machines 9.5%)
  • Tariff-free limits on EU cheese exports to Canada raised from 18.5 metric tonnes to 31,972 metric tonnes
  • Tariff free limits on Canadian sweet corn exports raised from zero to 8,000 metric tonnes over a five year period.

What about safety equipment standards?

The safety checks done in either the EU or Canada will be reciprocated in both countries, so no need to have more than one check. Similarly, professional qualifications will be recognised in both Canada and the EU, so it is easier to work in both regions. Ok, that sounds simple enough.

CETA’S limits

  • It is not a single market, so other deals can be arranged with other countries
  • It does not remove border controls
  • It does not particularly open up the Canadian Financial services
  • Tariffs will stay on poultry, meat and eggs, There are limits to Candian meat exports of 80,000 tonnes of Pork, 50,000 tonnes of beef, and 100,000 tonnes of wheat.

Will it work as Brexit Model?

Well, for the UK over 40% of it’s overseas trade is with the EU, so it needs to.  The largest sector being Motor vehicles and parts (£18bln), followed by chemical and chemical products (£15bln). The initial indications is that the CETA model has been good for Canada and the EU. Canada has increased it’s European imports by about 6% and the EU has increased it’s exports to Canada. Obviously, the UK is closer to the EU, so transport time is quicker.  

All in all, this seems a workable model. I would take a Candian style agreement as bullish for the GBP and a positive footing for a future trade relationship with the EU. One of the sticking points will be how to incorporate the UK’s financial service sector into this agreement, so that is a point of detail to watch.

But, of course, what we really want to know is….is it going to go Britain’s way in the negotiations (most likely) or will Theresa May only find her dance get’s Juncker’s cold shoulder?

ForexLive

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