Canada-EU trade deal in jeopardy,
As the U.K. votes to strike out on its own, the EU free trade pact with Canada takes a back seat
The surprising decision by U.K. voters to file for divorce from the European Union could put implementation of Canada’s free-trade agreement with Europe on hold.
Greg Tereposky, a partner at law firm Borden Ladner Gervais who specializes in international trade, said the U.K. is a main entry point for commerce and trade to Europe, and if the U.K. loses access, it would be a negative for Canada, he said.
Canada must now consider whether the details of a free-trade deal reached with the European Union change, given the U.K.’s looming exit that could take two years or more to implement.
Negotiations on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the 28-member European Union first began in 2009, with the agreement in principle reached in 2013. Implementation is not expected before 2017.
“We are lousy in these free-trade negotiations in Canada. It takes forever,” said Andreas Schotter, a professor of international business at Western University’s Ivey School of Business. “Then you have a deal and then it takes another eternity until ratification and actual implementation.”
The CETA deal requires ratification from all 28 member states as well as the European Parliament. No jurisdiction has ratified the agreement yet, including Canada.
“The U.K. was a big promoter of the CETA, and there was some pushback on ratification from some EU member states,” Tereposky said. “Without the U.K. helping the process, one wonders whether the ratification of the agreement will be much more difficult to achieve.”
Canada could consider cutting a separate deal with Britain or possibly tweaking the CETA agreement into a deal with the U.K. and the other 27 member na- tions of the EU.
But it may be difficult for Canada to get the attention of both U.K. and EU officials, who will be dealing with a multitude of issues related to the U.K.’s exit in the coming years, Tereposky said.
“My view on this, and it’s entirely speculation, but we will have CETA go into a holding pattern at least for the foreseeable future,” he added.
The reality is other European leaders will be preoccupied about what to do about the Brexit vote — and whether it will set in motion a similar push from other disgruntled countries within the European Union to leave.
Marvin Ryder, a business professor at McMaster University’s DeGroote School of Business, noted that Canada’s largest trading partner is the United States, followed by China.
The U.K. was Canada’s fifth-largest trading partner last year, accounting for about $21.2 billion (U.S.) in total trade, according to data compiled by Bloomberg. Trade in goods between the EU and Canada is worth almost 60 billion ($67 billion U.S.) a year. By comparison, cross-border commerce with the United States was more than $540 billion (U.S.) last year.
However, if Britain encounters difficulties in negotiating deals with the European Union — and those EU countries are expected to stand tough as a deterrent to others leaving — it could result in benefits here.
“We don’t know if our trade will go up as they seek other friends,” Ryder said.
“No one knows. They may turn to Canada and say, ‘Can we buy some of your cheese. Can we buy some of your butter?’ ”
With 52 per cent voting to leave, the U.K. vote initially wreaked havoc on stock markets, sent the pound sterling to its lowest levels in three decades and strengthened the U.S. dollar as well as gold.
Philippe Brugère-Trélat, a portfolio manager with Franklin Mutual European Fund, noted that both equity and debt markets in the United States could become a place of refuge for investors — and Canada could benefit as a secondary choice.
“Volatility comes from uncertainty and there’s a lot of that right now,” he said.
“In nervous times, flows move toward the U.S. dollar. The loonie is getting clobbered as U.S. dollar strength persists,” said Rahim Madhavji, president of Toronto-based online foreign currency exchange KnightsbridgeFX.com.
“The people of the U.K. have singlehandedly impacted the value of the Canadian dollar and global sentiment. We are in a very connected world,” said Madhavji in a note to investors.
And a weaker loonie could result in a boost to Canadian manufacturing and exports.
“The average Canadian citizen doesn’t like a low dollar because they are looking forward to a vacation south of the border,” said Ryder, who predicts the loonie will settle down to about 75 cents against the greenback.
“The Canadian dollar will soften, which is good news for the business sector,” he said.