The Daily Update - Trade and Brexit

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union is heralded by its supporters as being ‘a progressive agreement that will set a new standard for international trade.’ In its current form virtually all tariffs with the exception of select agricultural products would be removed. 

In fact, earlier in the week Jose Manuel Garcia-Margallo, the Spanish Foreign Minister, was even advocating it as a model for Brexit stating ‘If the British insist on having the option to restrain the free movement of European workers to the United Kingdom, the only solution is the Canadian one.’  But that was before the Walloon Parliament failed to approve the deal.

Wallonia is one of the key regions in Belgium that has its own parliament which must approve laws before they can be passed by the national government.  Thus, Wallonia’s rejection of the trade pact means that Belgium’s national government is unable to approve it:  to go ahead the deal must be approved by all 28 EU member states.  Inevitably, there will be amendments which will mean the deal may still get done but it is looking to be a tall order to get this done for Canada’s Prime Minister Justin Trudeau planned visit to Brussels on October 27, for a formal Treaty signing.

Clearly, trying to negotiate a free trade agreement is highly complex; CETA has been 7 years in the making.  Paul Magnette, the regional minister-president for Wallonia, cited concerns that the treaty in its current form poses a ‘real threat to social and environmental standards and sustainable development’, plus they are uncomfortable that the agreement would allow multinational companies to legally challenge government policies.  The Walloons also have concerns about the settlement court for investor-state dispute settlement bypassing the normal judicial process and want the treaty to also protect the EU from mass agricultural imports in the same way the Canadians have written in protections.  All in all, it looks like there are a fair number of issues to be dealt with.

This is perhaps the first of a ‘triple whammy’ to hit Theresa May’s Government’s Brexit ‘strategy’: it drives home the fact that Brexit with all the other complications of extricating the UK from Europe is going to be tortuous, wishful within a short-time frame, and made even worse if things take a more acrimonious route.  Second, potentially is the High Court hearing challenging whether the UK government can begin Brexit and trigger Article 50 of the Lisbon Treaty without the authorisation of parliament where a ruling expected within the next week from the panel of 3 judges.  It will be interesting as the claimants’ case alleges parliamentary approval is required to trigger Article 50 as anything less would take away the constitutional rights of the UK citizens.  Third, a report from the House of Lords Select Committee recommends there should be more inclusion and consultation with Parliament throughout the process.

While more people voted for Brexit in the referendum itself, they did not necessarily vote for such an extreme form being put forward by the Brexiteers, in a process that would bypass a lot of parliamentary involvement using instead the power of the crown prerogative.  Interestingly, a ComRes poll in the Independent on Sunday taken on 12/13 October showed 49 percent of people prioritise a good trade deal with the EU over immigration, with 39 percent still prioritising immigration.  44 percent (£220 bn) of Britain’s exports go to the EU so retaining a constructive trading relationship with the EU is vital.  World trade grew at 6.5 percent per annum in the two decades prior to 2008 but we are now in a low growth era and it has only grown at 3.25 percent p.a. in 2012-2015, weakening further to only 2.5 percent in 2015.  To assume the UK will be able to easily and quickly create new trading relationships to offset any negative impact of a hard Brexit is naïve.  A ‘hard Brexit’ is going to be hard.