Boris Johnson is right that the Comprehensive Economic and Trade Agreement (CETA) with Canada should be the starting point for a UK-EU Free Trade Agreement (FTA). This is the appropriate solution to the Brexit impasse and should have been properly discussed some time ago. With the right initiative and good will on both sides, it’s still not too late.
Under CETA, 98 per cent of all tariffs on goods between the EU and Canada were eliminated, with an extra 1 per cent being removed over 7 years. This left tariffs on only 1 per cent of all goods, mostly of which relate to dairy products. These are protected at the behest of Canada through its supply management quota system, which were a sticking point during Canada’s NAFTA renegotiations with the US and may have prevented it from securing a better deal with the EU. Since dairy (or equivalent protectionism in other sectors) is a non-issue for the UK, zero tariffs on all goods is entirely feasible in a UK-EU FTA.
Under CETA, the EU and Canada agreed to co-operate on standards, meaning product safety regulations for goods. The parties committed to accept each other’s conformity assessment certificates in areas such as electrical goods, toys and various kinds of machinery. This means that an authorized body in the EU can test EU products for export to Canada according to Canadian rules just as Canadian bodies can do the reverse. Such level of recognition is achievable under a UK-EU FTA and should assuage many of the concerns from UK manufacturers regarding non-tariff barriers operating as customs delays.
As a conventional FTA, a UK-EU agreement based on CETA would allow the UK to establish its own international trade policy, facilitating future trade agreements with strategic partners like the US and potentially mega-regionals like the Comprehensive and Progressive Trans Pacific Partnership (CPTPP). The UK would be free to import goods from these countries on a preferential basis as desired, just as the EU would be able to restrict importation of whatever products it wishes from these countries pursuant its own concerns about health and safety. This would be impossible for the UK inside the Customs Union and would be difficult with a Chequers-style arrangement.
To be sure, CETA does not remove border controls on goods entirely. But it does encourage the use of technological solutions such as pre-inspections and electronic checks to make them easier. This kind of system could work to minimize disruptions at the Irish border without the need for the politically implausible Backstop or the complicated Chequers track and rebate system. A UK-EU FTA could include a side agreement on the Irish border contemplating something like this or possibly even an agreement to ignore the Irish border entirely in the short term (as if Brexit had not happened) on the basis of national security concerns. This could provide a temporary solution until the untested technological solutions which have been put forward could be properly prepared and put into place.
Like CETA, the UK-EU FTA would provide for the protection of foreign investment, intellectual property including geographical indicators, and offer preferential access for government procurement contracts. In that sense the agreement would be in line with the comprehensive economic partnership-style FTAs which are becoming popular throughout the world.
While goods still dominate the trade between the UK and the EU, the UK’s trade with the EU is heavily services-oriented. This contrasts with Canada’s predominately goods-based trading patterns with the EU. It is true that CETA’s coverage for services is less complete and is certainly not at the level of integration achieved by the EU’s Single Market. This is despite the fact that CETA’s services commitments are structured as a negative list in which all sectors are covered except those which are expressly excluded, designed to maximize liberalization.
Crucially there is limited coverage for financial services under CETA, which is essential to the UK economy. It doesn’t include “passporting” which permits UK financial services firms to supply their services in the EU. This is why the “plus” sought in a CETA-style agreement with the EU would need to engage with financial services more effectively. Suitable models for this kind of liberalization, focusing on enhanced equivalence and monitoring, have been suggested and should be put forward seriously.
Part of the concern regarding a Canada-plus deal with the EU containing greater coverage for services is that there is insufficient time to negotiate these additional, complicated matters before March next year. CETA took seven years, in part because some aspects of it languished through the ratification processes of EU Member states, but also because it was incredibly deep – the most comprehensive agreement the EU has ever signed to date. Time is running out to get something better than CETA.
A transitional arrangement could buy negotiators more time to iron out services commitments. Alternatively, or in conjunction with a transitional stage, much of the EU-UK FTA could be left open for future negotiations based on an agreed “framework” for how to agree. This type of mechanism appears in CETA and is common to modern FTAs, including the EU’s recent Economic Partnership Agreement with Japan. For example, CETA provides a framework for the EU and Canada to recognise each other’s qualifications in regulated professions such as engineers and accountants. Canada’s agreement with the EU further establishes a regulatory cooperation forum which enables regulators to exchange information and best practices with a view to improving liberalization.
As with CETA, under a UK-EU FTA, professional bodies in the UK and the EU will be able to use a framework system to work out the details for recognising each other’s qualifications collaboratively. Something like this could be set up for financial services. Mutual recognition of standards on goods and services, along with any future divergence, would be overseen by expert committees, the decisions of which could be reviewed by a binational arbitration panel of the kind which exist in many FTAs. Rulings of this judicial body would not be reviewable by the either European Court of Justice or the UK Supreme Court. It would be a truly international tribunal composed of representatives of both countries. CETA’s investment and financial services chapters contemplate mechanisms like this and are part and parcel with international law.
Relying on framework arrangements for future liberalization of services for the time being, the full benefits of a “Super Canada” UK-EU FTA would emerge over time. It has often been said that the advantages of Brexit could take years, so this staged implementation should come as no surprise to the UK public. Setting out a vague blueprint in the present while leaving the specifics until later is sometimes known as a “fudge.” This strategy captures the practical reality that the fine details of trade negotiation take time, but that broad themes can be set out much more quickly, as politically tense situations often require. The EU is good at this and the UK can be too. With time running out, Brexit is one of these situations. Canada Plus is within our grasp – it is time to move forward with it enthusiastically.