Theresa May is in Canada this week and due to have talks with Canadian Prime Minster Justin Trudeau and other political figures. Her visit coincides with the coming into force, this Thursday, of the new EU-Canada trade deal, CETA.
As matters stand, that would lapse from when the UK leaves the EU, but the Canadian government has already said that it would like trading arrangements with the UK to be as close as possible to unchanged from the day of Brexit, and the British government is now saying it would like CETA to form the basis of a new bilateral UK-Canada trade deal.
Perhaps because Britons are not particularly good at guessing where accents are from, it’s easy to underestimate the extent of Canadian cultural and economic impact in the UK. Well-known Canadian actors include Jim Carrey, Natasha Henstridge, Ryan Reynolds, Pamela Anderson, William Shatner, Donald Sutherland. Britain has had a Canadian Prime Minister (Andrew Bonar Law). We import many raw materials such as gold, diamonds and uranium (of which Canada is the world’s second largest producer). Canada is the world leader in space-based radar satellite reconnaissance, whilst the UK is a leader in small satellite construction and operations.
The UK is also the second-biggest destination for Canadian foreign direct investment (with a stock of CAN$98 billion at the end of 2016, some eight times that in, say, China). Bombardier, a Canadian aerospace firm, is Northern Ireland’s largest manufacturing employer (and currently in a dispute with Boeing, before the US trade authorities, which May and Trudeau are likely to discuss because of its impact here). The UK is the fifth biggest investor in Canada (behind the US, Netherlands, Luxembourg and Switzerland). Some 42 per cent of Canadian exports to the EU are to the UK.
By comparison, the second-largest destination for Canadian exports in the EU is Germany, a market worth less than a quarter of the U.K.’s market to Canadian exporters. The British government estimated that Canadian exports to the U.K. would increase by 15 per cent as a result of CETA, while British exports to Canada would increase by 29 per cent — well worth it for both.
Canada has long sought to diversify its trade away from its current heavy dependence on the US. Ultimately the US will, for the foreseeable future, remain by a large margin its largest trading partner, but with NAFTA in question, the advantages to Canada of having some other options are obvious.
CETA is the template for negotiations for now, but some in Canada have more ambitious plans. The Canadian Opposition leader, Andrew Scheer, advocates a new four-party Canada, Australia, New Zealand, UK trade deal called CANZUK. His new foreign affairs spokesman, Erin O’Toole, made CANZUK one of the main planks of his Canadian Conservative Party leadership campaign earlier this year, so his appointment to the Foreign Affairs portfolio is a strong signal of support for that idea.
Since Australia and New Zealand already have undertakings from the UK government that they will be amongst the first countries to sign new post-Brexit trade deals, either the new UK-Canada “CETA 2” deal could in due course be meshed with the Australia and New Zealand deals, or perhaps one could consider having a four-party agreement from the start, perhaps along the lines proposed a few weeks ago by Australian Senator James Paterson, who has suggested adding the UK and Canada to the existing Australia-New Zealand “Closer Economic Relations” (CER) trade agreement.
Others, particularly in the US, have even more ambitious ideas, such as adding the UK to NAFTA as part of the new UK-US trade deal, perhaps replacing Mexico to create a new North Atlantic Free Trade Area (NAtlaFTA).
Whether based ultimately on CETA or CER or even NAFTA, the UK and Canada seem very likely to do a new trade and investment deal. Mutual interest in achieving a deal is high and the barriers fairly low. Theresa May will face much tougher trade talks in the future than these.
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