Maple syrup: a 10 point guide to Boris Johnson’s Canada-style EU free trade proposal

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I popped along yesterday morning to the splendid Painted Hall in Greenwich (above) – itself a painterly encomium to institutional innovation and commerce – to hear the Prime Minister’s bombastic and entertaining enthusiasm for free trade and a Canada-style free trade deal with the EU.

The Cabinet in attendance rose as one to give a stirring standing ovation to their Leader, but the media, not so much. What followed was a load of dreary questions which demonstrated that the press knows almost nothing about the so-called CETA (Comprehensive Economic and Trade Agreement) with the EU. As I expect they are not alone, and also I believe I was the first person to raise the potential of CETA publicly in an article in The Times in 2016, please see my very humble and brief attempt to address this deficit:

1. Purpose

The purpose of CETA is to encourage foreign investment, to remove all tariffs on industrial goods and to progressively liberalise trade in agriculture and services. The agreement summary says: “Overall, the tariffs for 98.6% of all Canadian tariff lines and 98.7% of all EU tariff lines will ultimately be fully eliminated. This will happen at entry for 98.2% of the Canadian tariff lines and for 97.7% of the EU tariff lines. All other products identified for liberalisation will have their tariffs brought to zero within 3, 5 or 7 years.”

2. Financial services

You will hear from some quarters that CETA “doesn’t cover financial services”. This is rubbish. They have a whole section, Chapter 13. This essentially sets up an equivalence and/or mutual recognition regime. It says that “each Party shall permit a crossborder financial service supplier of the other Party, on request or notification to the relevant regulator, where required, to supply a financial service”.

3. Other services

The agreement supports the opening up of services such as maritime, telecoms and postal services, which are subject to a “negative listing process”, ie they have to be actively excluded. Presumably, this means very little change from now.

4. Professional qualifications

The agreement creates a process of mutual recognition for doctors, architects etc. Though I have noticed, for instance a renewed French hostility to British ski-instructors, partly because French ski instructors have a very rigorous qualification programme. One suspects a handful of professions might face a little more discrimination than now.

5. Regulatory co-operation

You will hear from some Brexiteers that “we won’t be rule takers from Brussels”. They are, to a degree, set to be disappointed. The CETA agreement specifically encourages regulatory convergence and compatibility via a Regulatory Co-operation Forum. When the Prime Minister says “no alignment”, what I assume he is talking about is not being automatically forced to adopt EU rules. In reality, most of our rules, especially in goods, will be the same or similar, but we will have more wiggle room than members of the EU. I have to be honest, I myself find this “rule-taking” rhetoric very boring and largely irrelevant.

6. State aid rules and competition policy

State aid is hardly mentioned in the agreement and is effectively covered by the duties of non-discrimination towards investors. Perhaps the Government would have greater freedom to bail out defunct airlines and steelmakers. However, competition policy is covered in Chapter 17. While this is a relatively brief section, the general duties to “recognise undistorted competition” and “to proscribe anti-competitive business conduct”, suggest no meaningful change to legislation in that area.

7. Lots and lots and lots of Committees

The agreement is governed by a Joint Committee, co-chaired by the Minister for Trade and the EU’s trade commissioner. They have the power to interpret the agreement and also to create new rules and processes. In turn, the Joint Committee appoints numerous other committees covering everything from financial services to copyright protection, which in turn make the rules and processes within the agreement.

8. Tribunals

If there is a disagreement, including one brought by a private sector entity, there are tribunals to settle the dispute. The Investor State Dispute Settlement (ISDS) tribunal is made up of five judges from each side and five from third party countries, who convene in specialist committees. Their job is to protect investor interests and this has proved highly controversial in left-wing circles. It is the reason that the implementation of CETA got held up and it is a continued source of grievance mentioned by French ­Gilets Jaunes protestors and NGOs.

Other tribunals may also be set up by the Joint Committee.

If the passage of CETA is anything to go by, expect there to be a row about the tribunals, including from the EU-side.

9. Ratification/agreement

The CETA agreement affects both nation state and European Union issues. It is consequently what is known as a “mixed agreement”, meaning it has to be ratified by both the EU itself and the 26 nation state members. There is provision for it to be implemented provisionally, but one risk is a small nation, such as the Republic of Ireland, blocking things up.

Another point to have in mind is that the CETA agreement is 1600 pages long and took six years to agree. In theory, the parties need do no more than find and replace the word “Canada” with the words “United Kingdom”. But I bet they don’t.

10. No Deal

What happens if no text has been agreed by December 31st? Will Britain tumble into an Australian-style relationship with the EU? Personally, I doubt it. Both sides have already committed to heads of terms via the Political Declaration. Every time No Deal comes up, both sides back down. Far more likely is a series of sector-based deals, with roll-overs for areas which are still to be agreed. In the meantime, there will be much posturing and tub-thumping from both sides.

Conclusion

In the end, trade and commerce are private sector phenomena, arising from fundamental human concepts such as consumer demand, mutual interest and comparative advantage. The role of Governments and regulators is to create the framework to enable this to happen and to enforce standards. But in the modern era, governed as it is by the General Agreement on Tariff and Trade, even if states cannot reach full agreement it will not mean everything grinds to a halt. Firms and individuals will adapt.

There are thousands of small, detailed items to be sorted in our future relationship with the EU. But it will prove to be a dynamic process and unless something specifically affects your industry, then the best advice may be to ignore most of the negativity in the media and elsewhere and to get on with the business of a flourishing life.

 

 

 

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