McGill University



Trade relations between Canada and the UK in the event of BrexitStrategic Knowledge Report SSHRC-ESRC, November 20, 2018Submitted by Dr Lorand Bartels, Faculty of Law, University of Cambridge; Armand de Mestral C.M., Emeritus Professor, McGill University, CIGI Senior FellowThe authors thank Shannon Gallant, Jan Nato, Faculty of Law McGill University and Sharmin Rahman, MSc (UCL), JD (Osgoode Hall Law School), for their valuable research assistance.PART 1. IntroductionThis report summarises what is known to the authors concerning future trade relations between the United Kingdom (UK) and Canada as a result of the June 23, 2016 referendum in the UK on the proposal to leave the European Union (EU). Both under EU law and UK law, that date is fixed as March 29, 2019. At the time of writing much remains fluid, but the situation has been clarified by the Withdrawal Agreement and Political Declaration regarding the UK’s post-Brexit relationship with the EU concluded on November 25, 2018 by the UK and the European Council, comprising the 27 other EU Member States. The future trade relationship between Canada and the UK will depend on whether this agreement is approved by the UK Parliament and the European Parliament and how, if so, it is subsequently implemented by the UK. Should the agreement not be adopted, both Canada and the UK will need to take urgent measures if they wish to maintain a seamless trading relationship between Canada and the UK as of March 30, 2019.This report analyses the many questions posed from three perspectives: (a) the multilateral legal framework existing under the World Trade Organization (WTO), (b) the bilateral legal framework existing particularly under Canada – EU Comprehensive Economic and Trade Agreement (CETA), currently provisionally in force for all parties concerned, and (c) the degree to which existing or future domestic law in Canada and the UK constrains or facilitates the implementation of a new trading relationship between Canada and the UK. The analysis presented focuses on trade but makes the point that other international agreements have to be considered apart from the WTO and CETA. There is every reason to believe that both governments desire to maintain close commercial relations after Brexit. They have also stated that they will continue to do what is possible to expand trade relations between them. This is in the interests of Canadians currently having business relations in the United Kingdom and the converse is equally true. However, even though our two countries share a long history of mutually beneficial trade and investment relations, both countries wish to maintain and enhance these relations in their mutual self-interest. Though historic ties exist, it would be a mistake to seek the source of this cooperative spirit in nostalgia for Empire or even Commonwealth solidarity. The world has moved on. The trade statistics on UK - Canada relations are eloquent. Britain is the fifth largest single national economy in the world (on a GDP basis), and Canada’s economy is the tenth largest. The UK is the second most important European country exporting goods and services to Canada and the most important source of European foreign direct investment. In Europe, the UK is the most important export destination for Canadian goods and services and the most important destination of Canadian foreign direct investments.Representatives of both the UK and Canadian governments have stated their intentions to maintain and even enhance trade relations after Brexit. On June 23, 2016 the UK held a referendum that asked, “Should the United Kingdom remain a member of the European Union or leave the European Union?” As is well known, the vote to leave the European Union won by 52% to 48%. On March 29, 2017 the UK notified the European Council of its intention to leave the EU, in accordance with Article 50(2) of the Treaty on European Union (TEU). In accordance with Article 50(3) TEU, the UK will therefore cease to be an EU Member State at 11pm (UK time) on March 29, 2019, unless a different date is agreed between the UK and the EU. Article 50(3) TEU foresees that the UK and the EU will negotiate a Withdrawal Agreement setting out the terms of the separation between the two entities. On November 14, 2018, the UK and the EU agreed to a draft text of a Withdrawal Agreement, which was approved together with a Political Declaration on future relations between the EU and the UK by the European Council on November 25, 2018. That agreement provides for a ‘transitional or implementation period’ from March 30, 2019 until December 31, 2020, which is extendable once by agreement for one or two years. During this time, in most respects the UK will continue to be bound by EU law. This agreement and declaration must be approved by the UK Parliament as well as the European Parliament. A ‘meaningful vote’ on this agreement by the UK House of Commons is foreseen for December 11, 2018. At the time of writing, it appears highly unlikely that the Agreement and Declaration will be approved by the UK Parliament on this date. However, it may yet be approved before March 29, 2019. If not, the transition period will not take effect as planned. The UK’s departure from the EU has profound implications for Canada-UK trade relations. Principally, this is because these relations depend on international agreements between the two countries which apply to the UK by virtue of its status as an EU Member State. The UK and Canada have treaties in seven broad categories: trade, regulatory co-operation, fisheries, transport, customs, nuclear, and agriculture. Estimates as to how many differ. By some calculations, Canada and the UK are linked via the EU to at least 94 treaties, although the UK and Canada are working with a much lower number in the lead-up to the Brexit date of March 29, 2019. The Financial Times treaty database notes that there are at least 33 important bilateral and multilateral treaties with Canada. UK International Trade Secretary Liam Fox has said that he anticipates the exact number of treaties to be negotiated to be lower than this as he estimates that some are no longer applicable to the UK. Unfortunately, to date, neither the UK nor the Canadian governments have provided a definitive list of the treaties that do need to be negotiated. The following sections analyse the position of the UK under relevant UK and EU international agreements with Canada, and focus on what would be required, both at the international level and domestically, in order to maintain the status quo. It distinguishes between three scenarios: (1) a Withdrawal Agreement, (2) the scenario arising on the expiry of such agreement, and (3) a ‘No Deal’ Brexit, which sees the UK leaving the EU on March 29, 2019 with no such agreement. It then offers some thoughts on future relations between the UK and Canada.PART 2. International agreements after BrexitIntroductionCeasing to be an EU Member State has significant implications for the UK’s legal position under various international agreements, including those with Canada. This is because a number of those agreements are concluded either by the EU alone (and therefore apply to the UK by virtue of its EU membership), or by the EU together with the UK, in which case it becomes important to determine the UK’s position under those agreements. Among these treaties are those over which the EU exercised competence before or subsequent to 1973 when the UK joined the EU. In some cases, as a result of leaving the EU, the UK will need to accede to or even renegotiate its participation in these agreements. It should also be noted that some of these treaties are unaffected by Brexit. In principle, it may be possible for all the parties to a treaty to declare that the UK continues to participate in the treaty as though it remained an EU Member State. Article 129 of the draft Withdrawal Agreement adds another dimension. This provision states that during the transitional period the UK will continue to be bound by these agreements insofar as they are within the scope of EU law and therefore binding on the UK as a matter of EU law. This means, in the context of CETA, that the UK will be required to continue the effects of CETA for Canada as a matter of EU law. It is not however the same in reverse. Under a footnote to Article 129, the EU undertakes to notify third countries, including Canada, that during the transition period the UK is to be treated as a Member State of the EU for the purpose of those agreements. But there is no obligation on the part of Canada (or other third countries) to agree to this. Of course, as described below, there is no reason to believe that Canada would not wish to continue relations on this basis. However, even if Canada does wish to accept such a notification, it will need to undertake certain domestic steps in order to give domestic effect to the UK being treated as an EU Member State during the transition period. How this should occur is described below. Those steps will however need to be undertaken also in the event that the Withdrawal Agreement does not come into force.The following begins by looking at the most important trade agreements between Canada and the UK, namely the WTO and CETA. It is noted, however, that in addition to these two agreements, many areas require special treatment, as they are governed by special rules. Such goods include nuclear materials, which are covered by special international commitments as well as others (precious metals, diamonds, drugs, goods subject to export and import controls etc) whose nature raises particular considerations. Certain services such as air transport are regulated separately from the general regime of the WTO General Agreement on Trade in Services (GATS) and will require special attention. In areas subject to special domestic or international legal regimes such as air transport or trade in nuclear goods special agreements will have to be negotiated and adopted before March 29, 2019. It is understood that this process is well advanced with respect to air transport and that a Nuclear Cooperation Agreement is being negotiated between the two governments. International trade agreementsThe EU has exclusive competence under Article 3(1)(e) of the Treaty on the Functioning of the European Union (TFEU) over trade agreements, and has had exclusive competence since the UK joined the EU (then the EEC) in 1973. That has meant that the UK has been unable to exercise its powers in the area of international trade independently of the EU. This has, however, quite different implications for the UK’s legal position within the World Trade Organization and for its position under the EU’s free trade agreements, including CETA.Post-Brexit, the UK’s position under the EU’s international agreements is complex, and depends on the nature of the agreement at issue. As pointed out above, some agreements are concluded by both the EU and the UK, and apply fully to both parties, even if the UK delegates the exercise its rights and obligations to the EU (eg the WTO, described below). Others are concluded by the EU and the UK jointly, and specify that the exact division of obligations depends on the treaty provisions at issue. These agreements also only apply to the UK only insofar as the UK remains an EU Member State (eg CETA, described below). Some of these agreements are concluded by the EU in its own right, and apply to the UK not as a matter of the treaty itself, but rather as a matter of EU law (eg the WTO Government Procurement Agreement, described below).The UK’s position in the WTOThe UK was an original Contracting Party to the GATT 1947, and has been an original Member of the WTO since it was established on January 1, 1995. The EU is also an original member of the WTO. Under Article XI:1 of the Agreement Establishing the WTO, all original WTO Members had to have a schedule of concessions on goods annexed to the GATT 1994 and a schedule of commitments on services annexed to GATS. The EU did this for itself and for the UK (and the other then EU Member States) for the goods schedule, and it did this jointly with the UK (and the other then EU Member States) for the services schedule. Importantly, this means that the UK has shared schedules of concessions and commitments together with the EU and other EU Member States. As an independent WTO Member, the UK is – and post-Brexit will continue to be – subject to all the ordinary rights and duties of WTO Members. What changes post-Brexit is purely internal as between the UK and the EU: the UK will then exercise its WTO rights, instead of the EU exercising the UK’s rights on its behalf, and the UK will assume responsibility for performing its WTO obligations, instead of the EU assuming responsibility for performing these obligations. The situation concerning schedules is currently in process. On July 24, 2018, the UK submitted a ‘rectified’ draft schedule of concessions and agricultural commitments in goods to the WTO for certification by other WTO Members. This was done under the “rectification” procedure adopted in 1980 (GATT Doc/4962), and now formally part of the GATT 1994, whereby a WTO Member can submit changes other than “modifications” to its tariff for certification by the other Parties within a three-month period. Other WTO Members have objected that the UK had thereby “modified” certain aspects of its former shared schedule. This has been for several reasons. First, other WTO Members have noted concerns that “the proposed changes affect the flexibility of Members supply, the total level of access, and the participation of Members in important European supply chains” and warns that “Members should not be left worse off” as a result of the UK’s choice to pursue Brexit. These particular objections seem to have been stated more as a matter of principle and are not expected to be pressed very strongly. If the UK does not reach full agreement with other WTO Members on its schedule co concessions, they may chose to press their objections before the Dispute Settlement Understanding.More serious are objections relating to the EU and the UK’s joint proposal for the division of some 100 shared tariff rate quotas (TRQs) on agricultural goods. A number of WTO Members have voiced objections concerning the UK’s claimed share of these TRQs. As a result, the UK and the EU are now in negotiations under Article XXVIII of the GATT 1994, which is the designated process for agreeing compensation for any WTO Member that has been affected by another Member’s modification of its schedule of concessions. Should negotiations fail, affected parties are permitted to withdraw ‘substantially equivalent’ concessions owed to the UK. Should the UK object to the calculation of such suspended concessions, it may commence WTO dispute settlement proceedings. Canada is a holder of country-specific TRQ concessions on beef, pork and cheddar cheese and is participating in these negotiations at the WTO. The outcome of these negotiations is uncertain and may prove to be contentious. Separately, under the CETA, the EU has agreed to accept 40,000 tons of Canadian beef and Canada agreed to accept 15,000 tons of EU cheese. How the latter quotas will be divided between the UK and the EU and Canada is not yet known.The equivalent situation concerning the UK’s schedule of services commitments under GATS is presently unknown, other than that the UK is undertaking to submit a schedule for certification to the WTO. Since the EU’s schedule is based on services originally proposed by Member States, the service sectors opened by the UK are readily identifiable and are thus not likely to be a source of controversy.Finally, under the WTO Agreement on Agriculture all WTO Members must make specific commitments limiting their support payments to agriculture. The UK has offered to limit its support as a percentage of the EU total. Negotiations are under way but have not been concluded. It is understood that some WTO Members consider that the UK offer is insufficient.One issue that has recently been clarified concerns the UK’s position under the Government Procurement Agreement (GPA), which is a plurilateral WTO agreement to which, contrary to all other WTO agreements, only the EU (and not the UK) is a party. Currently, the UK benefits from the GPA as a matter of EU law. The UK applied for accession to the GPA on 5 June 2018, and the UK secured an “agreement in principle” on November 27, 2018 to remain part of the GPA. The agreement still needs to be ratified by the UK government by Exit Day. The UK’s position under CETAThe UK is a party to CETA, along with the EU and the other EU Member States, and ratified CETA on June 26, 2018. The UK has ratified separately from the EU, as CETA has been treated as a “mixed agreement” within the EU, thereby requiring ratification both by the EU and by all Member States. Until CETA is fully ratified by all EU Member States, it is being applied on a provisional basis with respect to all but the investor-state dispute settlement provisions and certain other provisions on financial services. Ratifying CETA was a particular priority for the UK government, as a sign of the special relationship between the two countries. The UK Secretary of State for International Trade noted before Parliament that “as one of the Five Eyes, and as a member of NATO, the Commonwealth, the G7 and the G20” there are significant ties between Canada and the UK.Despite the UK being an independent party to CETA, its position under CETA post-Brexit will be profoundly changed. This is because the UK’s rights and obligations under CETA depend upon it being a ‘party’ as defined by CETA itself. Article 1.1 of CETA states:‘Parties means, on the one hand, the European Union or its Member States or the European Union and its Member States within their respective areas of competence as derived from the Treaty on European Union and the Treaty on the Functioning of the European Union (hereinafter referred to as the ‘EU Party’), and on the other hand, Canada’Once the UK is no longer an EU Member State, it will no longer be a ‘Party’ for these purposes. The UK is still formally a party to CETA as a matter of treaty law. But in practice what this means, is that, in substance, its benefits under that treaty are essentially nil and its relationship with Canada will have to be redefined. In the short term this involves ensuring that rights existing under CETA are preserved and, in the longer term, this will involve the negotiation of a new bilateral free trade agreement, which we will refer to throughout this report as the “Replacement CETA”. Both Canada and the UK have expressed their willingness to maintain and deepen trade relations after Brexit. During the Opening Statement for CETA ratification, in the UK Parliament, the Rt Hon Liam Fox stated “During the Prime Minister’s visit to Canada in September last year (2017), both she and Prime Minister Trudeau reiterated their intention to seek to swiftly and seamlessly transition CETA into a UK-Canada deal once the UK has left the EU. To ensure as seamless transition as possible they formally announced a Working Group to take this forward. Officials from our 2 countries have already begun to meet to discuss transitioning CETA. It is important, as a first step, that we prevent a ‘cliff edge’ for British and Canadians businesses.”Prime Minister Trudeau has made the same point in his September 2017 meeting with Prime Minister May and on several other occasions. The Canada Gazette of July 29, 2017 outlines several options for post Brexit Canada–UK trade as follows:“One of the possible outcomes of the terms of the United Kingdom’s withdrawal from the European Union includes the possibility for a time-limited transition period following Brexit during which the United Kingdom would, in some aspects, continue to be treated like a Member State of the European Union. Depending on the details and other outcomes of such a transition period, Canada would consent to the United Kingdom remaining party to CETA and all other Canada–European Union agreements. Should the European Union and the United Kingdom not reach an agreement on their future relationship in time for Brexit, the Government of Canada is discussing a transitional agreement with the United Kingdom that will allow a seamless transition of CETA, while respecting the United Kingdom’s lack of jurisdiction to negotiate free trade agreements while it is a Member State of the European Union. Post-Brexit, once the United Kingdom has the legal competence to negotiate trade agreements, Canada will work with the United Kingdom to ensure we take full advantage of our particular bilateral trade relationship.”Thus, there is little doubt of the mutual intention of both parties to ensure as seamless a transition of economic relations as possible after Brexit and there is the strong suggestion of the desire to use the occasion of Brexit to deepen the economic ties linking both countries. PART 3. Retaining the status quo for trade relations: the existing domestic positionThe UKDomestically, many steps have been taken by the UK to prepare for Brexit, while significant further steps are still required. The UK is relying on three pieces of domestic legislation that have already been created to facilitate Brexit: the European Union Withdrawal Act (Withdrawal Act), which received Royal Assent on June 26, 2018; the Taxation (Cross-border Trade) Act (Customs Act), which received Royal Assent on September 13, 2018. The third legislative act is the Trade Bill, which has yet to complete the legislative process required to receive Royal Assent. Through the Withdrawal Act, the UK government formally repealed the European Communities Act 1972, which provides that EU law has direct legal force in the UK legal system. According to the Withdrawal Act, this is set to occur on March 29, 2019, which is commonly known as “Exit day”. Should the UK and EU formally approve a withdrawal agreement that extends the EU and UK’s relationship through a transition period that goes until December 31, 2020, a fourth piece of legislation will be needed. This is currently known as the EU Withdrawal Agreement Bill, which has not been tabled or begun the Parliamentary process yet as it is first dependent on a withdrawal agreement being reached and passed by Parliament. This legislation will, in effect, continue the effect of EU law within the UK legal system during the transitional period, insofar as this EU law is referenced in the Withdrawal Agreement. There are separate provisions for the application of EU law in Northern Ireland beyond that period in the event that no new agreement is reached prior to its expiry in what is known as a “backstop” designed to maintain a regulatory union between Northern Ireland and Ireland, and hence avoid a physical border between the two parts of the island.For now, the foundation for the rollover of EU law into domestic UK legislation is found primarily within Sections 2-4 of the Withdrawal Act: Section 2 “preserves EU-derived domestic legislation”; Section 3 “preserves direct EU legislation”; and Section 4 “preserves any directly effective residual rights, powers, liabilities, obligations, restrictions, remedies and procedures in EU law”. These provisions are specifically designed to “save” EU law upon Exit day or the end of the Transition Period, if a Withdrawal Agreement is in place. Essentially, through these provisions, “retained EU law is a new body of UK domestic law”, which can be subsequently modified and updated by the UK Parliament and government after Exit day. Indeed, one of the key features of the way that the Withdrawal Act transfers over EU law is that “EU-derived domestic legislation will no longer have to be read (a) “subject to” or (b) “compatibly with” EU law”. UK Parliamentary supremacy is therefore protected through the Withdrawal Act, even if it is in the best interests of the UK to keep legal and regulatory systems as closely aligned to the EU as possible for now to promote a smooth Brexit transition. Through the Customs Act, the UK will determine future international trade policy as it relates to customs and duties, while the Trade Bill will allow for the legal and procedural infrastructure needed to act on future international trade agreements in ways “which are not directly tax related”. The Trade Bill has passed through the House of Commons, and has been in a Committee of the House of Lords since September 11, 2018. No date is currently set for it to be moved to the next stage. The Trade Bill allows for the government to make changes to domestic law (other than customs duties, which are dealt with by the Customs Act) to facilitate a smoother roll over of existing international trade agreements. Section 2 allows, for a period of five years from Exit Day, the government to implement international trade agreements to which the UK is currently a party via the EU by means of subordinate legislation. Section 5 also creates a new Trade Remedies Authority which in addition to providing “advice, support and assistance” to the government on international trade and trade remedies is given the power to investigate and implement trade remedies (eg antidumping measures). The Withdrawal Act, the Customs Act and the Trade Bill are closely linked. The Withdrawal Agreement domestically protects the EU law that already exists by Exit Day, but it does not allow the government to create new trade or treaty arrangements based on this existing law. This is where the Customs Act and the Trade Bill come into play. The Customs Act and Trade Bill taken together allow the UK government to extend retained EU law past Exit day. The Trade Bill allows the government to create regulations that “modify retained EU law, as defined in the [Withdrawal Act]”, which will be necessary as the government attempts to roll over international treaties. It is these bills that will form the legal foundation through which the UK hopes to create new bilateral agreements with non-EU countries, including rolling over trade agreements such as CETA. Specifically, “if a trade agreement made between the EU and a third country needs to be adjusted to work for the UK after exit day”, those adjustments will be made through the Customs Act and Trade Bill, depending on whether the adjustments relate to tariffs and taxation, or not. Now that a Withdrawal Agreement has been formally concluded with the European Council, the UK Parliament needs to approve the agreement (with a “meaningful vote” scheduled for December 11, 2019), and then pass the as-yet untabled European Union (Withdrawal Agreement) Bill. As stated, at present it appears unlikely that the “meaningful vote” will pass.If the UK crashes out of the EU without a withdrawal agreement, then it will not get the benefit of the transitional period of between two and four years envisaged in the draft Withdrawal Agreement. The regulatory machinery in the UK for implementing a Replacement CETA would however remain as described, if the Trade Bill is adopted. Canada The process of determining a new trading relationship between Canada and the UK will depend very much on having appropriate domestic legislation in place to implement any arrangement that is agreed by the EU and the UK. In the absence of an agreement between the EU and the UK, Canada will need to adapt to that situation and act accordingly. In Canada most relevant legislation is now written in function of the UK being a Member of the EU. It is important to understand that major changes on tariff status cannot be made by administrative action and will require legislation in Canada. There is currently, under Canadian customs law no UK tariff, only an EU tariff which benefits all the Members of the EU. Once the UK is definitely out of the EU it will require its own tariff status. If the process of changing status takes place over a long transition period pursuant to the proposed agreement with the EU, there will be time for legislation to be adopted by Parliament, but if the status of the UK-EU relationship is only known at the last minute before March 29, 2019, the government of Canada may have some difficulty in making all the necessary changes. Very specific legislation governs the customs status of goods coming into Canada; a major piece of legislation was required to implement the CETA, another was recently adopted by Parliament to implement the CPTPP. These are both lengthy acts designed to implement the provisions of the trade agreements and involve, inter alia the amendment of many other acts. Specific laws and agreements govern trade in nuclear materials, international air transportation, export controls, as well as various services covered by commitments under the WTO and CETA. Some provincial legislation is relevant to the implementation of matters like government procurement. These laws and agreements will have to be amended to take account of the future relationship between the two countries. Depending on circumstances, some of this in respect of tariffs and quotas may be done by a quickly adopted temporary regulation, but much may only be achieved by the passage of legislation. Matters could be even more complex if provincial action is also required.Most authority over international trade in Canada is vested in the federal government, however, since the Provinces of Canada agreed to the terms of CETA which affected provincial services and procurement markets over which they have exclusive jurisdiction, there would seem to be little likelihood that the Provinces would object to a provisional Canada – UK Replacement CETA, which gives the UK the same rights as it currently has under CETA. But questions might arise if both parties decided to go beyond rights of access to markets set out in CETA. At this stage, the question is largely hypothetical, but former senior NAFTA negotiator John Weekes brought up the point in his testimony before the UK Parliament.Other international treatiesIn the event of the UK and Canada taking steps to ensure preferential trading rights between them, even if it falls short of a complete agreement, on a temporary ad hoc basis, it will be necessary to conclude at least a skeleton agreement under GATT art XXIV to justify preferential rights in the face of the general duty of MFN treatment under GATT art I. Such an ad hoc agreement can be characterized as an agreement contemplating the conclusion of a full new FTA under art XXIV. Both parties would have 10 years to complete the full agreement.Rules of OriginAmong the difficult issues facing the UK and by implication also Canadians trading into the UK is to determine the origin of goods entering or leaving the UK. In particular a short or long-term Canada – UK CETA will require provisions defining the goods that may benefit from the agreement. A particular issue also affecting negotiations on TRQs results from imports coming via major EU ports such as Rotterdam. This happens frequently. Under EU law and CETA currently there is no legal issue. But once the UK leaves the EU this matter must be resolved to the mutual satisfaction of all three parties. Essentially this is a question of the EU’s (and the UK’s) transit obligations under Article V of GATT and Articles 10 and 11 of the Trade Facilitation Agreement. This issue also arises in the event that the UK remains in a customs union arrangement with the EU and is committed to distinguishing EU destination goods from EU goods.Air transport – an agreement of some type Under the relevant domestic legislation, the UK government is able to conclude an agreement with Canada to ensure that scheduled flights between both countries continue without interruption. There exists a 2006 Canada – UK bilateral agreement that did not enter into force and was overtaken by the 2009 EU – Canada bilateral. The 2006 agreement has not been seen as the ideal basis for a new agreement. However, on November 30 both governments announced the signature of a bilateral air transport agreement to ensure that air transport services continue uninterrupted after Brexit. The outlines of this agreement had not been made public at time of writing. It is not clear whether this is a stop-gap agreement or one designed for the long-term.Nuclear material – regulatory and administrative measures must be in place to guarantee UK is in compliance with international safeguardsEnsuring a steady and reliable of nuclear fuel for its reactors is extremely important for the UK. As various international treaties require a Nuclear Co-Operation Agreement to be signed prior to selling nuclear material, it will be imperative for the UK government to negotiate such an agreement with Canada and pass it through Parliament. It is understood that negotiations have been completed on a draft Nuclear Cooperation Agreement in Ottawa, which could be submitted to the Canadian Parliament. The UK government has publicly said that it is “on track” to have such agreements in place with Australia, Canada, Japan, and the U.S. by March 2019. The expectation was that drafting of these Agreement would be finalised during summer of 2018, but to date, the UK government has not confirmed that they have a finalized agreement with Canada that is ready to go for Parliamentary vote. This Agreement was expected to be tabled in both Parliaments in November 2018; however the Business, Energy and Industrial Strategy Committee in the UK has expressed skepticism of the government being able to deliver. Alternatively, assuming that a withdrawal agreement can be formalized with the EU, Article 129 of the Draft Agreement on the Withdrawal of the UK from the EU and European Atomic Energy Community says that “the UK would continue to be bound by the obligations stemming from the EU’s international agreements” through the end of the transitional period.PART 4. Domestic Implementation: Measures to be taken by Canada?If there is a transition period under a Withdrawal Agreement post-Brexit In the event of a clearly established transition period, where there is a de facto period of extended EU membership for the UK, as determined by a UK-EU Withdrawal Agreement that has been given the appropriate parliamentary approvals, there should be no difficulty in Canada-UK dealings during this time. Under existing Canadian tariff legislation, including the Regulation defining the members of the EU for customs purposes, the UK is designated as part of the EU; this will continue to provide the authority for the Border Services Agency and other governmental institutions to maintain the status quo under Canadian law. The duration of this authority should last for as long as the transition period agreed between the UK and the EU.This is the scenario that the Canadian government is hoping for and would avoid the necessity of precipitate action before March 29, 2019 and would also give Canada and the UK the time to complete negotiations at the WTO and to reach agreement on a Replacement CETA to replace the current agreement.The question of TRQsA further complication will be the issue of the TRQs which the UK, together with the EU have offered to other WTO Members. Canada is a named beneficiary of shared TRQs on beef, pork and cheddar. There are at least 100 TRQs in all to be negotiated before March 29, 2019. The UK’s approach to these TRQs under CETA is presently unknown. Similarly, it is not known how Canada will treat UK imports under Canadian TRQs covering EU imports. These TRQs can only be implemented in Canadian law by specific legislation subsequent to negotiation. Absent a negotiated solution to the TRQ’s goods covered by these TRQs will have to be charged on importation into Canada at the over quota rate.It must be noted that a satisfactory decision on the level of the UK TRQs is a matter that requires negotiation with the EU as well, as questions have been raised as to the most appropriate volumes of future trade in all these commodities with both the EU and the UK. ServicesThe UK offer to bind services under the GATS Agreement has not yet been made public. Should there be no change from that existing under the EU bound commitments there should be little difficulty under existing Canadian law. If the UK is making a different offer which will have to be negotiated and if the UK is seeking new service commitments from its WTO partners like Canada, this could require new legislative measures.Maintenance of CETA-equivalent preferences in the event of departure from CETA on March 29, 2019Maintaining CETA-equivalent rights for UK goods and services in Canada will require some kind of legislative authorization, as there is no discretion conferred on the Minister of Finance to create a new UK tariff by administrative fiat. This could constitute a serious roadblock. One approach would be to adopt a full trade bill, like those adopted for CETA and proposed in June 2018 and recently adopted for the CPTPP. Proposing and adopting a full UK – Canada Trade Act is apparently under discussion but seems to be an ambitious goal in the short time available, given the very full parliamentary agenda and the fact of Canadian federal elections planned for October 2019. It would arguably seem premature to adopt such legislation before both parties have had a full opportunity to explore the possibility of expanding CETA rights in the Canada–UK context. It makes little sense to have one stop-gap CETA agreement, to be followed at some later date after March 29, 2019 by a new and more ambitious agreement. But Prime Minister Trudeau has spoken of wanting a trade deal that “will flip over after Brexit” and that he expects to have “a version of CETA that is standalone from day one of the UK’s existence outside the EU” during an interview with the BBC in April 2018. For it’s part, the UK seems determined to conclude a new and more ambitious series of trade agreements with other countries to replace the relationships they’ve had by virtue of EU membership. It is most uncertain that this can be done with Canada before March 29, 2019, in the event of a hard-Brexit without a Withdrawal Agreement, even though officials on both sides are seeking to maintain and transition preferential rights with the UK, with or without a transition period and beyond. The best hope in the short term might have been a provision in the Budget Bill giving the Minister the necessary authority to establish a UK tariff column including TRQ rates of duty under the WTO and CETA and making provision for the preferential treatment of UK services in the Canadian market. This would be a stop-gap measure pending the negotiation of a new Canada UK FTA which would then be implemented by a new act of Parliament. However, the Budget Bill was tabled on November 19, 2018 and there is little chance of making any additions now.A further possibility would be to explore the possibility of amending the existing regulation on Rules of Origin and the second defining the Members of the EU. The UK could still to be deemed an EU Member under the Customs Tariff Act. This would be a temporary solution and would apply only to tariffs and quotas on goods. It would not apply to services and the wide range of other issues covered by CETA.In the event of the UK leaving the EU on March 29, 2019 with no transitional period, it is unlikely that the issues posed by the special CETA quotas on cheese imports and beef exports can be resolved. At that time, Canada will probably charge the over quota rate, thus making cheese exports from the UK more expensive until such time as an agreement has been reached.The immediate concern may be tariffs and quotas, but CETA covers a host of other questions beyond goods such as services, special services, investments, intellectual property, and various forms of dispute settlement. For all of these matters to be resolved between Canada and the UK will require that a broader agreement be concluded between Canada and the UK. It is the objective of the Canadian government to maintain full CETA rights either during a transition period or even in the event of a complete break between the UK and the EU on March 29, 2019. The form of such an interim agreement and the coverage have not been made public. It is understood that officials of both governments are pursuing this objective but it is not yet certain that they will achieve it. The uncertainty as to the nature of the relationship with the EU after March 29, 2019 seriously complicates matters for both parties.Rules of origin of UK goods Every FTA requires a definition of the goods and services that may benefit from the agreement. CETA contains a definition of EU goods but no definition of UK goods and one definition cannot substitute for the other. This requires Canada – UK negotiations to reach agreement on a suitable definition of UK goods. Although Canadian and UK officials are committed to negotiations, there may not be time to cover such complex and sometimes sensitive issues. If the UK leaves the EU precipitately, Canada may have to make a unilateral call and adopt a temporary definition of the origin of UK goods. This would put the Canadian government in an invidious position but may be unavoidable. Air transport servicesUnder the law governing scheduled air transport services between two countries there must be an agreement defining the type of services and the airports that may be served as well as through services to and from third countries. It was announced on November 30 in Ottawa and London that an air transport agreement had been reached and would be in place on March 29, 2019. This agreement will be authorized in Canada by the Canada Transportation Act, which permits the Ministers of Global Affairs and Transport to negotiate such agreements. Atomic energy exportsA Nuclear Cooperation Agreement is required between any two countries that which to trade nuclear materials. Canadian law requires the existence of such an agreement to permit the export of uranium ore or other nuclear materials such as medical isotopes or even the exchange of data. A bilateral treaty is understood to have been negotiated and was ready to be tabled the Canadian Parliament in November 2018 although there is as yet no indication that a treaty text is about to be tabled in the UK Parliament.Other controlled goods under export controls The export or import of a variety of goods is subject to export controls under the Export Import Permits Act. The issuance of such permits is entirely discretionary and will be the object of the usual procedures.Other treatiesCanada is bound to the UK via the EU by some 94 treaties. Many are general law-making conventions. The Government of Canada is authorized to exercise the Royal prerogative over foreign affairs and will be in a position to respond to any declaration made by the UK Government indicating that it is bound by these conventions. Should implementing legislation or regulatory action be required by a particular treaty, this would be required to ensure full implementation of Canada’s acquiescence to UK adhesion.PART 5. Building a long-term Canada - UK Replacement CETAWhat does the WTO not cover that UK and Canada would like it to cover?In seeking to define the content of a Replacement CETA, through a new Canada – UK FTA, both countries would start by determining the aspects of trade access, promotion and disciplines that are not covered by the WTO and its covered agreements. The WTO provides a floor for trade disciplines and permits its Members to enhance the rights and duties applicable to bilateral trade on a preferential basis, so long as the agreement covers substantially all trade and is trade creative and does not divert trade. Areas not covered by the WTO, like trade and investment in energy, regulation of AI, data protection etc, or areas where the WTO allows considerable latitude can be the object of new advantages or tighter disciplines. Services can be dealt with on a negative list basis rather than defining rights of access for each one. Investments can be regulated in much greater detail than is the case under the WTO TRIMs Agreement. Non-trade issues such as environmental protection, labour standards, human and gender rights, competition policy, the protection of cultural industries etc can all be the object of detailed provisions in an FTA.A number of issues may well become apparent as a result of the UK having left the EU single market. The UK may be asked to compensate for the loss of this access by Canadian goods and services previously traded in the UK.CETA as the template FTA and the only workable modelThere can be little doubt that the parties would wish to start from the CETA template. CETA is one of the most far-reaching of modern FTAs and covers a wide range of matters not covered by the WTO. Starting from the CETA also has the advantage of providing structure and allowing the parties to concentrate on specific new issues that are of concern to both.Issues specific to UK post-Brexit – rules of origin, TRQ’s, government procurement, nuclear materials, Rules of origin of UK goods have to be clearly defined, taking into account especially the legal arrangements for UK-EU trade, which are presently unknown. Specific TRQs or quotas derived from the CETA not fully covered by the WTO TRQ negotiations would have to be covered. Government procurement would doubtless be the object of negotiation to go beyond the UK’s commitments at the WTO. The parties could choose to include provisions on air transport and nuclear materials if they are not fully dealt with in separate agreements.Access to the UK market Canadians trading in the UK might well press their government to negotiate greater protections for their goods and services in the UK market, given the new and possibly uncertain conditions in the UK post-Brexit. Canadian banking and financial services companies may be concerned to be protected in the new regulatory environment resulting from Brexit. As a minimum, national treatment will be requested. Canadian agriculture has much to offer the UK and would hope to replace some EU goods. Many questions as to the mode of production of Canadian goods and applicable health standards may arise due to regulatory differences. Professionals would be eager to be guaranteed enhanced access to the UK services markets, at least on a temporary basis. Many professions might wish to see a guarantee of recognition of their professional qualifications and standards in a Replacement CETA. The regulation of artificial intelligence and data protection, already important in Europe, is becoming an issue of public policy in Canada and might be among Canadian priorities. With respect to intellectual property protections, the UK and Canada might have an interest in relaxing some of the rules previously adopted as a matter of EU policy with a view to promoting invention and productivity.The Canadian government may seek compensation for the loss of access to the UK market for Canadian business previously using the UK as their entry-point into the EU. Access to the Canadian marketsThe UK will be seeking to use the Canada – UK FTA and other similar agreements as a means of expanding trade in new directions after limiting its access to EU markets. A rolled over CETA will be the first and possibly only such agreement to be in place by March 29, 2019, and thus could have particular significance for the UK. Complete elimination of tariffs and quotas would be a starting goal. Broad national treatment of all services would be a second objective. Of particular interest to the UK would be the treatment of UK banks and insurance companies. Whether the government of Canada would welcome the further opening of the Canadian banking sector is uncertain, but UK insurance and financial services companies have a historic presence in the Canadian market. New areas such as the regulation of artificial intelligence and the protection of data could well provide a significant area of common ground, with the UK being the principal driver, but Canada as an interested partner.The UK may well have a particular interest in adding more explicit provisions on access to Canadian energy markets and investment guarantees, than those found in the CETA. Both might wish to explore the elimination of trade remedy laws to their mutual trade.The UK would doubtless have an interest in negotiating a strong Replacement CETA as a prelude to pursuing negotiations with the United States. Since Canada and the United States share a number of approaches to agricultural and food production standards, anything that the UK and Canada can agree upon may serve as precedent for a subsequent US FTA. Could a Replacement CETA compensate for the attenuated EU-UK relationship?A central argument advanced in justification of Brexit has been the assertion that, once out of the EU, the UK could forge a series of new global alliances that would expand UK trade and take it in new directions, thus compensating for departure from the EU. To be successful, this strategy must replicate the existing trade agreements currently made by the EU with other trading partners. It is clear that the UK will not be in a position to do so before leaving the EU and that negotiation of new FTAs with these states will take many years. Furthermore, like the proposed Replacement CETA negotiation, a new FTA will only work to the advantage of the UK if it is stronger and deeper than the existing EU agreement. This can theoretically be imagined but, as revealed by the CETA renegotiating process, even negotiating with friends can be difficult. Negotiating with trade rivals may be much harder.The central question that can only be determined over time is whether it is wise to give up the close links the UK currently has with its neighbors in the EU. Trade with those closest is almost always the simplest and most efficient. Distance creates new problems that no agreement can fully overcome. In this regard the Canadian experience with the United States may present some salutary lessons. Currently Canada does roughly 75% of its trade with the United States; this percentage has historically been up to 85% before 9/11 and the hardening of the American border. The United States is Canada’s closest neighbor. From East to West this trade is the simplest and most natural and Canada is the principal trading partner of 36 American States. Since the days of former Prime Minister Pierre Trudeau, Canada has attempted to diversify its trading relationships. CETA and the CPTPP as well a numerous trade and investment agreements are testimony to that effort and it is certainly worth the effort. But nothing can replace the North American relationship, as became painfully evident when it was threatened by President Trump. Over 2B$ of trade are done over the Canada – US border and 30,000 trucks cross the border each day. To compromise US – Canada trade is to compromise the Canadian economy. As it builds a new relationship with the EU, the UK might do well to consider the Canada – US relationship. Or, close to home, consider the Swiss-EU relationship, which has become a permanent negotiation taking up the efforts of over half the Swiss foreign service and becoming the central issue of Swiss foreign relations. This is almost certain to become the case for the UK post-Brexit.An Atlantic Free Trade Area One of the advantages of Brexit that has been put forward in recent years is the theory that Brexit would free the UK from the shackles of the EU in order to become “the great trading nation that it once was.” One such idea is that of an Atlantic Free Trade Area (AFTA).To date, references to post-Brexit relations have been primarily restricted to bilateral ties. Arguably, this intention to enhance bilateral ties should be only a part of the expressed effort to make a post-Brexit UK “the great trading nation it once was.” Why does the UK not give itself the much more ambitious goal of negotiating an AFTA? The negotiation of new FTAs to replace those of the EU will be a significant achievement, but it will be long, laborious and uncertain. The negotiation of an AFTA would meet the future needs of the UK to maintain close ties with its principal trading partners - all the countries of Europe and North America. These are the countries with which the UK trades most and with which it shares the most values.The UK needs to replace FTAs already concluded by the EU such as the Canadian and Mexican FTAs. The UK will badly need a strong agreement with the United States. Above all the UK will need a good working relationship with the EU. An AFTA, linking all the economies of North America and Europe would be the means to that end. North America and Europe still constitute the most dynamic and vital centers of the global economy; they share common political and economic values. They continue to be each other’s major trading partners. When it comes to regulatory and health standards, they share far more than divides them. Common ground is easier to reach between North America and Europe than between any other parts of the world. If the two were united in their approach to trade rules they could make the rules at the WTO for the next decades.If Europe and North America are still economic leaders, they are seriously challenged by Asia. The Chinese middle class will soon be more than 500 million strong. This fact suggests that many new products which require a large economic base will be launched in this market. Europe and North America separately do not have this size, but together can provide an even richer and more sophisticated market than China for the foreseeable future. But this would only be possible in the context of an AFTA.The UK needs to find a means of ensuring access for its goods and services to all of Europe and North America. This can be done by a negotiating a new network of bilateral agreements but could be done so much more efficiently and elegantly by the negotiation of an AFTA. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download