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CETA failure warning to UK government on post-Brexit trade deals

October 25, 2016 4:10 PM
By Thomas Cole

The EU-Canada Comprehensive Economic & Trade Agreement (CETA) has stalled, at least for the time-being. Despite the fact that it would have reduced almost all tariffs between the two sides and taken away customs duties amounting to savings of around €500m, coupled with the projected subsequent increase in trade, for the time being it is dead.

This is not surprising and despite best efforts by the European Council President, Donald Tusk and the Canadian Prime Minister, Justin Trudeau, over the past 24 hours, to find a deal with the Wallonian regional government in Belgium, where CETA has become stuck, it is unlikely that the deal will be signed off on 27 October at the planned EU-Canada summit in Brussels.

International trade is not a vote-winner these days and the rise of protectionist populist sentiment across the western world has led to a backlash against globalisation. This can be seen in the US Presidential race, the recent vote by the UK to leave the EU as well as in protests against CETA and the EU-US Transatlantic Trade & Investment Partnership (TTIP) taking place across the EU this year.

There are peculiarities in the case of CETA as to why it has not worked out: This includes the decision by the European Commission on 5 July to opt for a "mixed agreement", allowing EU member state national, and in some case, regional parliaments to have a say on the issue, as well as the burning issue of investor dispute settlement mechanisms, also to be found in the TTIP agreement.

However, a failure of CETA would have a number of consequences for the UK in any potential post-Brexit trade agreement.

If the European Commission sets a precedent of setting all future trade deals as "mixed arrangements" then the UK can expect the same kind of treatment as has met CETA.

This means, that any post-Brexit EU-UK trade deal would be lengthy and could at any time be taken hostage by political concerns, even at a regional level, in any one of the EU's member states. Belgium may well not be representative of all EU member states but if the region of Wallonia is set on blocking CETA on political grounds, then the same could very much happen in any future UK-EU agreement.

Trade deals these days are not about mutual economic benefits, nor about economic prosperity but they are all about identity politics and the fear of the outsider and gobalisation.

If UK Brexit ministers believe that they would get a good post-Brexit trade deal with the EU, they have very much failed to gage public sentiment across the EU's member states.

If CETA fails, then it bodes badly for the UK. If CETA is somehow resurrected, however, then it begs two questions: Firstly, why would the UK take the risk of potentially losing trade access to Canada gained through EU membership and secondly, why would the UK take the risk of leaving its largest market, looking at issues surrounding CETA, which have caused so much concern throughout the EU-Canada negotiations. In any case, any UK-EU deal would have to be more comprehensive and deeper for the UK, given the importance of the EU market for the UK, than the current CETA deal.

In a nutshell, the UK government will need to consider very carefully what their next steps are on international trade issues. They are likely to find things much harder than expected.

Thomas Cole appeared on CNBC Europe's flagship programme, Squawkbox on Tuesday 25 October and covered these issues in more detail.