Can Canada provide the answer to Britain's trade future post-EU?

In the first in a series of reports looking at alternative models to Britain's trading with Europe, Europe Editor James Mates heads to Canada.

You may have heard a lot of talk in this referendum campaign about the ‘Canadian model’. No, not another of Donald Trump’s ex-wives, but according to the Brexiters, the blueprint for a post-EU United Kingdom. If Canada can have a happy free-trading relationship with the EU, they ask, then why can’t Britain?

So we went to Canada to have a look.

The deal so admired by the ‘Leave’ campaign is something called the Canada Europe Trade Agreement (CETA) that has been laboriously negotiated and agreed, but has not yet been ratified between Ottawa and Brussels. It took seven long years to put in place, but from a Canadian point of view it does look pretty good.

When CETA is fully operational, all of Canada’s manufactured exports and 98% of its agricultural goods will be available for sale within the EU single market without any import tariffs at all. In return for this access, Canada will not have to make contributions to the EU budget - as Norway does - nor sign up to the free movement of workers - as both Norway and Switzerland are required to do.

No wonder it is popular among the ‘outers’. If London could negotiate the same deal, they say, it raises the prospect of ‘reclaiming control’ of UK borders, cutting immigration, saving quite a lot of money and yet still being able to trade freely with our biggest market. What’s not to like?

Well, inevitably, it’s not quite as simple as that. The first and most obvious drawback is that CETA does not cover the service sector which accounts for a whopping four-fifths of the UK economy. That’s quite an omission.

It is true that the ‘EU single-market in services’ is far from complete, but considerable progress has been made (to the UK’s benefit) and things are still moving in the right direction. Canada, even under CETA, will enjoy none of these benefits.

On services, all the Canadians have been able to achieve is a promise that no EU Government can prevent their citizens from doing business with, say, a Canadian bank if they choose to. But that bank would not be able to operate within the EU in a way that a UK bank can, as if it was part of its own domestic market.

This doesn’t matter so much to Ottawa - their financial service sector is small compared to the UK, and doesn’t rely on exports to anything like the same extent. But for us? According to the Office for National Statistics, 29% of all financial service exports in the G7 are British, double that even of the US. So they matter.

The other thing Canadians will tell you is that they have had to sign up to all EU rules and regulations without having any say in how they are made, and they have no independent arbiter if they believe Brussels is backsliding, or even cheating.

Anti-globalisation activists have attacked Canada's planned trade pact with Brussels. Credit: Reuters

Take, for example, ‘country of origin’ rules. Say you are a Canadian car maker selling into the EU single market, pleased that you no longer have to pay import duty. But then the Europeans come to you and say ‘is this really a Canadian car? After all, the steel is from China, the gear-box is made in Brazil and you imported the engines from the US. Sorry, we’re not having them’.

The US remains Canada's most significant trading partner with only around 8% of Canadian exports going to the EU. Credit: Reuters

You can see the problem. One of the purposes of the European Court of Justice is to resolve these disputes, but the best the Canadians can do is go to a committee and hope they can talk it through.

Don’t get me wrong: the Canadians are very pleased with CETA. They’re having a bit of trouble getting all 28 EU states to ratify it (the Romanians are fighting visa restrictions on their citizens, which shows how hard it can be sometimes to get deals done), but are confident they will, and that it’ll be a huge boost.

But their big trading partner is not the EU. It’s that other great single market, the US, with whom they have a fully fledged free-trade deal called NAFTA. Only about 8% of Canadian exports go to the EU. So, for them, CETA is not economic life or death.

The Canadian model is certainly nothing like membership of the EU single market, but for all its drawbacks, trade with Europe is not critical to the Canadian economy.

Can the same be said for the UK? That’s why ‘Remainers’ and ‘Leavers’ take such a different view of the Canadian example.