The countdown has begun.
On March 29, British Prime Minister Theresa May triggered Article 50 which means the United Kingdom now has a two-year window to pack its bags and leave the European Union. This is now a legal fact; Brexit is happening. The timeline can be extended but only by unanimous approval from all EU member states, which is not likely to occur.
While Brexit does present challenges for Canadian business interests that rely heavily on accessing the European market specifically through the UK, Canada still has more cards to play than others at the table because of its new Comprehensive Economic and Trade Agreement with the EU.
“Thanks to CETA, Canada could very well be the main beneficiary of Brexit, an outcome nobody saw coming,” said James Small, counsel in the Trade Advisory Practice of the International Commercial Group at Baker McKenzie’s Toronto office. “Now CETA is worth more to both the EU 27 and Canada than ever before and Canadian business interests in the EU are at the head of the line because we have CETA and nobody else is really close.”
“The UK wants a deal with Canada, we have a deal with the EU and we’re in the midst of renegotiating NAFTA with the US and Mexico,” James said. “Because of Brexit and the election of President Trump, Canada has found itself at the centre of the most significant global trade and economic debates of the past 25 years.”
CETA provides Canada with access to the EU’s single market, with or without the UK. The United States does not have that and neither do other major markets such as Japan or China. If Canada can no longer ship goods through the UK to the EU, we could start shipping them directly into the EU through ports such as Rotterdam and others. Meanwhile, European nations could also start exploring how they could benefit from doing business with Canada through CETA, with or without the UK.
“CETA is a terrific deal,” James said. “I describe it as a roadmap and a rulebook for Canadian companies doing business in Europe, and that roadmap is more important than ever because of Brexit.”
Of equal importance to the UK’s departure is their aim at having their own free trade deal in place with the EU before they go, one that could resemble CETA. Negotiations on CETA, however, began in 2009 and the agreement will only be put into effect this summer. The UK doesn’t have that kind of time, nor are they on the best footing at the moment for negotiations with the EU. If the UK and the EU fail to reach a trade agreement before the UK leaves, both parties will default to WTO rules.
The WTO result is in neither party’s long-term interests but as Prime Minister Theresa May has repeatedly stated, no deal is better than a bad deal. EU negotiator Michel Barnier echoed a similar stance, saying “nothing is agreed until everything is agreed.”
For Canadian business interests at home and overseas, this means legal uncertainty, unchartered waters and a need for experts in global trade law to help companies plan the future of doing business in Europe.
James says the Firm is well-positioned to not only advise our clients on Brexit itself, but also to help mitigate any adverse ripple effects caused by Brexit through our knowledge of CETA.
“The language has fundamentally shifted away from a political discussion to a legal issue, and the reason is that this has been a state-to-state disruption of legal certainty,” he said. “You’re starting to see fundamental issues of the law playing out between the UK and the EU, and the UK’s return to the world in its own right.”
As divorce negotiations between the UK and EU unfold, friction mounts over issues such as Gibraltar and the cost of Brexit, with the EU suggesting a €60 billion tab for Britain, with no future trade negotiations taking place until the UK has paid up and left.
There are thousands of laws involved in such a breakup, not to mention new laws that need to be written for any potential trade deal between the UK and EU, or the UK and Canada. James was recently in London meeting with a major banking client to discuss the future of their industry in this shifting landscape.
“I told them it may seem strange having trade lawyers talking to you about banking but we not only have the experience in dealing with country-to-country disputes, we know how to resolve them,” he said. “The Firm is in an absolutely unique position, with our group in London and those across Europe, to use our technical trade strengths married with a strategic awareness of what’s at stake. We have a lot to offer clients in regards to Brexit, not just in Canada, but globally.”
On Tuesday, April 18, Baker McKenzie’s Toronto office will host a discussion, Navigating Brexit: Managing the Trade and Investment Impact of the UK’s Withdrawal from the EU, at which James and Partner Peter MacKay will explore in more detail the implications of Brexit on Canadian interests and the role CETA can play in mitigating any adverse impact. Registration begins at 8 am and the session will run from 8:30 am to 10 am. Contact Kylie Aramini with any questions on the event: firstname.lastname@example.org.