Britain Outside Europe? The Canadian View

Brexit would diminish promising European capacities

16/01/2014 | by Charles C. Pentland

Category: European Union, United Kingdom, Europe, Worldwide

As the finishing touches are placed on a Comprehensive Economic and Trade Agreement between Canada and the EU, fear of an eventual Brexit mars celebration of this significant step forward in transatlantic relations.

Photo © SEBASTIEN PIRLET/Reuters/Corbis

It is no surprise that the prospect of the United Kingdom leaving the European Union has barely registered in Canadian political circles. Horizons are notoriously short here, as in other democracies. Between now and then there will be a federal election, and major domestic matters loom, including energy, climate change, aboriginals, and the Arctic. In foreign policy, relations with China, Brazil, Russia, and, as always, the US, tend to attract more intense public scrutiny than those with the EU. Even NATO, through which Canada’s security and defense relations with Europe have largely been conducted, may slip into relative obscurity as the Afghanistan mission winds down.

Moreover, a Brexit seems, to many outsiders, hard to take seriously. Prime Minister Cameron’s strategy consists of a series of tight passages to be navigated, each obscured by a fog of political contingencies. The first is a UK election in 2015. If won by the Conservatives, it would trigger a UK-EU “renegotiation” of uncertain scope and prospects; if by Labour, possibly a similar, if less defined, scenario. The second troublesome stage would concern when and how to declare victory (or indeed any outcome) in this campaign. The third decision point, assuming some clarity on the second, would be a clear and simple “in or out” British referendum, probably in 2017. A national election, negotiations between a member state determined to bargain and EU partners reluctant to sit at the table, and finally a roll of the democratic dice in which anything can happen – such a vague, uncertain, and distant scenario seems to defy rational analysis. Such a mix of uncertainty and improbability makes it difficult at the moment to start a conversation on Britain’s future in the EU with any well-informed or influential Canadian.

The modest company of Canadians interested in Europe has tended, in recent years, to be preoccupied with two big issues that seem weightier than the UK government’s emergent European strategy: the negotiation of a Canada-EU Comprehensive Economic and Trade Agreement (CETA), to which the final legal touches are currently being applied prior to formal signature and ratification; and the extended agony of the EU’s eurozone crisis, which has tested the economic stability of some of Canada’s main trade partners and weakened the global economy upon which it is so reliant. These two issues can serve as lenses through which to examine how Canada might respond to the serious prospect of a British exit from the EU.

CETA, whose main features and selling points have been announced, exemplifies the new generation of economic agreements which go far beyond tariff cutting on traded goods to liberalization of markets in services, investment, public procurement, agriculture, and other aspects of each party’s domestic economy. As with earlier agreements signed in 1959 and 1976 with the then-EEC, Canada is the first EU trading partner to initial this new form of treaty, even as the US has launched similar, potentially more consequential, negotiations with the EU for a Transatlantic Trade and Investment Partnership (TTIP).

If the risk of a British breach with the EU gains prominence in the next few years, it will be natural for Canadians to ask what Brexit would mean for CETA and, by extension, for Canada’s economy and its relations with the UK and the rest of Europe. At the moment the UK accounts for about 30 percent of Canada’s merchandise trade with the EU – 50 percent more than Germany, Canada’s second-largest market in Europe. Trade in services and two-way investment give the UK even greater prominence among Canada’s EU partners. The question is whether this well-established pattern would be affected if the UK walked out of the EU, presumably leaving CETA behind.

Indeed, most divorce scenarios would mean that international agreements such as CETA would cease to apply to the UK. At a stroke, then, Canada’s chief economic partner in the EU and arguably one of its principal incentives for pursuing CETA would be lost to the agreement. Some might claim, of course, that a bilateral pact very similar to it – indeed even more liberal, given the economic views of the Conservatives currently in power on both sides of the Atlantic – could be negotiated forthwith, although this may underestimate the transaction costs to both sides and the negative political climate engendered in Ottawa by the UK’s exit. A second possibility is that Britain seeks to attach itself to the US-EU negotiations for a TTIP. But these are likely to be well-advanced by that time, and neither a recently-rejected EU nor a US that had made clear its preference for a strong Britain in a strong Europe would be terribly receptive to such a brash initiative. A third possibility, mooted among some British Conservatives, is a more radical turn away from Europe toward the Commonwealth (for which successive British governments have in fact shown decreasing regard) or the “Anglosphere” (a nostalgia-laden construct largely bereft of economic content). For Canadians, the Commonwealth as such holds little appeal as a vehicle for trade liberalization agreements with emergent markets. On the one hand, they prefer bilateral or regional approaches to such countries. On the other, the travails of the WTO’s Doha Round suggest that, for the UK and Canada alike, emergent markets may be a seductive but illusory escape from hard but potentially more rewarding bargaining with the EU.

These unlikely prospects aside, a pending British exit from the EU would confront Canada with the failure of a strategic vision of Europe that it has shared with the US since the 1960s: that of a wealthy, stable single market strengthened and liberalized by the inclusion of Britain and likeminded Northern members; and thus a strong European pillar for the North Atlantic security community centered on NATO. On these grounds the Americans pushed hard for Britain’s membership in the EEC from the Macmillan government’s first initiative in 1961 through two French rejections, the accession in 1973, and the referendum two years later. Canada came to share that enthusiasm, after some hesitation over trade diversion and the implications, of a US-Europe two-pillared model of transatlantic relations that would consign Canada to the shadow of the United States.

If a divorce would raise questions for Canada about how to deal with a free-floating UK, it would also challenge some established nostrums about the EU, already shaken by the five-year eurozone crisis. Even with CETA still in place, would a post-UK EU remain as attractive to Canadian traders, investors, and governments? Insofar as one of the benefits of British membership was its leading role as a platform for Canadians selling to and investing in the broader European market – not to mention the allure of London as Europe’s financial center – the answer could well be no. That might not be so if Britain managed to escape the EU policies it most dislikes while maintaining the single market. Such an outcome could reduce the threat, for example, of the wholesale migration of financial services from London to Frankfurt or Paris.

Absent the UK, the EU would remain an economy comparable in size – if not in dynamism – to the US and China. Its major members, especially Germany, France, Italy, and the Netherlands, would retain their importance for Canada. To the extent that its troubled southern members pass the remaining tests of economic recovery and, along with others such as France, adopt growth-friendly structural reforms, it should deliver the results promised for CETA in both Ottawa and Brussels.

On the other hand, although the UK is not a member of the eurozone, its trade performance does not yet seem to be benefiting from the depreciation of sterling that has accompanied its version of Europe’s economic crisis. Combined with the weakness of its recovery in general, this suggests that, even as the UK government’s European strategy unfolds in the next few years, its allure as Canada’s main EU partner may start to diminish. Would a Britain – however open to the world – that has largely failed to arrest the decline of manufacturing but built new strengths in services (now 80 percent of its economy) become more or less attractive to Canadian traders and investors?

Important to Canadian policy makers, although less so than CETA and the eurozone crisis, is a third area of concern: the future of the EU and the UK as global actors, particularly with respect to peace and security. Britain has brought to the EU the global perspective of a great power along with impressive military and diplomatic capabilities. Despite its reluctance to commit meaningfully to the EU’s Common Security and Defense Policy, it has provided key diplomatic assets to the nascent External Action Service. While giving priority to NATO, Canada has expressed interest in working with CSDP missions and, more generally, values the EU as a regional and global “security provider.” A British departure, although not directly harmful to NATO, would surely be seen in Ottawa as the diminution of a promising European capacity.

It is unlikely that any of the above concerns will surface as matters of debate in Canada until and unless renegotiations take place and a referendum looms. Canada’s own experience with referenda in 1980 and 1995 shows that, in the public and the political class alike, concern arises late but surges quickly and often irrationally. Unlikely as this scenario may seem viewed from late 2013, most Canadians would find themselves on the outside, hoping that the British would opt to stay on the inside and work for a better Europe.

CHARLES PENTLAND is professor of political studies at Queen's University in Kingston, Ontario. His research has focused on EU foreign relations, in particular its security and defense policy, enlargement, and relations with neighboring countries in the Balkans and former Soviet Union.


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