What would be so Super about a SuperCanada deal with the EU?

What would be so Super about a SuperCanada deal with the EU?

With the Chequers proposal looking more and more like a zombie – clearly dead, but still twitching – attention is rapidly turning to the only credible alternative: what I have been calling a ‘SuperCanada’ trade deal since 2016, which Boris Johnson and Jacob Rees-Mogg are highlighting now, or as David Davis has so frequently put it: ‘CETA+++’.

It is fair to ask: so what is the ‘Super’ in ‘SuperCanada’, or what makes up the three ‘pluses’ in CETA+++?

This is my explanation, but part of the beauty of this proposal is that the additional pluses are flexible, and can be negotiated without major drama within the 18-month transition period, based on standard practice and active business involvement.

The principle is simple and clear: we all agree with our Prime Minister that a basic ‘Canada’ deal like Canada’s Comprehensive and Trade Agreement (CETA) is not enough for Britain. But I am not advocating that.

I am proposing a deal that is bigger, better and deeper than Canada’s but is based on its template.

In world trade circles, negotiators refer to the well-worn phrase ‘ambitious’ – meaning the trade deal should cover the maximum range of economic sectors and minimise tariffs. Mr Barnier said in August the EU wants to “create a new and ambitious partnership” with us, whilst Theresa May rightly called for “a bold and ambitious Free Trade Agreement with the EU” in her Lancaster House speech.

But whilst SuperCanada recognises we must go far further than Canada, let’s acknowledge CETA is a great deal, one the UK and Canada have championed. Canada is the world’s tenth largest economy, with the eleventh (Toronto) and eighteenth (Vancouver) largest global financial centres, ahead of Paris (23rd).

So if we use these three ‘Pluses’ what are they?:

The Plus one or CETA+ is to ensure an even better deal on goods. CETA actually delivers 99% tariff-free access to the EU Single Market with no free movement and no EU fees. 99% of EU tariff lines – meaning duties levied on incoming products entering the Single Market through the Customs Union’s walls numbering 19,753 Most Favoured Nation tariffs – are abolished.

Quotas refer to an agreed volume of goods that may be exported at a certain lowered tariff rate, e.g. 100,000 tonnes of beef at 0% tariff, say.

All industrial tariffs are abolished in CETA anyway, though some are tapered reductions. But agriculture is an issue, primarily due to French protectionism. Canada only achieves 92% access to the Single Market in agriculture, not 100%. Similarly, the CETA-style deals being negotiated currently with Australia and New Zealand (my trade brief) will only achieve a similar reduction.

So, CETA + means that we achieve the 100% tariff reduction and 100% quota-free reductions the EU offered us on 7th March this year. In reaction to our red lines, President Tusk said: “I propose that we aim for a trade agreement covering all sectors and with zero tariffs on goods”. Lead EU Negotiator Mr Barnier confirmed this on 2nd August saying: “The EU has offered a Free Trade Agreement with zero tariffs and no quantitative restrictions for goods”. I was astonished recently to hear a senior British diplomat claim Chequers was the only offer that has been made. No – these are genuine EU offers, and they remain on the table.

Further, if the UK/EU have a 100% tariff and quota-free deal on goods, then there is little need for a customs border on the island of Ireland. There won’t be any tariffs to levy or quotas to be managed, only electronic customs forms and some regulatory checks well away from the border.

So what of the Second and Third Pluses: CETA++ and CETA+++? These take us from goods and their overt tariff rates to the less definable area of services. The split between CETA++ and CETA+++ comes down to the level of depth and complexity in those services and what is deliverable in the short term and longer term.

Let’s say right up front that the EU Single Market for services hardly exists now – the EU Commission’s 2014 Single Market integration report estimates trade integration only stands at 5% for services (goods is 22%).

Nor do services generally suffer tariffs, but they do incur ‘non-tariff barriers’ (NTBs), which can be just as serious. These can be regulatory hurdles, such as the need to obtain a licence to trade – e.g. the infamous EU financial passport requirement – or the need to comply with laid-down regulations and standards such as Euro 6 car emission standards. Basically, if you don’t comply, access to the market is denied.

Chequers proposes locking the UK into the ‘common rulebook’ or continued EU regulations in the area of goods and agri-foods. But why is it necessary to have such legal rigidity when we might choose to copy CETA in voluntarily signing up to common standards and regulations related to food and product safety, consumer protection, health, environment, social or labour standards?

CETA also avoids what it terms ‘double testing’: the EU and Canada accept each others’ conformity assessment certificates in areas such as electrical goods, electronic and radio equipment, toys, machinery or measuring equipment. And CETA has a ‘negative list’ system whereby all service sectors are presumed open apart from those on a specific protected list.

The EU regards Chequers as dividing one of their four precious freedoms – freedom of movement of goods – from the other three: services, capital and labour. That is anathema to the EU as it offends their core principles and has a perceived loss of competitive advantage as services are so intertwined with goods.

But Tusk did offer services too, saying: “like other free trade agreements, it should address services.” CETA actually opens up services now. The agreement requires both parties to list discriminatory measures and quantitative restrictions across all sectors. It includes provisions to grant the EU greater access to Canada’s postal, telecommunications and maritime transport services markets, and greater access to Canada’s public procurement market at federal and provincial level.

Barnier went further than Tusk to say the Free Trade Agreement on offer “proposed close customs and regulatory cooperation and access to public procurement markets, to name but a few examples”. Public procurement – the ability to compete for public sector contracts – is firmly in the services area, but suffers from major barriers for bidders.

As for Customs cooperation, CETA suggests that borders can be as frictionless as possible and that we can use technology to ensure supply chains continue to operate smoothly and efficiently.

CETA’s Customs and Trade Facilitation measures seek commitments to design an improved procedure governing the movement of goods across national borders to reduce cost burdens and maximise efficiency and speed – while ensuring national safety and security are also maintained. Technology is key, with parties providing advance electronic submission and information processing services before the physical arrival of the imported goods, such as electronic forms for cargo reporting, release, entry and accounting.

So using CETA as the basic template, there are only seven Chapters out of CETA’s 30 Chapters that require major amendment; most need no change (twelve) or only minor re-writing. To deliver a second and third Plus in services, I suggest we negotiate along these lines, and borrow from the EU-Japan deal which is soon to be ratified by the EU, and from what we know of the stalled TTIP US deal on services, CETA++ and CETA+++ needs to be enhanced in these areas (using CETA chapter heads):

CETA has excellent provisions for ‘Mutual Recognition Agreements’, e.g. qualifications for architects, accountants, engineers and nurses, which recognise each others’ professional standards as of equivalent standing, whilst not requiring harmonisation. We should seek the maximum possible recognition of qualifications.

Mutual recognition of equivalences can also be managed for the Trade in Services, Domestic Regulations and Financial Services, maintaining a similar level of access to the EU’s limited Trade in Service market it currently enjoys. Mode 4 of WTO’s General Agreement on Trade in Services (GATS) allows strictly controlled temporary movement of skilled workers for specific tasks, such as establishing services in a new office, but there is no free movement.

Chapter 13: Financial Services

Compared to most FTAs, CETA has comparatively extensive and generous provisions for financial services, the best the EU has offered to date. However, given the significance of this sector for the UK, I readily acknowledge CETA’s provisions are highly inadequate and will require considerable improvement. There are practical and mechanical matters, such as what (if anything) will replace passporting rights, but essentially these will all turn on the critical question of who sets the rules and how they are applied.

The International Regulatory Study Group (“IRSG”), chaired by Mark Hoban, has undertaken cutting-edge research in their report, A New Basis for Access to EU/UK Financial Services Post-BrexitWhilst the Hoban Group’s extensive recommendations, such as mutual recognition of authorisation and other continued close regulatory cooperation, are concerned only with financial services, their underlying principles are more widely applicable. 

But the deeper and more complex financial services may sit more in the third Plus than the second.

Chapter 16: Electronic Communications & Data Protection

It is assumed the UK will probably copy EU law at first, and handle future change (if any) via the regulatory divergence clauses of the deal. The Japan deal’s better data provision can be drawn on. UK data protection should be recognised as ‘equivalent’ to the EU, as now. On Telecommunications, we could build on CETA’s commitment to the harmonisation of national regulatory rules, and to foster liberalisation and competitiveness without compromising customer protection. EU law on such things as roaming regulations, net neutrality, non-discriminatory obligations, and costing methods can be maintained under UK jurisdiction in order to secure market stability.

Chapter 19: Government Procurement

The UK is likely to want to explicitly protect the NHS (the perceived threat to which was a major reason why TTIP failed), and both sides are likely to want to uphold competition and restrict covert State Aid – meaning either Government subsidies or protectionism for public contracts.

Michel Barnier has already offered the opportunity for the UK to continue to bid. It’s important a CETA-style ‘GPA-Plus’ approach should be taken in which the WTO Agreement on Government Procurement (GPA) basic coverage award procedures, and remedies are significantly expanded to allow comprehensive market access. This means it must be non-discriminatory, impartial, and transparent, though a common advertising system such as through the Official Journal (OJEU) may not be necessary.

Chapter 20: Intellectual Property

On IP, the EU are remarkably keen to protect the existing area trademarks like ‘Geographical Indicators’ (e.g. Parma ham, Champagne etc.), and the UK may have equivalent requests (Cheddar cheese etc.). Whilst the Canadians baulked at such clauses to begin with, they were happy to sign up to many in the end. There is obviously scope for mutual accommodation and compromise around these matters. Of course there should be a commitment to maintain current copyright and related rights, trademarks, designs, patents, and geographical indications; even retaining the wider European patent, as a certain level of convergence here may be desirable.

Chapter 21: Regulatory Cooperation

CETA has useful, constructive provisions for how Canada and the EU will handle proposed regulatory changes by either side. Of course the UK starts from the extraordinary position of being 100% compliant with EU regulations and standards. But CETA does not oblige Canada or the EU to commit to a ‘common rule book’.

The measures respect the sovereign status of both sides, and it is often overlooked that the EU itself jealously guards its own right to regulate. Indeed, the EU claims for CETA ‘standards and regulations related to food safety, product safety, consumer protection, health, environment, social or labour standards will remain untouched’. Boris Johnson has proposed Mutual Recognition Agreements for goods because the UK and EU both “want high standards, and we will insist on proper protections for consumers”.

The IEA’s excellent report PlanA+ rightly concludes: “Regulatory recognition with the EU will be challenging, but is too important to abandon, with EU regulation damaging to growth. Tying the UK to future EU regulation is a major threat to the UK economy.”

Technical regulations and standards on Technical Barriers to Trade can promote convergence of UK-EU respective practices, while also protecting each party’s right to regulate in its own best interest.

As with CETA, the UK and EU should commit with respect to the preparation, adoption and application of technical regulations, standards and conformity obstacles to international trade, to avoid implementing measures that act as unnecessary obstacles. Parties will move toward the recognition of technical regulation as equivalent to their own.

Divergence can be managed through a Forum overseeing the operation of the UK/EU Agreement, encouraging continuing co-operation and acting as a first port of call for assessing divergence, mutual compatibility, resolving disputes, and ruling on the validity of counter-measures. There should also be specialist sub-committees for each industrial market sector represented. For example, a Joint Management Committee managing the equivalence framework and fostering cooperation and dispute settlement on SPS measures.

The separate withdrawal agreement might set out such institutional structures based on the common ‘Joint Committee’ approach the EU uses. This is the proper place for UK business through the Treasury, CBI, IOD and EEF to guard the interests of business as they see it.

Also, as in CETA are continued award procedures such as regulating framework agreements, mutual recognition of certificates/registrations, and provision of information in qualifications (including e-Certis).

The comprehensive recognition of equivalences is intended to maintain and foster current market access. Through the enforcement mechanism of Trade in Services, Professional Qualifications, Domestic Regulations, and Financial Services. These may cover regulations, licences or diplomas standardisation, supervision, and conformity to international norms. They may be driven by Regulatory Committees, and work through designated conformity assessment bodies (CABs), involving consultation, necessary legalisative changes and manage safeguards.

Chapter 24: Trade & Environment

Here the issues are ones which touch upon national sovereignty and fundamental policy matters. Whose standards would be enforced, and by whom? The transition period would be well used to tackle such detail. There is the practical question of what happens, for example, to UK participation in the EU Emissions Trading Scheme.

It is suggested the dispute settlement procedures should be stronger than in CETA with disputes being adjudicated by a formal standing judicial court, but clearly not the European Court of Justice, nor a diplomatic political body and not one-off arbitrators as per CETA.

Chapter 25: Bilateral Co-operation & Dialogues

Bilateral co-operation is largely a matter of the UK deciding which agencies/programmes it wants to participate in, and agreeing the payment terms, much as non-EU Norway and Switzerland do. These will cover programmes such as Horizon 2020 research and the Erasmus Plus student programme in return for fees. Non-EU Switzerland and Norway pay for such access now, and Canada and Israel participate in Horizon 2020.

When it comes to the deeper and more complex services under CETA+++, such deeper services access is not just deliverable through an EU trade deal. The UK will also be operating post-Brexit as a fully fledged and independent actor at the World Trade Organisation (WTO), which sets the global rules network (albeit currently under attack from President Trump and growing global protectionism), including on services through the WTO Services Committee.

Plus 3 could be better delivered by working through the WTO and its draft Trade in Services Agreement (TISA), which covers 70% of GDP in services in 50 countries (the EU and 22 negotiating partners). A sovereign UK can push the paused TISA forward with vigour and strength, and work closely with the EU at WTO level, like it is doing successfully over changing UK schedules. If the WTO agrees TISA, the EU as a signatory is duty bound to apply this TISA agreement to its trade deals and will update a UK trade deal accordingly.

Finally, SuperCanada would not contain either Investment or Investment Protection chapters, unlike CETA. For example, the Investor State Dispute Settlement (ISDS), the mechanism that made TTIP so controversial that it effectively killed the deal, would not be included. All new EU free trade agreements, such as those with Australia and New Zealand, will not incorporate investment following a European Court of Justice ruling on the EU-Singapore trade deal.

From the UK point of view, this means a SuperCanada deal will only have to be agreed by the EU, through the Commission, Council and Parliament, and not require six years of ratification by all national parliaments (and some regional parliaments, such as that of Wallonia). Nor will it require many years to negotiate.

Overall, in conclusion, a SuperCanada deal has plenty of ‘Super’ – additional value, greater access and border friction-reducing measures – to recommend it. It really is the only genuine and workable form of deal the UK and EU can now mutually agree. Let’s please agree it urgently – and deliver that great deal quickly.