Christopher Howarth is a senior researcher working in the House of Commons. Prior to this he worked for Open Europe, as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister.
Facilitating trade is supposedly the EU’s raison d’être. Therefore to have to cancel the unveiling of a major trade agreement with that most friendly of states Canada due to a veto wielded by a Belgique region provoked a rare bout of soul searching amongst some in the EU institutions. Canada, a NATO member, a rich open economy, sharing two European languages and one head of state – if not Canada then who? Well the unlikely answer is the UK.
The threat by Wallonia, the French speaking half of Belgium, to veto the EU/Canada Comprehensive Economic and Trade Agreement (CETA) highlights a number of issues. Primarily how the EU, encumbered by national, MEP and now sub-state vetoes, has the ability to block the UK’s ability to strike trade agreements with even our closest allies.
But if the EU is hard to do business with that raises questions as to what will happen when the UK is at the other end of the EU’s stick negotiating a UK/EU agreement. Will we have to contend with veto-wielding Wallonians? Will it take seven years?
Why did the Canadian / EU negotiation take seven years?
It would be easy to put the dilatory behaviour down to ‘Parkinson’s Law’: if there is no deadline there is no need to hurry. The tardiness could also be put down to the fact that the EU was under no pressure – only 1.7 per cent of the EU’s trade is with Canada, meaning EU businesses have not pressed for a speedy conclusion.
However, it is not all down to a languid bureaucracy. There were genuine issues to resolve. Canada and the EU were starting from scratch. They had to agree the removal of tariffs and compliance over the full breadth of two highly advanced economies, with Canadian provincial interests and the diverse interests of the EU; from farmers fearing competition on the one hand to the EU’s bizarre insistence on a human rights and nuclear non-proliferation clause, to the chagrin of Canada.
This and the concurrent negotiation the EU was conducting with the US – TTIP – all compounded the delays. The UK will, thankfully, be in a very different position.
The UK and EU are already in 100 per cent regulatory conformity and both parties have removed 100 per cent of their respective trade tariffs. Whereas the EU and Canada had to discuss the removal of all manner of trade impediments the EU/UK trade talks will have none to discuss, unless for some hereto unknown reason the EU or UK wish to reverse history and recreate trade tariffs and barriers.
The politics of any EU UK agreement are very different to CETA
If Canada currently accounts for only 1.7 per cent of the EU’s trade the UK accounts for 17 per cent of the EU27’s exports. Wallonian objectors to CETA had little to lose in terms of their own exports to Canada and so were free to grandstand. Jobs in Wallonia and the rest of the EU do depend on exports to the UK. While Wallonian farmers saw Canadian agricultural exports as a threat, the UK is a big agricultural importer – EU farmers faced with UK import tariffs are more likely to protest the absence of a UK trade agreement than a trade deal with the UK that preserves much of the status quo.
Even when you look at the details of the precise Wallonian objections there are major differences. While the Wallonian dispute seemed to centre on protections to be given to Canadian investors – the so called Investor State Dispute Settlement (ISDS) – it seems the real target of the left wing campaigners was not Canada but similar provisions to be put in the US/EU agreement TTIP. The same ISDS sailed through the recent EU/Vietnam trade negotiations without a placard being waved.
While at present UK investors in the EU can fall back on the ECJ to uphold their rights and non-discrimination (without NGO complaining), it would be ironic if a continuance of such investor protection should become a stumbling block, if indeed the UK felt the need to ask for them.
How the EU concludes trade agreements
A further reason why the UK/EU trade agreement unlikely to be held captive by political protests in single states is due to the EU’s legal machinery. The EU’s decision making process for concluding trade agreements are set out in its treaties (article 207 TFEU here) which states that pure trade agreements are decided by Qualified Majority Voting (QMV), i.e with no national vetoes. This was the case with the EU/Singapore agreement and many others. The EU/Canadian CETA agreement did not follow this course as it was argued by some states that some aspects of the agreement went beyond pure trade agreements into areas decided by unanimity – the Commission disagreed with this legal interpretation but relented in order to speed things along.
Whether the EU/UK agreement would be held to require unanimity would in the first instance depend on what the UK was asking for. If the UK wished to agree a straight forward zero tariff agreement with the EU, it would not be subject to national vetoes. In any event, given the Wallonian experience and what would be at stake, the Commission and the EU27 could well find a way to agree an EU/UK trade deal without national vetoes.
Likewise the European Parliament at the end of the day is highly unlikely to veto an agreement in the face of 27 national governments and political parties. It is likely to be handed a ‘take it or leave it’ deal by the European Council, and after the obligatory fuss will agree.
Could the negotiations be done under Article 50?
However, there is another legal mechanism open to the EU and UK under which to negotiate – Article 50. Article 50 is the much talked about exit route, it can be stretched out to two years and encompasses the main areas of the UK’s withdrawal. As it is probable that the UK will wish to negotiate both its technical exit from the EU and its new trade agreement concurrently, and given Article 50 is QMV, then both agreements could in law or in practice become agreements decided by majority voting.
Either way the UK/EU agreement will be unique, it will be the EU’s most important third party agreement and will of necessity be concluded quickly. Fortunately, the EU can move when it has to; emergency tariff agreements with Ukraine and each Eurozone patch were done in weeks and months not years. The UK will leave the EU and as the head of the WTO Roberto Azevedo has said will not face a trade “vacuum or a disruption”.
And when the UK has left we are free (assuming we are not stuck with Turkey in the EU Customs Union) to agree our own deals with our Canadian cousins. This may initially be the same as CETA, but there is no reason to suppose we could not do better. And when we do it is highly unlikely Canadian or British investors would require an ISDS clause, given the similarities and mutual confidence we have in each other’s legal systems.