The British imagination has long associated Canada with liberalism, friendliness and ice hockey; now, thanks to Brexit, we may be able to add economic ruin to the list. In a recently leaked European Union document, chief negotiator Michel Barnier apparently confirmed that the UK would have to settle for a post-Brexit trade deal along the lines of the EU’s agreement with Ottawa, and not the bespoke arrangement sought by Theresa May. The good news is that this will not kill us. The bad news is that it will incapacitate us instead.
Why is the Canada deal so bad? The answer is not that it is bad economically for the EU and Canada, as it has brought them closer than they have ever been. (There have been some political concerns on the two sides, but these have not focused on the increased trade. Rather, they incorporate broader disaffection with globalisation.) If the EU and UK were to replicate it, however, the deal would represent an economic severance rather than integration—or as the prime minister put it in her Florence speech, “such a restriction on our mutual market access that it would benefit neither of our economies.” The key reasons centre on non-tariff barriers, traditional tariffs and quotas, and services.
Non-tariff barriers are a consequence of differences in regulation. Outside the single market, the UK will no longer harmonise its rules and standards with the EU, and in fact may need to change them if it wants to sign, for example, a trade deal with the United States. This will present an array of entirely new obstacles to free and frictionless trade. For example, Canadian food exports are still subject to controls to ensure conformity with EU standards; British replication would necessitate lengthy checks on the Irish border and at any ports dealing with UK-EU food trade.
“Rules-of-origin” requirements present a further barrier. Even goods traded tariff-free must comply with them—thus Canada cannot freely export a largely non-Canadian product to the EU. Given the complexity of the UK’s supply chains, this would cause profound difficulties in the manufacturing sector. Further manufacturing problems would ensue from the lack of regulatory harmonisation in, among others, the automotive and pharmaceutical sectors.
Although the Canada deal eliminates most tariffs, in…