a hand holding a guitar



BREXIT: What Does It Mean for Canada?

On June 23, 2016, a much anticipated historic referendum took place on whether the United Kingdom (UK) should leave or remain in the European Union (EU). The leave side won, by a margin of 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting. It was the highest turnout in a UK-wide vote since the 1992 general election.

Framework Process for a Member State to Withdraw from the EU

The law sets out the broad strokes for next steps. Article 50 of the Treaty on European Union provides a framework process for a member state to withdraw from the EU. With the vote for Brexit, the UK government can give notice of its exit intention to the European Council. After receiving recommendations from the Commission, the European Council then provides guidelines for negotiation of an agreement among the EU proper, the 27 remaining member states and the UK. The Commission will negotiate on behalf of the EU and its remaining member states, with consideration to the framework for a future relationship between the UK and the EU. In turn, the draft agreement will then require approval by a qualified majority (equating 15 member states comprising at least 65% of the population of the EU, excluding the UK) of the European Council and a majority of the European Parliament. The EU treaties will then no longer apply to the UK on the earlier of the date that the withdrawal agreement enters into force, or two years after the notice of intention to withdraw is given (unless the European Council unanimously decides to extend this period).

The broad procedure provides no details of the nature of the terms of the withdrawal that may be agreed upon. A transition period may extend longer than two years. In that case, European Union regulations would continue to remain in force in the UK. Whether the transition to a new economic relationship, including clarification of the procedures and objectives, will be a smooth one, is a live issue.

At this point, uncertainty is rampant. The implications of this uncertainty are reflected by the international stock exchanges and currency markets dives witnessed immediately post referendum. What is certain is that 43 years of legal integration is unlikely to be undone quickly or simply.

Impact on the Comprehensive Economic and Trade Agreement

Brexit will have legal consequences for Canada, the most significant of which is likely to be the impact on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. The CETA, currently anticipated to come into force in 2017, will not apply between Canada and the UK with its exit from the EU. In short, this represents a loss to Canada of increased access to the world’s 5th largest economy with GDP in excess of $3 trillion last year. To date, Canadians have invested approximately $180 billion into the EU. Over a third of this is situated in the UK. Query whether having a UK subsidiary no longer provides a Canadian investor with access to the rest of the $20 trillion EU economy, Canadian corporations will shift their UK investments to other EU member states. The costs of such shifts would be significant. In short, an important component of the EU economy will no longer be covered by the CETA. Canada will have to consider whether the balance of concessions from the negotiations has been changed enough to make the agreement no longer worthwhile. On the EU side, the UK was a big promoter of the CETA. The loss of the UK is likely to make it more difficult to get ratification of the CETA. During the next two years of negotiations between the UK and the EU, it will likely be difficult for Canada to get the necessary attention to tweak the CETA and convert it into a Canada-UK-EU27 agreement. It may be that the CETA is shelved. Outside the CETA, it will be extremely difficult to negotiate a separate trade and investment agreement with the UK until after it has completed its withdrawal from the EU. This is due to the uncertainty as to which EU standards and regulations for goods, services and investment will remain valid in the UK and which will be modified. All of this points to delays in the evolution of Canada’s international trade relationships with the UK and EU.

It is important to note that Canada and the UK’s relationships will not change in many ways. Both are still members of NATO, the UN, the WTO and the OECD. Still, this divorce will have implications for the extended family in the face of difficult legal, political and economic problems yet to be navigated.

  • By: Greg Tereposky, Jennifer Radford