Free Trade between UK and Canada: Strengthening the Commonwealth

Brexit allows the United Kingdom of Great Britain and Northern Ireland to have an independent trade policy which was before the competence of the European Union. But on the other […]
Published on June 17, 2021

Brexit allows the United Kingdom of Great Britain and Northern Ireland to have an independent trade policy which was before the competence of the European Union. But on the other side, the UK has to remake and resign the different treaty; the European law and the treaties signed by the EU don’t apply anymore to the UK, so London has to recreate them. Accordingly, the British government has signed with Canada, the Trade Continuity Agreement, which entered in force on April 1st, 2021, to maintain the effect of the CETA agreed to in Brussels on October 30th, 2016. This new trade policy should allow the two countries to strengthen their relations through the Commonwealth.

Strong economic relations between Canada and the UK

The trade between the two countries is a significant market, especially from a Canadian point of view. The prominent position of the British in the EU was an asset for Canada. Indeed, based on the Canadian government data: “The UK’s GDP represented 18.1 per cent of the EU’s total GDP in 2019—the second-largest GDP in the bloc after Germany. Merchandise trade between Canada and the United Kingdom represented 30.1 per cent of total Canadian trade with the EU between 2017 and 2019.” In 2019, the United Kingdom was the second destination, after the USA, for the foreign direct investment (FDI) and Canadian direct investment abroad (CDIA) with a share of 7.5 per cent and representing a flow of $7.6 billion dollars. In total, the Canadian stock of FDI in the UK was valued at $107 billion in 2019. In 2020, For the exportation of Canadian goods, the UK was the third destination, after the USA and China, with a value of $4.5 billion in the first quarter of 2020.

Canada’s trade with the UK (with an average value of $27.1 billion between 2017 and 2019) is bigger than the trade with Germany, which was valued at $23.9 billion. A large share of this trade is in precious metals such as gold, they accounted for 60.6 per cent of total Canadian exports in 2015Considering that gold is the most valuable mined mineral in Canada, it is a true asset with a production value of $10.3 billion in 2019. This is especially true for Ontario and Quebec, which accounted for more than 75 per cent of the production in 2019. 

Furthermore, the economic bond between the two countries can be reinforced by solid and ancient political relations. Brexit can be an opportunity for members of the Commonwealth to strengthen their ties.

Towards a Commonwealth agreement with the CANZUK?

This renewal of the trade agreement can be the opportunity to launch the old idea of the CANZUK (Canada, Australia, New Zealand, and the United Kingdom). Consisting to create an area of free trade and free movement between the concerned countries, this project is supported by politicians like the current leader of the Conservative Party of Canada, or the British Prime Minister Boris Johnson. Some discussions have been done in the parliament of New Zealand in favour of this initiative. Some supporters of this project want to have a more integrated zone with economic, political, social, and military components of such an alliance. 

For now, the British government refuses to explore the options to create a free movement area in the CANZUK. Nevertheless, some measures have been taken to improve the mobility of the people from these countries in the past. New improvements in this area may come in the future. 

Moreover, this project can be helpful for the different members from a geopolitical point of view. With the rise of European and American protectionism (Trump’s “America First” and Biden’s “Buy America” policies), it becomes more and more vital for the Commonwealth countries to have their voices heard. Strengthening the links between them should be a priority considering that most of them are bordering the Pacific Ocean, the new center of economic and political issues.

Of course, the geographic distances between the countries are a severe obstacle. But in a more and more numerical society, some barriers can be removed.

Like the European Economic Area, the ancestor of the EU, free trade is the pillar of cohesion. Both Canada and the UK can push this project to increase their place on the international scene.

 

 

Alexandre Massaux is a research associate with the Frontier Centre for Public Policy.

Photo by Kristina G. on Unsplash.

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