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(C) B2Bioworld 2016 - Transatlantic CommonwealthThe Great Br//Exit:
Transatlantic Commonwealth

Wolf G Kroner

November 2016. Brexit is not as bad as it seems. “Right across the UK our industry is responding to Brexit, taking the opportunity wherever possible – be it Europe, North America or Asia…” commented Stephen Elliott, Chief Executive of the British Chemical Industries Association (CIA) the results of a snapshot survey among members. British chemical and pharmaceutical firms are optimistic. 97% of respondents prognosed R&D to remain unchanged or grow. 80 to 87% expected that for sales and exports. 67 to 70% predicted no reduction for the level of employment and capital expenditure. In the CIA communiqué which was published November 11 Mr. Elliott added, that «We feel that there is every reason to be optimistic provided we can build the right new relationship with Europe”.


Breakaway and Calculated Optimism

Others do not share the calculated optimisms of the government or trade associations. They cannot afford to lean back in the armchair until the «right new relationship with Europe» is working out for them. An example is Canadian Bombardier which is the largest employer in Northern Ireland. It exports a third of goods manufactured in the province into the EU. When the country is no longer a Member State Bombardier UK will have trouble to bid for public procurement in the EU with foreseeable losses which will not be compensatedhspace="10" align="left"(C) B2Bioworld 2016 - My country is my castle by contracts of British carriers. This year Bombardier announced slashing its total workforce by about 14.000 which includes manufacturing in Northern Ireland where 1.080 employees are already processed for layoff. While the British government is exploiting as best as it can its privileges as EU Member State in order to prepare the exit, a growing number of citizens doubt, if the decision to LEAVE is wise. 48% (16,141,241) of British citizens have voted against the Brexit, a million of UK citizens living abroad were not admitted to the ballot, and of those 17,410,742 voting Leave a growing number feels uneasy about their decision as slowly the effects are felt. Credit Suisse (2016:8) calculates that the depreciation of the Pound due to the Brexit vote cost British households $1.5tn (£1.2tn; €1.4tn) this year. Imports from the EU rose in price. Academic researchers are worrying about substantial reduction of grants or the break-up of collaborative projects with other European colleagues. Northern Ireland is concerned about cross-border relations with the Republic, and Scotland debates in Parliament a Brexit of its own, i.e. leaving Great Britain for the EU. Given plans for a «hard» Brexit, why gave the UK government its consent to the ratification of CETA, if the country is expectably not to benefit from the treaty once the EU-Canada free trade agreement enters into force?

(C) B2Bioworld 2016 - CanStat foreign affiliates Canada 2013

The UK government’s involvement in CETA
It is highly symbolic that the British government agreed to the ratification of CETA end of October. The UK cannot be expected to benefit from this free trade treaty, because it is not expected to enter into full force after 2019 when the British will have to leave at latest. Being actively involved in CETA allows the government to kill three birds with one stone: Despite or perhaps because of the known Brexit it is a demonstration of the continuing political weight in the EU. While the British representatives sit on the EU’s diplomatic table they acquire valuable first-hand knowledge for offering and negotiating bilateral free trade agreements on their own. And, last not least it was a strong signal of governmental support of British investors in Canada. About half of Canadian imports and 42% of exports are from firms in which UK investors own a majority share (Statistics Canada 2015). Canadian affiliates of British investors generate around C$200bn per year. This is second (C$900-1.100bn) to those firms in which Americans have the majority share.

Notwithstanding the active role of the British government in the ratification of CETA there are quite some observers (e.g. Van der Loo 2016) who are convinced that Britain leaving the EU is not in a strong position to negotiate other free trade agreements in parallel to the Brexit, or a separate commercial trade treaty with Canada which is equal to or more favourable than CETA. With the election of an avowing protectionist to the Presidency of the United States and a majority of Republicans in Congress as well as the Senate the bargaining position of the UK has dramatically changed despite many ifs and buts.


Leveraging CETA with a Transatlantic Commonwealth
November 10 the incoming U.S. President made a telling phone call to the British Prime Minister, Mrs.Theresa May. Donald Trump gave a whiff what he is looking for when he promised that his government will make strengthening the «very special» US-UK relationship a top priority which obviously does not mean resolving Mr. Trump’s commercial interests in the British Isles, or just refers to closer defence collaboration, but offers a quick free trade agreement between the U.S. and the UK. At this point in time even prospects of trade relations comparable to those between Puerto Rico and the States alleviate the political and economic pressures on the British government preparing to exit the EU. So, it is no wonder that the press release glossed over the fact that Mrs May was not among the first five political leaders abroad that Mr. Trump had called that day. But even then the call was a boon for British politics, because the importance of CETA, or a free trade agreement with Canada is considerably diminished against prospects of free trade with the United States. One may expand the scenario.

Protectionism does not equal economic isolation, but preserving the advantages for the domestic industry irrespective of others. The U.S. economy has been greatly benefitting from Mexico’s NAFTA membership for decades. It is only very recently that the United States Office of the Trade Representative (USTR 2008) distances itself from this fact. While Mexico can be expected to lose its privileged access to the North American market, the UK might be a ready substitute in the eyes of the friendly caller to the British Prime Minister. Ambiguity and lack of binding commitment surrounds the promise. Beyond sparking British hopes inviting the UK to free trade with the United States also serves as a veiled warning to Canada not to exploit too much with CETA its NAFTA membership. Up to now Canada has been spared the sharp American criticisms of Mexico, but some remind that it would not be the first time the U.S. sanctions its Northern neighbour. In 1866 the United States abrogated the Reciprocity Agreement of 1854 with Canada, because she had benefitted too much from its viewpoint.

For the Americans Brexit, i.e. Britain’s independence of the EU opens the attractive option to create a Transatlantic Commonwealth: Abolish NAFTA, restore the Canada-U.S. free trade agreement of the eighties, and co-opt the UK. A trilateral agreement might be negotiated rather quickly in parallel and could then serve to lead over to a transatlantic free trade zone breaking out others from Europe (e.g. Switzerland, Island, etc.). An internal strategy paper of the British government leaked to the Guardian recently named several Brexit allies among them Malta or the Netherlands. Indeed, this would be the Great Brexit.

 

Mind the Gap
Such a scenario is not without pitfalls. Will the British have the independence they insisted on when leaving the EU in such a Transatlantic Commonwealth? Is EFTA really so moribund as to recommend its members to dissolve the trade zone. Will the invisible hand (Adam Smith) suffice to hold the UK, US and Canada together, or is it rather the “cultural imperative” which the American State Department (Lisée 1990) saw as the glue of the Canadian sovereign movement of the seventies? If it is “culture” how do British manners match American ones? English won’t suffice as is exemplified by German spoken in Germany, Austria, and Switzerland.

In the absence of tangible promises it is evident that the new President of the United States has not been elected for his truthfulness and is without compromise with regard to “America First”. The European Union will not be an idle onlooker of political cherry-picking and strategies of divide et impera, despite its own weaknesses. And Canada will not accept to be a pawn in a game it is deprived of control. Industry is just beginning to raise its voice. Brexit is not as bad as it seems. It sharpens awareness what self-centred individuals in power and their constituencies are giving away in social, economic and political wellbeing achieved over seventy years since World War Second.


References
American State Department (1977): The Quebec Situation. Outlook and Implications. August. Reprint of Secret Report in: Lisée J-F (1990): In the Eye of the Eagle. Toronto: HarperCollins.
B2Bioworld (2016): CETA: Implementation … But which one. Business interests and attention to development of regions such as Québec, Bavaria, Wallonia, or Northern Ireland. November.
Credit Suisse (2016): Global Wealth Report 2016. Zürich, November.
Statistics Canada (2015): Activities of foreign majority-owned affiliates in Canada, 2013. December 2: http://www.statcan.gc.ca/daily-quotidien/151202/dq151202a-eng.htm.
Van der Loo G (2016): CETA’s signature: 38 statements, a joint interpretative instrument and an uncertain future. October 31.

 

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