Preparing for Brexit’s bumpy ride

Preparing for Brexit’s bumpy ride
Bennett Jones lawyer Matthew Kronby says there’s “a lot of goodwill” to bring the Comprehensive Economic and Trade Agreement into force, even if ratification is complicated by the Brexit vote.
It’s too early to know the full impact Brexit will have on Canadian companies with operations abroad, but lawyers say it’s not too early to consider and start planning for the ramifications for businesses here. 

What is certain is that Britain leaving the European Union will affect trade, immigration, taxation, intellectual property, and other regulatory issues — a huge range of areas where Canadian businesses need to start considering the various scenarios that might arise. 

While the smoke and dust has to clear before anyone has any real understanding of what it will all mean, there are proactive steps that can be taken now, says Matthew Kronby, international trade and investment lawyer with Bennett Jones LLP.

“I think companies need to assume it’s going to happen and start to look at the various scenarios and what opportunities there may be to influence the direction of future trade relations between the U.K. and the EU, and the U.K. and the rest of the world,” he says.

Kronby was involved in the Comprehensive Economic and Trade Agreement negotiations when he was the lead lawyer for the federal government on the agreement. 

Last week, the EU announced the Canada-EU trade deal would be an agreement of “mixed competence” that requires the sign-on of 28 member states. That means each of the member states has to ratify it, which could take years.

Kronby says CETA is “ambitious” with respect to tariff elimination — almost all tariffs go to zero upon entry into the agreement. 

He says there’s been a lot of confusion with some of the announcements about whether CETA will be delayed, or if it is, in fact, dead or on a fast track to being approved.

“I don’t think the CETA is dead, I think there’s a lot of goodwill to bring it into force at least provisionally by next year, even if ratification is going to be delayed and complicated by the fact the EU has now decided it’s a mixed agreement and on top of that the complications of Brexit.”

Kronby is also optimistic that if the U.K. or parts of it leave the EU, there will be “significant opportunity” for Canada and the U.K. to enter into a bilateral trade agreement that would go deeper than the CETA agreement.

Even with the optimism that CETA will go ahead in some fashion, Norton Rose Fulbright Canada LLP senior strategic adviser Derek Burney says in-house counsel should be cautious about investment planning, in particular for those in the service sector such as investment services.

“Basic trade will continue on a business as usual basis, but longer-term investment where Britain had been the pivot into the EU previously, you have to think again,” he says.

Burney points out that Britain trades more with non-EU countries than it does with the EU and it will have to contemplate about 50 trade agreements to substitute for what it now has.

“They don’t have a bevy of trade negotiators in Britain anymore — trade negotiations for the last number of decades have been handled by the EU,” he says. 

That means there are Brexit opportunities for Canadian lawyers with experience in trade negotiations.

“Since all of their negotiations for the last 40-odd years have been done by the EU, the U.K. is going to have to build up its own internal expertise in that field,” he says. 

Kronby says that, despite wishful thinking that Brexit won’t happen, he says businesses do need to start thinking about how it will affect their operations and start planning around the various scenarios that a Brexit could take place, especially around trade and whether the U.K. and the EU enter into some kind of bespoke trade agreement, or whether the U.K.-EU relationships operate on the basis of the World Trade Organization commitments. 

“In any of those scenarios, there are lots of questions about trade issues and questions about how it will affect businesses with export markets in the U.K., or using the U.K. as a platform for international business. Companies need to start thinking through how Brexit will affect operations,” he says.  

Others say there is still much to be determined by the U.K. before any real fallout will happen for Canada.

“Everyone should take a deep breath,” says Burney. “There are so many yet-to-be-determined factors, beginning with the new prime minister of Britain. (Home secretary Theresa May came forward Monday as the only candidate to replace Prime Minister David Cameron as the leader of the Conservative party. She is expected to be sworn in this week.) The reality is nothing is going to change until we know better what Britain’s intentions are. We won’t know that until at least the end of the year, if not the new year.”

Burney says there was such a lack of preparation for the Brexit result that there hasn’t been a lot of planning in Britain or the EU about how to deal with it all.

“Until there is a clearer indication of what Britain’s intentions are, it is business as usual — they are still in the EU. The rules that govern the trade and investment relations with them remain in effect until they are changed,” he says. “A lot of people are jumping prematurely to conclusions that are not yet warranted.”

Burney doesn’t share the optimism of the Liberal government that CETA is going to be ratified quickly. 

“My view is it’s not going to happen given the political environment in which all of this is taking place. We are seeing the same kind of mood that triggered the Brexit vote in parts of Europe and so the European Commission is exercising a degree of caution about CETA because they don’t want to trigger an emotional reaction from any of the member states unnecessarily,” he says.

A “visionary” move by Canada would be to mirror with Britain the elements that have been agreed under CETA, as an opening offer.

“What we need more than anything else is semblance of stability,” he says.

John Boscariol, an international trade lawyer with McCarthy Tétrault LLP, says cooler heads will prevail on CETA. Between now and its ratification, companies need to consider how to take advantage of opportunities and mitigate risks.

“I don’t think anyone has said the U.K. is out in the cold now. Everyone agrees they want some economic relationship with the U.K. governed by trade rules. Because of that there are incentives on both sides to get it done,” he says. “We don’t know exactly what the end result is going to be, but we will get to a point where these things will be negotiated and there will be a lot calmer waters.”

Boscariol says McCarthy’s more U.S.-based clients are asking questions about how trade deals in general will be affected, not just CETA. 

“The questions we get are ‘How is this going to affect our existing operations abroad?’ That includes Brexit but also implications of the Trans-Pacific Partnership and other deals being negotiated. The second part of that is taking advantage of opportunities that might come up.”

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