Canada at 150: What can the UK learn from an old friend?
July 06, 2017
I spent a wonderful weekend celebrating Canada Day with family and friends here in London, reflecting on 150 years of history since Canada became a country. Canada and the UK have had a long and close relationship that will once again take on a new shape as the UK starts the process of exiting the EU.
The relationship Canada has with the US has a number of parallels to the relationship the UK has with the EU. So as a Canadian living in London my clients and colleagues have been asking me more and more over the past year how the relationship between Canada and the US actually works from a trade perspective.
Despite Canada and the UK having large and diverse economies, in relative terms they are both smaller than their primary trading partner. In practice this means Canada has had to focus on where it has a comparative advantage in key industries through for example higher productivity, innovation or natural resources and leverage the importance it has to the US as it’s key export market and partner in broader issues like security.
So why should the UK be interested in how Canada and the US have defined their trading relationship? It’s a fascinating case study, and one of the talking points in our latest Trade Matters podcast.
Canada and the US are not in a Customs Union.
The US is Canada's largest trading partner with several industries having highly integrated and complicated cross border supply chains, the automotive industry is a good example. There is however a border in place, with customs declarations, duties collected, clearance procedures in place and both countries operate an independent trade policy. The focus has been to take the burden off the physical border by collecting data in advance, dedicated lanes for pre-cleared people and goods through application based trusted trader and passenger schemes, pushing as much activity away from the border as possible. This means development of shared pre and post clearance programs, investment in technology and infrastructure to allow people and commercial shipments to move quickly across the border.
The North American Free Trade Agreement (NAFTA)
NAFTA is a deep and comprehensive Free Trade Agreement (FTA) that has been in place for over 20 years and continues to be simplified and expanded as our economies grow. Starting with the auto pact in the 1960s Canada and the US have worked to remove barriers to trade through the elimination of Tariffs, liberalisation of investment and opening up opportunities for citizens to live and work in each other’s countries. Trade in industries like textiles and agriculture are heavily reliant on the reduced tariffs and in the case of the latter on the alignment of food safety standards. Despite significant progress on liberalisation, restrictions remain in place in sensitive industries such as dairy.
Partners in Security
A challenging mandate for both countries is in facilitating the free flow of legitimate people and goods, while protecting the security of its citizens and helping the economy to grow. A joined up approach to risk assessment, a focus on security, and information sharing while more effectively targeting high risk people and goods forms part of that strategy. The design and administration of trusted trader and trusted traveller schemes has allowed business to engage once with a programme which provides them with benefits in both countries. Reducing the cost and administrative burden to individuals and business.
So what does this mean for the UK?
It is possible to have a deep and comprehensive trading relationship with the EU after we exit. However, there will be barriers in place that will need to be managed to minimise the disruption for people and businesses. The relationship has been built up through decades of collaboration and negotiation, the UK should prepare for a period of implementation before the benefits of these types of arrangements will be realised.
Trade is constantly changing, even now as Canada and the US look to modernise NAFTA a new round of negotiations will bring changes to this relationship. This relationship is the culmination of decades of negotiation and collaboration. And it isn't perfect - there are still industries like softwood lumber and dairy that are quite contentious at times. But perseverance has rewarded both economies.
Looking at how other countries have built their relationship on similar terms to where we want to be with the EU can help accelerate our thinking, taking the best of what they have and then taking it further.
You can download the latest Trade Matters podcast here.
Libby Mason is PwC's Trade Policy and Risk Expert here in the UK who started her career in the Canada Border Services Agency.