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Go for Hard Brexit Says Canada to Britain

Canada on Brexit
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August 22, 2017 By: , No Comments

Barely a month after Britons voted for a Brexit in the historic referendum on June 23, 2016, the UK went to none other than Canada for advice on how to secure trade agreements with the European Union. The Canadians conducted technical exchanges with the British as they sought a blueprint for Brexit. Britain and Canada share a unique relationship, in that Canada is a Commonwealth country, much like South Africa, India, Australia, New Zealand, and others. The Canadians have a vested interest in a strong Britain, given that bilateral trade between the countries is robust.

According to a Canadian trading investment activity report by the Canadian Parliament, the United Kingdom is one of the largest trading partners of Canada, and it also serves as Canada’s second largest export destination. UK trade with Canada (bilateral merchandise trading) in 2009 was valued at $21.5 billion, comprised of $9.4 billion in imports from the United Kingdom and $12.1 billion worth of Canadian exports to the United Kingdom. These figures have increased dramatically since then. The current exchange rate of the CAD/GBP is 0.6155, down 0.32642% (August 21, 2017). For the year to date, there has been little movement in the CAD/GBP, meaning that bilateral trade relations (imports or exports) have not been impacted by a weaker GBP.

Over the past 5 years, the CAD/GBP reached a high of 0.65, and a low of 0.48 on December 14, 2015. Canada has also secured a deal with the European Union, which took some 7 years to finalize. Unlike the UK, Canada is unlikely to receive the same level of passporting rights to the European Union. There is also a limited degree of ‘free movement’ between Canadians and European Union citizens. Canada maintains strict control over its borders, and it also enjoys all the benefits of immigration policy that Brexiteers voted for.

 

Why a Hard Brexit for Britain?

The Canadians have their hands full with President Trump threatening to renegotiate the terms of NAFTA (North American Free Trade Agreement). Several free market economists from Canada including Roger Bootle and Patrick Minford have been advising Britain to push for a hard Brexit – a clean break from the European Union. They believe it will be beneficial to Canada and force the country to be a staunch proponent of free trade.

It remains to be seen which direction the current negotiations with the US will take vis-à-vis NAFTA, given that this trilateral agreement with Canada, the US and Mexico is hugely beneficial to the Canadian economy. The removal of tariffs – courtesy of NAFTA – keeps costs of imports and exports low, making it beneficial to Canadian companies to trade.

When Britain leaves the European Union by 2019, companies in the United Kingdom may likely follow European Union regulation regardless. There is a high degree of supply chain integration between UK enterprises and EU companies. It is precisely this reason that a UK extrication from the EU seems disingenuous. It is unlikely that other trade agreements between the United Kingdom and countries abroad will substitute for the current agreements that are in place with the European Union countries. The UK may wish to pursue alternative options in the form of a trade agreement with the EU along the lines of Norway, as part of the European Economic Area.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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