The Hard Brexit-CETA Option. Risks and Opportunities for both EU and UK

Hausarbeit (Hauptseminar), 2019

30 Seiten, Note: 2,0




1. Introduction

2. Objective target and structure of this paper

3. The Comprehensive Economic and Trade Agreement (CETA)

4. Applying the CETA model to Great Britain and Northern Ireland
4.1 Risk and Opportunities for EU and UK businesses
4.2 Effects on the EU and UK economy

5. Disintegration of the UK from the European Union

6. Conclusion and current status of negotiations


Internet sources

Index of figures

Figure 1: Work flow diagram

Figure 2: Imports, exports and trade balance in goods between the EU and Ca­nada, 2008-2018

Figure 3: UK trade in goods and services with EU27, 2007-2016 (£bn)

Figure 4: Exchange Rate GBP/USD

Figure 5: Four fundamental freedoms of the EU

Index of tables

Table 1: Advantages and disadvantages of a CETA-like solution summarized

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten


The decision on the Brexit has triggered an unprecedented process in European in­tegration: differentiated disintegration, the selective reduction of the level and scope of integration of a member state. The extent to which European integration is in­fluenced by this phenomenon is discussed in more detail in this paper. Also, the ieffect of a free trade agreement similar to the CETA, as a solution for Brexit and to counter political separatism. In addition to free trade and the abolition of customs duties, this solution also has negative consequences, provided that no concessions are made to the UK, especially in the area of services. These would have to be taken in order to respect the different economic structure of the UK compared to Canada. The traditional CETA would therefore have to be modified for the UK, which makes a CETA+ quite conceivable. Whether and to what extent Brussels will make conces­sions to the UK will have to be observed in the future.

1. Introduction

Already in January 2013 the British Prime Minister David Cameron has promised to renegotiate the European integration of the United Kingdom in a referendum.1 On 23 June 2016 it was followed by what many, not even the Brexit supporters, had se­riously reckoned: In a referendum, 51.9% of the members voted in favour of leaving the EU. This triggered an unprecedented process in the history of European integra­tion - differentiated disintegration. The day after the election, Europe was in turmoil, as can be seen from the following statements: Donald Tusk, President of the Euro­pean Council, spoke of a "historic moment, but certainly not the time for hysterical reactions".2 Federal Chancellor Angela Merkel explained the result not only as a "cut for Europe", but also as a "cut for the European unification process".3

On 13 July 2016, Theresa May replaced David Cameron as Prime Minister. She ini­tiated the resignation procedure under Article 50 of the Treaty of the European Union on 29 March 2017 by written notification to the European Council. The Brexit was therefore officially launched and, according to the UK Government, was due to take effect at 23.00 UK time on 29 March 2019.4 As the unregulated withdrawal of the United Kingdom was still imminent shortly before the expiry of this deadline, the Brit­ish Government submitted a further extension of the deadline. This was agreed by the European Council, which decided that the date for the resignation would be 31 October 2019 latest.5 That is when the term of office of Commission President Jean- Claude Juncker ends. This means that by that date the EU and the British Govern­ment must decide on the terms of the divorce and their future relations. At present, the United Kingdom is still a member of the European Union and therefore a member of the customs union and the single market. As a result of a Brexit, the EU and the UK6 would have to completely restructure their trade relation and relations in general.

In the past, a variety of options have been proposed and discussed. There are sev­eral possible scenarios for a Brexit deal. For example, the Canadian trade agreement with the EU, CETA, was a highly debated topic at the annual gathering of the British Conservative Party, where members discussed about expressions like "Super Can­ada", "Canada plus, plus, plus, plus, plus, plus" and even "supercalifragilisticexpialo- cious Canada".7 All these approaches would mean a "hard Brexit" in which the UK withdraws from the European single market and customs Union and negotiates a comprehensive free trade agreement with the EU such as the Comprehensive Eco­nomic and Trade Agreement with Canada.

2. Objective target and structure of this paper

The subject of Brexit is currently the target of much discussion, and since the an­nouncement of the withdrawal the issue has been strongly polarized in the media and some research work has already dealt with it in the past. Currently there is little literature regarding the CETA solution. The central object of this work is to reduce this research gap. Therefore, there are three research questions regarding this gap:

1. What could the CETA solution look like transferred to UK?
2. What would be the advantages and disadvantages or implications for compa­nies and the economy?
3. How could the withdrawal with negotiated CETA-FTA affect the integration of the European Union?

For both the UK and the EU, the fact that the UK would no longer be part of the Single market and customs union could lead to immense market reactions. In this paper there is an outline of what a "Hard Brexit CETA version" might look like, what risks and opportunities EU and UK companies would have to take into account and how it would affect the EU and UK economy. In addition, as already mentioned in the intro­duction, the integration process of the European Union is considered, how a Bexit influences it and whether a CETA-like agreement can ward off the process of differ­entiated disintegration. After that a conclusion is drawn and an outlook given on pos­sible further fields of research that could be addressed in other scientific papers. As the topic is highly dynamic due to current negotiations and continuously undergoing a process of change, it is necessary, after a certain period, to critically question the findings of this work in order to discover and possibly update changes. In order to ensure the actuality of the present work, primarily actual internet sources of official state institutions were chosen. For Chapter 5, a past perspective was chosen and common printed literature of integration and disintegration theory were used.

Abbildung in dieser Leseprobe nicht enthalten

Source: Own Presentation

3. The Comprehensive Economic and Trade Agreement (CETA)

CETA is an FTA between8 Canada and the EU that was negotiated for seven years between 2009 and 2016.9 It stands for a comprehensive progressive economic and trade agreement that preserves and promotes the values Canada shares with the EU. The final agreement was signed on 30 October 2016, approved by the European Parliament on 15 February 2017 and entered into force provisionally on 21 Septem­ber 2017.10 Before the agreement can fully take effect, it must still be ratified by the national parliaments of the EU countries.11 It is very clear here that this solution for the UK will be difficult to negotiate in a few months.

In contrast to the „Norwegian scenario”12, CETA does not follow the pre-existing sin­gle market model. The CETA solution would mean a withdrawal from the world's biggest single market and the customs Union.13 CETA will remove customs duties on 98% of products traded by the EU with Canada and 92% of agricultural products.14 This will save EU companies around €590 million annually in tariffs on goods ex­ported to Canada.15 In 2018, the EU and Canada were trading goods worth about 72.4 billion euros (41.4 billion euros exports, 31 imports).16 Canada is the EU's tenth largest partner for exports of goods and the twelfth largest partner for imports of goods. For Canada, the EU is the second most important trading partner after the US.17 The US and Canada have already liberalised their trade under the North Amer­ican Free Trade Agreement in 1994.18 Overall, the liberalization of trade in services in CETA goes much further than in the NAFTA.

It contains agreements on mobility of workers, the mutual recognition of profession­als, financial services, taxes, intellectual property and investment protection.19 It was also agreed to accept certificates of conformity for products manufactured in the EU for export to Canada and vice versa.20 This avoids double inspections for the mutual purchase and sale of goods, which in turn leads to cost savings. Nevertheless, it is important to note that rules of origin matter, as will be explained in more detail in the following chapter. It covers not only economic issues, the EU and Canada also bind themselves to ensuring that economic growth, social issues and environmental pro­tection are equally considered.21

Abbildung in dieser Leseprobe nicht enthalten

Source: Eurostat

As can be seen in the graph above, exports increased after the introduction of the CETA agreement, while imports even declined slightly. However, in order to be able to make adequate statements here, the data must be monitored over time.

4. Applying the CETA model to Great Britain and Northern Ireland

More than 11,000 EU rules currently exist which are part of UK law and should be replaced by national laws before March 2019, according to the EU law database EUR-Lex.22. According to current negotiations, essentially everything should remain the same during the transition period.

4.1 Risk and Opportunities for EU and UK businesses

The advantages from a CETA solution, as mentioned in the chapter before, are that there would be an almost completely duty-free trade with the EU. In addition, EU companies would be able to bid for public procurement contracts in the UK and vice versa.23 An FTA would also allow the UK to conclude trade agreements inde­pendently with third countries, unlike if it remained in the EU.

The European internal market is characterised by the fact that there is only one ex­ternal customs frontier and that goods and services can be traded relatively freely between member states of the single market. Residence outside the single market does not necessarily mean that it is not possible for a company to sell goods and services outside the single market. In just that in almost all cases, non-residence in the EU is accompanied by additional requirements and costs for trading in the single market. The condition for duty-free import or export is that the goods originate in one of the contracting states. A product only acquires preferential origin if it has been completely obtained or manufactured in the country concerned or has undergone sufficient treatment or processing. There would be additional bureaucracy at the bor­ders. For example, new truck parking areas on border crossings would need to be built. Companies would have to fill in customs declarations and possibly store goods temporarily, which in turn could lead to higher costs.24 These inspections would also have to ensure that British goods comply with EU directives, which would also lead to a higher level of formalities. A possible example of burdens for companies and the additional costs they entail: a UK-based car manufacturer has a new model tested in the UK for conformity with British safety standards, these safety standards are har­monized with the regulations of the rest of the EU and valid throughout the EU. Non­EU companies would have to test their products by an EU-approved body before they can sell them in the single market.25 This is one of the non-tariff trade barriers that could be caused by a hard Brexit. One possible solution for this problem would be the choice of a two-stage export policy in which companies basically produce the same products with different standards depending on the country in which is ex­ported.

Trade in services would also much be more limited than in the single market. Alt­hough CETA has opened some service markets between Canada and the EU, there are still hundreds of exceptions to the agreement according to the Institute for Gov­ernment.26 For example, under the traditional agreement it would be possible for Bri­tish companies to set up subsidiaries in EU markets and trade services from their home market. However, some sectors, such as audio-visual services, public services and air transport, would be completely excluded from the agreement. The exceptions would also hit the financial services industry hard. CETA is not subject of the EU passporting system and means that cross-border services in the EU may only be sold under the EU system of "equivalence with third countries", which is based on the EU unilaterally deciding whether British rules would be sufficiently similar. To the present, 16 financial areas have been recognised as compliant, some of the most important areas such as lending not.27 It would attribute some operational rights to the UK in areas such as investment services, mutual recognition of market infrastruc­ture and the transfer of data between the two markets. These, in turn, could lead to considerable costs. However, a major shortcoming of these frameworks is that core banking services such as deposit-taking and lending to retail and corporate custom­ers would be not explicitly regulated.28 In the case of the Canada model, the UK and the EU, would have in principle a number of options open to them to mitigate disrup­tions to banking services (and the goods and services of many other industries) caused by this third country status.29 For example, they could attribute some opera­tional rights to the UK in areas such as investment services, mutual recognition of market infrastructure and the transfer of data between the two markets. In addition, it should be noted that CETA (like most FTAs) includes a "regulatory carve-out" pro­vision, i.e. any partner can unilaterally withdraw market access to maintain financial stability. British companies could be burdened with the introduction of new trade bar­riers if the EU deems it necessary.30

Companies have already prepared themselves for the scenario that Great Britain will leave the single market and the customs Union, as a statement of the European aircraft manufacturer Airbus shows. "If Britain left the However, such an agreement cannot offer the same benefits as membership in the EU. and the single market, this would lead to a "severe disruption and interruption of UK production". It would then be necessary to "reconsider its investments and, in the long term, its locations in the UK".31 However, in the withdrawl agreement, drawn up in November 2018, the com­pany sees a solution and is considering continuing to invest in Great Britain: "If the agreement is successful, Airbus would consider continuing to invest, as it has done for many years."32 Currently, there are still uncertainties about the rights of EU work­ers with a CETA-like agreement. Chapter 10 of the Canadian Agreement allows the temporary entry of individuals from Canada or the EU for business purposes. This regulation is probably also being sought for the UK, as British Brexit Secretary David Davis said that an agreement with the EU must protect the mobility of skilled workers in the UK.33 However, it should be noted that the agreement is likely to focus on skilled workers, as the UK wants to reduce the number of low-skilled migrants from Europe.

Probably the most important point overall is that withdrawal from the European single market and customs Union endangers or influences economic interdependence with cross-border supply and value chains. This is mainly the case for EU companies specialized on the United Kingdom. The most important points are summarised be­low.

Table 1: Advantages and disadvantages of a CETA-like solution summarized

Abbildung in dieser Leseprobe nicht enthalten

Source: Own presentation

4.2 Effects on the EU and UK economy

In the event of a CETA-Brexit, the UK would not contribute to the EU budget, the estimated gross UK contribution was £13.2 billion in 2018.34 As the United Kingdom is a net contributor, this leaves a budgetary gap, even if all expenditure on its EU programmes is cancelled without replacement. These UK net contributions would have to be financed by other countries. The main net contributors’ per capita basis are Sweden, the Netherlands, Denmark and Germany, so an increase in EU27 con­tributions will mainly affect these three countries.35 Finally, in the withdrawl agree­ment published in November, this was clarified under the financial settlement that the UK has to pay at least 44 billion euros to the EU to cover all its financial obliga­tions.36

As already mentioned in Chapter 4.1, services are very limited in the CETA agree­ment. The problem is that Britain, unlike Canada, has a large trade surplus of ser­vices with the EU and a trade deficit of goods. This was also highlighted by EU ne­gotiator Michel Barnier: "The problem with a Canada deal is that we have a large trade surplus with the EU in services and a minus in goods. But CETA does not include services for the most part. This presents us with a difficult decision".37


1 Compare, p. 3, Ac­cessed on 24/12/2018.

2 dum/pdf, Accessed on 16/12/2018.

3 432834, Accessed on 16/12/2018.

4 Compare, Ac­cessed on 29/12/2018.

5 Compare aufschub-1570622, Accessed on 24/06/2019.

6 It is important to note that UK is the acronym for "The United Kingdom of Great Britain and Northern Ireland". The United Kingdom is a union of the four parts of England, Wales, Scotland and Northern Ireland. In everyday language, Great Britain is often used as a synonym, but in the strict sense Great Britain does not include Northern Ireland, which is why the term UK is mostly used in this paper.

7 Expressions frequently used in connection with the "CETA solution" for Great Britain. It is intended to describe a solution that brings more freedoms and benefits to the UK and differs from the model that the EU negotiated with Canada and is more tailored to the UK. Some of these terms were also used in a less serious way, such as 'supercalifragilisticexpialidocious Canada', linked to the fantasy word from the well-known musical Mary Poppins.

8 The whole treaty can be accessed here: doc_152806.pdf, Accessed on 19/12/2018; ter-by-chapter/, Accessed on 19/12/2018.

9 Compare; Accessed on 17/10/2018; ceta-comprehensive-economic-and-trade-agreement-250516, Accessed on 17/10/2018.

10 Compare f /trade-agreements-accords-commer- ciaux/agr-acc/ceta-aecg/index.aspx, Accessed on 19/11/2018; lease_IP-17-270_en.htm, Accessed on 19/10/2018.

11 Compare, Accessed on 02/12/2018

12 This scenario was widely discussed in past in connection with the Brexit as a possible solution: Norway is not a member of the EU, but it is part of the European Economic Area (EEA) and thus of the EU single market. This includes almost duty-free and barrier-free trade with EU countries as well as very limited trade barriers and no customs controls. However, substantial parts of EU law must also be accepted, including the "four freedoms" - the free movement of goods, services, persons and capital. Similarly, financial contributions must be paid to the EU as a member of the single market, which are generally lower than those paid by EU Member States.

13 Compare, Accessed on 04/12/2018.

14 Compare, Accessed on 03/01/2019.

15 Compare, Accessed on 19/10/2018;, Accessed on 19/11/2018.

16 Compare tional_trade_in_goods_statistics, Accessed on the 24/06/2019.

17 Compare, Accessed on 01/12/2018.

18 Compare, Accessed on 01/12/2018.

19 Further information in, Accessed on 01/12/2018.

20 Compare, Accessed on 03/12/2018.

21 Compare Data/etudes/IDAN/2014/536410/EXPO_IDA%282014%29536410_EN.pdf, p. 4, Accessed on 04/12/2018.

22 EURO-LEX search run on 14/12/2018; Compare Department for Exiting the European Union, Leg­islating, 2017, p.13; tachment_data/file/604516/Great_repeal_bill_white_paper_accessible.pdf, Accessed on 14/12/2018.

23 Compare, Accessed on 23/12/2018.

24 Compare tainty/$FILE/EY-UK-EU-Working-through-uncertainty-considerations-for-Financial-Institutions.pdf, Accessed on 17/12/2018.; Busch B., Matthes J., Ökonomische Konsequenzen, 2016, p. 6, et seqq.

25 Compare, p.2.

26 Compare, Accessed on 24/12/2018.

27 Compare, p.4 et seqq. Further information in: tional-relations/recognition-non-eu-financial-frameworks-equivalence-decisions_en, Accessed on 16/12/2018.

28 Compare, p.4 et seqq.

29 Compare tions/recognition-non-eu-financial-frameworks-equivalence-decisions_en, Accessed on 16/12/2018.

30 Compare , Ac­cessed on 02/02/2019.

31 Original text:, Accessed on 18/12/2018; ness-44570931, Accessed on 18/12/2018.

32 453994/, Accessed on 18/12/2018.

33 ers-after-brexit, Accessed on 23/12/2018.

34 Compare, Accessed on 24/06/2019.

35 Compare Haas, J.; Rubio, E., Chance, 2017, p.4

36 Compare settlement/, Accessed on 23/12/2018.

37, Accessed on 23/12/2018.

Ende der Leseprobe aus 30 Seiten


The Hard Brexit-CETA Option. Risks and Opportunities for both EU and UK
FOM Hochschule für Oekonomie & Management gemeinnützige GmbH, München früher Fachhochschule
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ISBN (Buch)
Brexit, EU, UK, CETA, Hard Brexit, Handelsabkommen
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Lisa-Marie Wagner (Autor:in), 2019, The Hard Brexit-CETA Option. Risks and Opportunities for both EU and UK, München, GRIN Verlag,


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