In 2016, the backlash against globalization interrupted a three decade long trend towards increased predictability in international trade and investment. The backlash is exemplified by Brexit, the hurdles that were encountered by Canada and the European Union during the EU signing and ratification process for the Comprehensive Economic and Trade Agreement (CETA) and the anti-trade rhetoric in the United States' presidential election.
The risks associated with the United Kingdom and the EU are highly intertwined. Brexit will result in the loss of one of the major EU economies, undermining confidence in the economic union. Confidence has been further undermined by the Wallonia region of Belgium first blocking the ratification of CETA, then consenting subject to certain conditions, including allowing individual EU member states to opt out of the investor-state dispute settlement procedures under the agreement. Consequently, the scope of application of CETA within the EU will only be known once all of the EU member states complete the ratification process for the agreement.
Given the U.K.'s role as the entry point for a large part of Canada's trade and investment with the EU, its exit creates uncertainty for Canadian trade and investment in both the U.K. and the EU. Assuming that, post-Brexit, CETA continues in force with respect to the U.K. and the twenty-seven EU member states, the apportionment of certain market access rights between the EU and U.K., and therefore the clarification of Canada's market access rights and obligations under CETA, will only be known once the U.K.-EU relationship is settled and the treaty succession process is completed. This will not be accomplished in 2017, and therefore uncertainty and risk will prevail.
In the U.S., the election of Donald Trump as president creates considerable uncertainty and risk in the Canada-U.S. trade and investment relationship. Although election promises do not generally equate to post-election action, given the conviction of his promises and the anti-trade perspective of many of those who elected him, it can be expected that President Trump will take action to further his international trade and investment promises. Specific areas of uncertainty include the North American Free Trade Agreement (NAFTA) (will it be renegotiated?), the Trans-Pacific Partnership (TPP) (will it be ratified?) and the U.S.-EU trade and investment negotiations (will they be completed?). If a U.S.-EU trade and investment agreement cannot be negotiated, CETA will put Canada and its exporters and investors at a competitive advantage vis-à-vis their U.S. competitors for trade and investment with the EU. Beyond trade agreements, there is considerable uncertainty as to how President Trump will address bilateral trade issues with Canada, in particular softwood lumber, livestock (cattle and hogs) and dairy products.
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