If Brexit becomes a reality, the economic fallout would be brutal

Opinion letter by Yves-Thomas Dorval, President & CEO, Quebec Employers Council.

Montreal Gazette, p. A12 – June 22, 2016

On Thursday, a referendum will decide the Brexit issue: whether Britain will leave or stay in the European Union. If the United Kingdom’s withdrawal from the EU becomes a reality, we will witness a brutal fallout that draws in all of the world markets.

Canada has a strong presence in the United Kingdom, with more than 1,000 companies that may pay the price for the instability of redefined trade agreements and investment uncertainty.

“Canada and Quebec are founded on immigration and trade,” Chrystia Freeland, Canada’s minister of International Trade, remarked at the 2016 Montreal Conference. And with the disturbing rise of protectionist and populist waves in many countries worldwide, it is fundamental that this message is repeatedly hammered home.

Free trade needs to be seen as an opportunity, not a threat. Yes, it will also mean an increase in imports of foreign goods. But, considering our aging population and the likelihood this will result in lower demand, our domestic market is no longer going to be sufficient to allow the Canadian economy to grow in a stable manner. We have no choice but to expand our horizons to accessible and accommodating markets, because in the future, the way to prosperity will largely be through exports.

Opening up trade barriers, bringing down customs clearance fees and promoting the circulation of goods and labour all contribute to the economic growth of businesses and nations, which usually goes hand in hand with an improvement in social conditions. In fact, while free trade forces companies to stay competitive, improve their productivity and invest in technological innovation, it also benefits consumers because it leads to a lowering of prices: Companies can sell their products in a greater number of markets and thereby enjoy economies of scale, which, in the end, has an impact on the selling price.

When they are structurally well supported and combined with educational and informational efforts, free-trade agreements can help to open up new opportunities in many economic sectors, diversify markets, promote workers’ mobility and, ultimately, increase states’ wealth, to the benefit of their citizens.

Let’s take the example of the economic partnership between Canada and the EU, which marks its 40th anniversary this year. The EU is Canada’s second largest trade partner, after the United States, and Canada is the fourth-largest investor in the EU. Once the Comprehensive and Economic Trade Agreement (CETA) is ratified, about 98 per cent of the tariffs in effect in the EU will fall almost immediately, giving Canada privileged access to the European market, which alone represents 500 million consumers. This agreement will provide Canadian companies with an important advantage, in terms of both private investments and public contracts; naturally, the effect will be felt in Quebec, as well.

The changes made to the CETA last February have led to striking a better balance between investors and governments, notably by providing a better support structure for investors’ rights to sue governments, without affecting governments’ power to make decisions. The agreement will also provide fairer, more equitable protection for investors, the environment and workers’ rights by ensuring a harmonious balance of all of the dimensions of sustainable development.

While we believe in the importance of buying locally, and in its advantages for businesses, the Quebec economy and consumers, who benefit from quality products that have a reduced carbon footprint, the fact remains this is not the sole and ultimate solution. The entering into force of free-trade agreements also stands to be beneficial for Canada and Quebec, our businesses, economy and citizens.

Here is the forceful message we need to dwell on in the face of protectionist movements: The path to sustainable prosperity, for the benefit of society as a whole, leads through the opening up, rather than the compartmentalization, of markets.

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