The extraction of the United Kingdom from the European Union is undoubtedly going to be a drawn-out, painful affair. It will involve the unwinding of intricate rules governing formal trade relationships that go back for decades.

Both parties have enormous financial incentives to get it right, and we expect that it will get done – eventually – on reasonable and mutually agreeable terms. Just imagine the alternative: the Germans, French, Dutch and Italians would be giving up on one of their top export markets; the British would be walking away from a marketplace that takes more than half of their exports. That is just not going to happen.

Even so, the unwinding process will have repercussions far and wide. Financial markets are already indicating that some companies are going to be hurt by the process. For example, in the wake of the Brexit vote investors sold off U.K-domiciled banks (including some foreign-controlled banks), which stand to lose the very convenient “passport rules” that allow them to service clients in the EU without having to set up local operations everywhere. Barclays and Lloyds shares dropped 30% in the days after the vote.

Canada and the EU:
A Comprehensive Trade Agreement

How will Brexit impact Canada? On the one hand, trade makes up two-thirds of its gross domestic product, so what happens in other parts of the world impacts the local economy in general and the profitability of its trading companies specifically.

However, trade with the U.S. totally dominates the Canadian export and import accounts, with bilateral trade valued at $750 billion annually, eight times more than the $90 billion of trade with all the EU members including the U.K.

A comprehensive trade deal between the European Union and Canada, which took seven years to negotiate and removes 98% of tariffs on Canadian goods, is expected to come into force in 2017.

The EU, with its sizeable population of 500 million and massive economy of $18 trillion, will provide excellent opportunities for Canadian companies and should, according to a joint Canada-EU study, boost trade by 20%. The intended exit of the U.K. from the EU will eventually remove the U.K. as counterparty to the agreement which will diminish the agreement from a Canadian perspective. Trade arrangements with the U.K. will then have to be negotiated separately.

However, the agreement still has to be ratified by the Canadian Government and the EU and recent developments (read “Brexit”) indicate that national parliaments of member states will have to be part of the ratification process, in addition to that of the European Parliament.

While there is still hope that the agreement could come into effect in 2017, there is no doubt that the ratification is by no means a certainty.