With less than ten weeks remaining until the Comprehensive Economic and Trade Agreement with Europe will no longer apply to the United Kingdom, concerns are mounting for Canadian businesses that trade with the UK about not yet having a post-Brexit deal in place.
Since leaving the European Union at the end of January, the UK’s trade relations have been governed by the terms of the Withdrawal Agreement that provides an 11-month transition period during which Britain still follows EU rules and trade between the two remains unchanged. As such, the benefits of CETA continue to apply until December 31.
Business Calls for Action to Sign a New Deal
Last month, the Confederation of British Industry and the Canadian Chamber of Commerce sounded the alarm, warning that the “clock is ticking” as the UK and EU’s transition period nears its end.
“The benefits businesses have under CETA are set to disappear and without a trade deal in place both our countries will be going into uncharted territory,” according to their joint statement. “After months of trade and supply chain disruptions due to the pandemic, a continuation of uncertainty as our economies slowly rebuild is not an environment businesses can withstand,” the groups said.
Having seen two-way trade with the EU increase by roughly 10% under CETA since its duty eliminations became operational two years ago, the groups called for action to sign a replacement bilateral deal “at the earliest opportunity.”
State of Negotiations
The Trudeau government, in a 2018 notice, indicated it was “discussing a transitional agreement with the United Kingdom that will allow a seamless transition of CETA,” though formal negotiations did not get underway until Brexit was officially completed at the end of January.
International Trade Minister Mary Ng’s office told reporters in September that government officials were presently working toward a “transitional agreement” to minimize disruptions for businesses and workers in both countries.
An interim post-transition deal with Canada would not be the same as a customized, bilateral agreement, which would naturally take somewhat longer to conclude. Such a stop-gap would, however, prevent the two countries from losing the benefits of CETA and provide temporary duty relief measures that will, according to Ng, “set the stage for a more comprehensive [free trade agreement] with the UK.”
In a webinar last month hosted by the Canada–EU Trade and Investment Association to mark CETA’s three-year anniversary, the minister said that she was “very hopeful” about reaching a transitional agreement “before or in time” for Brexit, adding that the most important thing at the moment “is stability for Canadian businesses ... It’s our job to make sure that we do our level best to accomplish that environment for them.”
Planning for the Worst-Case Scenario
While it seems fairly unlikely that a replacement deal of some kind won’t be implemented before the end of the year, the Canadian Trade Commissioner Service advises that “businesses should consider how any new UK-EU relationship at the end of the transition period, including an outcome of no trade agreement, could potentially affect them and take the appropriate steps to mitigate risks.” The Service recommends that companies consult with their customs broker and other trade professionals for any necessary support in this regard.
Under a new tariff regime introduced by the UK government last spring, Most Favoured Nation duty rates higher than zero will apply to about half of the products imported by the UK from around the world, or about 60% of the value of its global trade, once it completes its transition out of the EU.
More specifically regarding Canada, although it seems none of the country’s top 25 exports to the UK will face the steep new tariffs, many other products that were cut to zero under CETA, will become dutiable again in the UK market absent a short-term trade agreement.
Fast Facts About the Canada-UK Trade Relationship
- The United Kingdom is an important trading partner for Canada. The UK is Canada’s largest trading partner in the European Union, and fifth on a global basis.
- Bilateral merchandise trade between the two nations was valued at roughly $29 billion in 2019, with Canadian exports reaching $20 billion, and imports topping more than $9 billion.
- The UK is also Canada’s second-largest destination for services exports, which totalled more than $6 billion in 2017. The same year, Canada’s services imports from the UK were valued over $8 billion.
Need More Information
Should you have any questions about trading with the UK in the post-Brexit environment, don’t hesitate to contact one of our knowledgeable trade experts.