Written by Darrel Pearson, John Weekes, Valerie Hughes and Kathleen Wang
Canada and the United Kingdom agreed on a transitional trade continuity agreement on November 21, 2020. The full text of the Canada-United Kingdom Trade Continuity Agreement (TCA) was signed by Canada and the U.K. on December 9, 2020.
Once the TCA comes into force, the agreement will ensure that the terms, including all the tariff provisions, of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) continue to apply with respect to U.K./Canada economic and trade relations. The TCA will provide predictability for businesses in Canada and the U.K. as the two countries work towards negotiating a new comprehensive free trade agreement.
Canada ratified the CETA in 2017. All 27 European Union member states must ratify the CETA—to date only 15 member states (including the U.K.) have done so. In the meantime, the CETA is being applied provisionally.
The TCA's Impact on Canadian and U.K. Businesses
The U.K. is Canada's fifth largest trading partner and Canada’s largest export destination in the European Union. In 2019, the value of merchandise traded between the two countries totaled $29 billion. Canadian businesses will maintain preferential access to the U.K. market. The TCA rolls over the elimination of tariffs on 98 percent of Canadian products exported to the U.K., such as certain seafood and wheat. In the absence of the TCA, all products traded between Canada and the U.K. would be subject to MFN rates of duty, as required by the WTO. Some of the applicable rates would be substantially higher than under the CETA.
Canada did not provide any new market access for supply-managed products under the TCA. In a side letter dated December 9, 2020, Canada agreed that the U.K. will continue to have access to the reserve for the European Union within Canada's WTO cheese Tariff Rate Quota (TRQ) until December 31, 2023. (Under a TRQ, a specified quantity of product may be imported at a reduced tariff rate while imports above the specified quantity face a higher tariff.) After this date, the U.K. will be given access to the TRQ established for non-European Union WTO members. As a consequence, in the subsequent negotiations, Canada and the U.K. have until June 30, 2023, to reach agreement on the cheese TRQ for the U.K.
The U.K. has undertaken to open TRQs for imports of Canadian beef and pork, which will offer Canadian suppliers approximately the same access opportunities they would have had if the CETA remained effective for Canada-U.K. trade.
Ratification Procedures and Entry into Force
The final legal text of the TCA was signed by Canada and the U.K.. Ratification procedures are currently underway. The TCA and the implementing legislation have been submitted to the Canadian Parliament. However, Parliament has now recessed and will not return until late January.
Accordingly, an alternative approach is being sought to bring the tariff provisions of the TCA into force provisionally on January 1, 2021. We understand that the Canadian government is planning to achieve this objective through a remission order to reduce the duties that would otherwise be applicable to U.K. imports. The remission order would also cover the TRQs on certain agricultural products. Provisional implementation will need to be reciprocal; Canada is in discussions with the U.K. to ensure that the ratification procedures for both countries are on track. This approach would ensure a major element of continuity for traders until the TCA comes into force, probably around March 1, 2021.
Looking Beyond TCA—Negotiation of a New Canada—U.K. Trade Agreement
Canada and the U.K. have agreed in the TCA to enter new negotiations to "endeavour to develop their trade and economic relations further by aiming for an agreement that is ambitious, modern and comprehensive, and that is tailored to their interests."
The new negotiations will likely start next year, and must do so no later than one year after the date of entry into force of the TCA. These future negotiations will offer Canada new opportunities to negotiate improved market access for Canadian businesses that are not present in the CETA.
We are prepared to assist clients with any particular questions of interpretation of the TCA. In addition, we will continue to monitor developments and stand ready to assist clients in preparing for the new free trade agreement negotiations with the U.K. Contact members of the Bennett Jones International Trade & Investment group if you have any questions regarding this or any other international trade matters.