The United Kingdom is a significant trading partner for Canada, and since its exit from the European Union the two countries have had a number of arrangements in place to maintain the status quo until a permanent trade agreement could be negotiated. This next stage in the process finally arrived on March 24, 2022, when the two countries jointly announced that negotiations were to begin as of March 28 and the expectation is that a permanent free trade agreement will be concluded within two years.
How we got here
The UK left the European Union on January 31, 2020, pursuant to a EU-UK Withdrawal Agreement. The Withdrawal Agreement allowed for a transitional period ending on December 31, 2020, during which time the UK would remain part of the EU’s single market. As of January 1, 2021, Canada and the UK needed a means to have existing trade rules continue to apply until such time as the two countries could enter into their own bilateral trade agreement. The solution was the Canada – United Kingdom Trade Continuity Agreement (CUKTCA), which was intended to be (mostly) a replication of the Canada – E.U. Comprehensive Economic and Trade Agreement (CETA). The problem was that the CUKTCA could not be ratified by both countries on or before January 1, 2021. Therefore, late in December 2020 Canada and the UK announced that they had entered into a Memorandum of Understanding (MOU) which provided that the CETA rules would continue to apply as between the two countries until the CUKTCA could be ratified.
In conjunction with the foregoing, Canada issued the United Kingdom Trade Continuity Remission Order, 2021 (Remission Order) to deal with imports from the UK on or after January 1, 2021, since the CETA tariff treatment could no longer be claimed on UK origin goods that would have qualified for duty-free treatment under CETA. The Remission Order fixed the problem by requiring importers to claim “Most-Favoured Nation” treatment on such goods, but at the same time allowing for a refund/remission of any duties paid in excess of those that would have been paid under CETA, by referencing the Remission Order on import entries.
This situation continued until the CUKTCA was finally ratified and came into force on April 1, 2021, and importers could start claiming duty-free treatment on imports by using the new United Kingdom Tariff (UKT) on import entries, for CUKTCA qualifying goods. Pursuant to the CUKTCA, the parties agreed to enter into negotiations for a bilateral trade agreement within one year of the ratification of the CUKTCA. As it turns out Canada and the UK just barely met this timeline with the initiation of negotiations as of March 28, 2022.
What can importers expect in the new Canada – UK FTA
On December 13, 2021, Canada tabled in Parliament its negotiating objectives for a new, comprehensive Canada – UK Free Trade Agreement (FTA). The emphasis was on a “modern, ambitious, and inclusive” trade agreement. So, among other things, we can expect to see chapters on digital trade, gender issues, climate, environment, and labour.
Canada has apparently drawn a line in the sand by taking the position that the supply management system for dairy, poultry and eggs will be protected and that there will be no concessions on allowing additional market access in these sectors. Time will tell whether Canada will end up giving away some additional market access to the UK for these goods.
As is typical in trade agreements, the new FTA will include “rules of origin” in order for exporters and importers to clearly determine whether any particular goods qualify for duty-free treatment under the FTA. Canada’s negotiating objectives suggest Canada will agree to a “cumulation” of materials and production. This could mean that goods originating in the EU (a country with which Canada already has an FTA) and then further processed in the UK, will be treated as “originating goods” and thereby benefit from the new FTA. This is a sensible approach, is a type of rule included in some of Canada’s other trade agreements, and would represent a significant benefit for importers.
On government procurement, Canada has indicated an intention to follow the rules of the WTO Agreement on Government Procurement, but left open the possibility of expanding market access on the basis of reciprocity.
With respect to investment, it does not appear that the parties have any appetite for an investor-state dispute settlement (ISDS) mechanism. For example, the CUKTCA excludes the ISDS provisions of the CETA, Canada’s negotiating objectives are silent on the issue of ISDS, and the UK’s stated strategy is to ensure the agreement does not contain an ISDS.
On the whole, Canada’s negotiating objectives suggest that the FTA will look similar to the CUSMA or CETA with approximately 30 chapters dealing with similar subject matters as the aforementioned agreements.
Commentary
Now that the FTA negotiations have commenced between Canada and the UK, exporters and importers should be actively involved in the process. There is an opportunity to make an impact on the negotiations. Canada’s trade negotiators are always looking for input from exporters and importers on issues currently affecting trade, so that they may be raised and dealt with during the negotiations. Businesses who have come across issues in importing from or exporting to the UK should bring those issues to the attention of Canada’s chief negotiator.
Greg Kanargelidis is a customs and trade lawyer practicing as KANARGELIDIS Global Trade & Customs Law and is currently past-Chair of the CBA’s Commodity Tax, Customs and Trade Section.