On December 9, 2020, the governments of Canada and the United Kingdom (“UK”) signed the Canada-United Kingdom Trade Continuity Agreement (“Canada-UK TCA”). The Government of Canada introduced Bill C-18, An Act to implement the Agreement on Trade Continuity between Canada and the United Kingdom of Great Britain and Northern Ireland (“Bill”) in Parliament on the same day.
Our previous bulletin, titled Saved by the Bell: The Canada-United Kingdom Trade Continuity Agreement, explains that the Canada-UK TCA is an interim trade deal between the two countries, first announced just over a month before the UK’s transition period with the European Union (“EU”) ends on December 31, 2020. After this date, the Canada-UK trade will no longer benefit from any preferences offered by the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”). In this bulletin, we highlight what has and has not changed since the Canada-UK TCA was announced last month.
What Has Changed? Terms of the Interim Agreement Revealed
The Government of Canada tabled the final text of the Canada-UK TCA to coincide with the Bill’s introduction and provide greater clarity on the details of this interim agreement. The TCA substantively replicates CETA. Any necessary modifications to the CETA to fit the bilateral context are detailed in the Annexes to the TCA.
The TCA rolls over a majority of the trade arrangements in CETA to the Canada-UK trade relationship, including, but not limited to: continued preferential access to the UK market for Canadian exporters, service suppliers and farmers; continued access to the UK government procurement market for Canadian suppliers (worth approximately $118 billion); continued investor protections while preserving the countries’ right to regulate in the public interest; and continued high-standard provisions on labour, the environment and dispute settlement.
Other key provisions of the Canada-UK TCA include:
• Elimination of tariffs on exports: The TCA includes immediate elimination of 98% of tariffs on Canadian exports to the UK (carried over from CETA) and the elimination of an additional 1% of tariffs on Canadian exports to the UK by January 1, 2024, bringing the total elimination to 99% of tariffs on Canadian exports.
• Streamlined Tariff-Rate Quota (“TRQ”) process: Under CETA, beef, pork and wheat TRQs are administered under a licencing system that the UK was unable to replicate in the TCA. Instead, beef, pork and wheat TRQs will be administered on a first-come, first-served basis, which means that Canadian exporters will no longer face import licensing requirements. The TCA allows for an optional return to a licensing system if both parties agree.
• Protection of Canada’s Supply Managed Products: The TCA grants no market access to Canada’s dairy, poultry and egg sectors. Under the TCA, the UK loses access to the CETA TRQ for cheese imports into Canada. However, a side letter to the TCA states that cheese originating in the UK shall continue to be eligible to be imported into Canada under the reserve for the EU within Canada’s World Trade Organization (“WTO”) cheese TRQ for up to three years, until no later than December 31, 2023. After this date, cheese originating in the UK will be eligible under the reserve for non-EU WTO Members within Canada’s WTO cheese TRQ, until a new arrangement is reached between the two countries. No new incremental market access for cheese has been provided.
• Accumulation of Rules of Origin: The TCA largely replicates the CETA rules of origin. However, it allows for accumulation with the EU on a transitional basis for three years, unless both parties agree to extend this period. This means that materials sourced from the EU that are used in the production of goods in Canada or the UK can continue to count toward the originating status of those goods for purposes of Canada-UK trade.
• Revised Origin Quota Volumes: While the origin quota volumes for certain products such as textiles and apparel remain the same as in CETA, origin quota volumes for certain agricultural and seafood products, as well as for motor vehicles, have been revised to fit the bilateral context, and are also subject to a three-year transitional time frame.
What Hasn’t Changed? Final Agreement Still in the Works
As discussed in our previous bulletin, there is still much that Canada and the UK plan to negotiate in order to produce a final and comprehensive bilateral agreement. The TCA commits the two countries to enter into negotiations within a year of the TCA’s entry into force, with the goal of reaching a new and final agreement within three years. The Government of Canada plans to hold a public consultation process before engaging in subsequent negotiations with the UK. While the TCA has some time-sensitive provisions, it can remain in place until a final agreement comes into force.
What’s Next? Ratification or Delay?
The TCA will enter into force only after both Canada and the UK have taken the necessary domestic procedures toward ratification and implementation of the agreement. Given that the Parliament of Canada has already recessed for the holiday season and will not reconvene until late January next year, it is unlikely that the TCA will come into force before the UK’s transition period with the EU expires on December 31, 2020.
Canada and the UK are likely to finalize a bridging mechanism in the form of a Memorandum of Understanding before the transition period expires to preserve some of the preferential benefits offered by the TCA. While Canada is likely to use remission orders to implement these measures, it is not yet clear what implementation mechanism will be adopted by the UK.