Canada-United Kingdom Trade: Seamless Transition Based on CETA Rules

On November 21, 2020, Canada and the United Kingdom jointly announced that they had reached an agreement in principle on the Canada-United Kingdom Trade Continuity Agreement (Continuity Agreement). The Continuity Agreement, which has not yet been signed, ensures that the trading relationship established under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) will continue in effect following the end of the transition period under the Brexit Withdrawal Agreement (Withdrawal Agreement) on December 31, 2020.

BACKGROUND

As discussed in our September 2017 Blakes Bulletin: CETA Now In Force: Are You Maximizing The Benefits, CETA came into effect on a provisional basis on September 21, 2017, eliminating more than 98 per cent of the tariff lines between the CETA parties, as well as modifying import quotas and government procurement requirements.
 
Following a referendum in 2016, the UK began negotiating its withdrawal from the EU. In January 2020, the UK and EU signed the Withdrawal Agreement, following which the UK officially left the EU on January 31, 2020. The Withdrawal Agreement provided that the UK would remain in the EU’s single market during a transitional period lasting until December 31, 2020, in order to allow the parties to negotiate a new trade agreement as between themselves. As of the date of this Blakes Bulletin, a new trade agreement has not yet been agreed upon.

TEXT IS NOT YET AVAILABLE

The Continuity Agreement is intended to take effect on January 1, 2021 and, as Canada’s Minister of Small Business, Export Promotion and International Trade Mary Ng stated at an appearance before the House of Commons International Trade Committee, is a “replication” of the CETA provisions. The goal of the Continuity Agreement is to create a seamless transition from a plurilateral to a bilateral trading relationship for Canada vis-à-vis the UK, and to remove much of the uncertainty felt by importers and exporters on both sides of the Atlantic.
 
The text of the Continuity Agreement has not yet been made available, and little is known of the details. Minister Ng has stated that the Continuity Agreement preserves the tariff elimination achieved under CETA, maintains priority access to the UK for Canadian service suppliers, and to the UK government procurement market. The Minister has also hinted that the Agreement includes investor protection provisions, but balanced with Canada’s right to regulate in the public interest.
 
The Minister also indicated that the Continuity Agreement contains provisions relating to digital trade, as well as a continuation of other aspects of the CETA, such as provisions on women entrepreneurs, small business, the environment and labour. Minister Ng further indicated that no additional market access has been provided to British cheese under this agreement, which was a concern for Canadian producers, but it is unclear whether that position will change as further negotiations are held toward a more definitive deal next year.
 
The Continuity Agreement is said to contain provisions concerning the start of renewed negotiations between Canada and the UK towards a more comprehensive trade agreement, which are to commence within one year of the Agreement’s effective date, and to conclude within three years. 
 
Canada is expected to introduce implementing legislation with a view to having the Continuity Agreement take effect by the beginning of 2021. However, the House of Commons is scheduled to rise on December 11, 2020, leaving precious little time for the completion of parliamentary procedures for the adoption of an international trade agreement, including tabling of the legislation in the House for 21 sitting days and having implementing legislation passed by both the House of Commons and Senate. Given the timing pressures, Minister Ng has also referenced certain unspecified “mitigating measures” that Canada and the UK are discussing, in the event that the Continuity Agreement is not ready to come into force on January 1, 2021.

CANADA – UK TRADE RELATIONSHIP

The UK is currently Canada’s single largest EU trading partner, with more than double the value of both imports and exports as compared to the next largest EU trading partner. The UK is Canada’s fifth largest trading partner, with two-way trade of C$29-billion in 2019. The Continuity Agreement is thus an important step to ensuring stability and predictability in the Canada-UK trading relationship by maintaining the benefits under CETA between the two countries while a new agreement is negotiated. The Continuity Agreement is also an important step forward for the UK as it embarks on a future separate from the EU.
 
While certain issues will need to be ironed out, it is anticipated that Canada and the UK will aim to deepen their trading ties when negotiation of a more detailed and wide-ranging agreement commences next year. Canadian importers and exporters should keep a close eye on the many bilateral agreements that the UK has already concluded and still plans to conclude, including any agreement with the EU. CETA contains a “most favoured nation” clause, a standard term in trade agreements that guarantees the parties will receive treatment no less favourable than that provided to another country. To the extent the UK is able to secure more generous terms from the EU in its negotiations, Canada may also be able to take advantage of them.

PARTICIPATION BY CANADIAN BUSINESS IN NEGOTIATIONS

Canadian businesses, both importers and exporters, should now be considering changes they would like to see in a bilateral trading agreement between Canada and the UK. Minister Ng has stated that she will be seeking to consult with interested parties, and the Canadian trade negotiators will no doubt welcome input from businesses since they will be the primary beneficiaries of any improved market access that Canada is able to negotiate with the UK.
 
For further information, please contact:
 
Greg Kanargelidis                      416-863-4306
Jennifer Maxwell                       +44 (0) 20 7429 3558
Skye Sepp                                   416-863-3887
 
or any other member of our International Trade group or London office.