Post-Brexit, the UK and Canada signed a Trade Continuity Agreement (TCA). This “rollover” agreement is replicating the EU-Canada agreement that was in place before Brexit. The objective was to limit the disruptions while trade negotiators work on a new agreement. However, the UK-Canada Trade Continuity Agreement is only a temporary arrangement and it expires on December 31 this year. As the clock ticks, businesses are getting nervous, so what are the implications and how can they prepare?
What is the scope of the UK-Canada Trade Continuity Agreement?
The UK-Canada Trade Continuity Agreement covers:
- trade in goods, preferential tariffs, tariff rate quotas, rules of origin and sanitary and phytosanitary measures;
- trade in services and investment;
- intellectual property, including geographical indications;
- government procurement.
What is the status of the negotiation?
The UK-Canada negotiation has stumbled over several issues, in particular the UK reluctance to accept hormone-treated beef from Canada. This trade issue is politically sensitive in Canada, in particular for the cattle industry that is strongly lobbying the Canadian government.
What is the possible outcome?
A new rollover agreement with a new expiry date seems a reasonable expectation. However, a trade dispute, is of course, always an option.
What are the consequences of the expiration of the UK-Canada trade Agreement?
If the UK and Canada fail to agree a permanent deal or extend the temporary arrangements then imports in the UK and Canada will be subject to duties (when duty apply).
- Import Duties: The elimination of preferential trade terms could lead to the imposition of import duties on goods traded between the UK and Canada.
- Customs procedures: Without the duty reductions from the trade agreement, importers may have to use Processing or Storage Customs procedures. These procedures are more complex with heavier obligations exposing traders to higher level of Customs risk.
- Supply Chains: border disputes could result in disruptions and delays in receiving essential components and materials, affecting production processes.
- Price Changes: import duties would increase the cost of imports and exports, potentially making products less competitive in each other’s markets
- Furthermore, in April 2024, the provisions of Cumulation of origin in the Brexit transition deal will end. As a result, UK manufacturers who use EU components in their manufacturing will not be able to count these materials as “originating”.
What are the industry sectors most affected?
The sectors most affected will be: food and drink, fishing, textile and clothing, automotive, bikes, chemicals, plastics.
What is the impact on business?
All exporters and importers trading with Canada should check how their costs would be affected by duty rates if preferential rates were not available.
They should also consider how their trade and Customs strategy aligns with their commercial options. If you need help with this, just get in touch, we’ll offer guidance to review your options. Here are a few questions to explore the possible impact:
- Exporters (UK and Canada):
- How will an increase in duty affect the Cost of the Goods Sold?
- How would an increase in duty impact on current contracts?
- What could be the impact on shipments of spare parts, repaired products?
- For EXW, FCA.. and departure sales (Incoterms), will the customer be happy with new import duties?
- Should we absorb the duty costs to keep the customers and market access? Should we increase our selling price? Should we reduce our margin?
- Are the customers ready to discuss possible import duties?
- Importers (UK and Canada)
- How will an increase in duty affect our landing price?
- Can we source elsewhere? For instance, in the UK or the EU for UK businesses and in the US, EU or Mexico for Canada.
- EU Exporters
- Are Canadian businesses concerned about a possible cost increase due to duty rate?
- Could they be ready to switch their sourcing from a UK supplier to an EU supplier to secure their supply chain?
- Could you offer a consistent supply with a stable pricing?
Hopefully, we’ll get an extension of the roll-over agreement. That will be the safer outcome for traders, for the moment. However, traders should keep in mind that the impact on their business will depend on the terms of any new UK-Canada agreements as well as how their structure their transactions. This is worth keeping in mind, in particular, for long-terms transactions. And of course, for any questions, our UK and Canadian experts are at hand to answer your questions.