Canada-UK Continuity Agreement: A First Step Towards the Future
The United Kingdom's (UK) exit from the European Union (EU), which is now official, was the result of a marathon of negotiations in the international diplomatic arena. In addition to everything else, the Brexit has brought with it the end of the application of free trade agreements to which the UK is a party as an EU member state, i.e. the CETA in the case of Canada. The Canada-United Kingdom Trade Continuity Agreement (TCA) is a response to the common interest of both nations in preserving the stability of the business relationship between them. For Canadian businesses, the TCA is therefore a variation on the CETA, with some nuances.
The TCA is primarily a short form agreement due to time constraints. Its purpose is to establish a transitional regime pending the conclusion of a full Free Trade Agreement (FTA) between Canada and the UK. The TCA essentially provides for the provisions of the CETA to continue to apply, with the necessary adjustments set out in it. It officially entered into force on April 1st, 2021 but had already been provisionally applied for the most part since January 1st, 2021, except for the services sector.
Tariff elimination is thus maintained, and tariff quotas have been adjusted to reflect the proportionate size of the UK market in relation to the EU. As is often the case, the agri-food sector is an exception in some respects. If you operate in this sector, you should find out more about it. Import formalities should also be monitored. A new tariff for the UK has been created but is not yet active in the Canadian customs system. A special authorization code must therefore be used to benefit from duty remission.
In terms of rules of origin, supply and production chains will benefit from a potentially extended 3-year transition period during which EU cumulation will be allowed. This means that materials originating in the EU or production of which a material has been subject of EU can continue to count towards the origin of the finished product for the purposes of the TCA.
However, Canadian exporters will be well advised to check the continuity of marking requirements within their area. Following the Brexit, the UK created the UK Conformity Assessed Mark (UKCA), which replaces the CE marking except in areas where the legislation has remained the same as the EU. The UKCA will only be required for most products as January 1st, 2022 but does already apply in some cases.
In this respect, a Customs and Trade Facilitation Committee was established under the TCA to strengthen regulatory cooperation between Canada and the UK. In general, however, the CETA deadlines for mutual recognition or harmonisation of certain standards have started to run again from the beginning under the TCA. This means that accommodations at this level may take longer than under CETA, while technical experts review the applicable legislation in this new bilateral context.
In this sense, the agreement forms a bridge between the pre- and post-Brexit Canada-UK relationship. It also provides that the two countries will begin negotiations on a comprehensive FTA within one year of the TCA coming into force, with an objective to concluding it within three years.
The UK has also formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to which Canada is also a party. The CPTPP was drafted after CETA and goes further than CETA in some respects, considering the changing context and practices. This can be expected to be the case with the framework for the future trade relationship between Canada and the UK, which has already discussed the importance of modernizing provisions on, for example, e-commerce, privacy, and the environment.
Until then, our team and those of our affiliated firms around the world can assist you with the specific steps involved in the international development of your business and answer your questions on how best to benefit from the free trade agreements put in place by Canada.