Canada and the UK have signed the Canada-United Kingdom Trade Continuity Agreement (CUKTCA). The CUKTCA preserves the main benefits of the Comprehensive Economic and Trade Agreement (CETA) and allows for a continuation of trade and market access between Canada and the UK. One stumbling block is that the agreement has to be approved by both countries through their parliamentary procedures. With the House of Commons on it’s holiday break, the agreement won't be ratified by Canada before the end of the year. With a BREXIT transition ending this month, what does this mean for UK importers and exporters currently using CETA?
BREXIT & CETA Background
In June 2016 the United Kingdom (including North Ireland) held a referendum in which its citizens voted to break from the European Union (EU). The main principles for the break are sentiments that decisions about the UK should be made in the UK and to regain control over their borders and immigration.
Once the referendum was passed the United Kingdom started the process for exiting the EU, known as “BREXIT” (short for british exit) and formally ended their relationship with the European Union on January 31st, 2020. The United Kingdom and the EU agreed that there would be a transition period for the UK to complete their exit from the EU, ending on December 31st, 2020. During this transition the UK is still considered part of the EU.
By leaving the European Union, the UK effectively removes itself from any trade agreement the EU is party to. This includes CETA, signed between the EU and Canada, which provisionally came into force on September 21, 2017.
The CETA agreement eliminated tariffs on 98% percent of products between Canada and EU with an increase to 99% by the time the agreement is fully implemented.
Want to learn more about CETA? Visit What is CETA.
Effects On Exporters And Importers
For exporters the british exit from the EU should experience less of an impact because the UK has a new tariff system ready to launch on January 1, 2021 called the UK Global Tariff (UKGT), which it touted as being “simpler, easier to use and lower tariff regime than the EU’s common external tariff.”(source) The UK Global Tariff eliminates tariffs on many products and over 90% of Canadian to the United Kingdom would be duty-free.(source) However, the UKGT also includes protectionist tariffs on certain products in order to promote and protect certitan UK industries, such as certain agricultural products.
Without the CETA agreement in place, imports of products from the UK will again be subject to most favored nations (MFN) duty rates upon importation. MFN duty rates range from duty free to over 200% depending on the product. On average most MFN duty rates are under 10%, such as chocolate bars (6%), but some products such as shoes are subject to duty rates as high as 20%. The use of MFN duty rates, would apply tariffs to a number of products that have been duty free under CETA, for over 3 years and adversely affect importers, consumers and other trade chain partners.
Remission Order Extends CETA During The Transition
On December 21st, 2020, Canada published the United Kingdom Trade Continuity remission Order, 2021. This remission order preserves access to CETA duty rates for imports from the UK and allows importers to maintain their current trading levels without fear of higher duty rates affecting their bottom line.
The remission order will be in effect on January 1, 2021, until the Canada-United Kingdom Trade Continuity Agreement is formally passed into law.
Importers must still ensure their products meet the rules of origin under the CETA agreement in order to qualify for the remission.