Canada and the United Kingdom (UK) have reached an interim post-Brexit trade agreement. This was announced on Saturday November 21 by Canadian Prime Minister Justin Trudeau and British Prime Minister Boris Johnson.

See the CBC and BBC news articles for more information.

WHAT IS BREXIT?

“Brexit” is short for “British exit” and is the word used to refer to the UK’s decision to leave the European Union (EU). The UK left the EU on January 31, 2020, and entered a transition period during which the UK and the EU were meant to negotiate their future relationship.

As of posting this article there is still no certainty on what the future UK-EU trade agreement will look like. Moreover, there is still uncertainty as to whether this new UK-EU agreement will be concluded by the end of the transition period (Dec. 31). Such expressions as Soft-Brexit, Hard-Brexit or No Deal have become commonplace in the news media to summarize the feeling on any given day as to the outcome of the negotiations between the UK and the EU.

It is worth mentioning that during the 2020 transition period, the UK continued to be bound by the entire body of EU law, including new legislation adopted by the EU during the transition. When the transition period ends on December 31, the UK will no longer be bound by EU treaties, such as the Comprehensive Economic and Trade Agreement (CETA), with third countries such as Canada.

Recognizing the need for certainty, Canada agreed to the UK remaining a party to CETA for the duration of the transition period, which explains ongoing CETA preferences being claimed on eligible UK goods imported into Canada throughout 2020 and up until December 31.

Whatever the outcome of the negotiations between the UK and the EU, there are likely to be immediate changes to the trade relationship between the UK and the EU as of January 1, 2021. In the event of a Hard Brexit, trade preferences between the UK and the EU would disappear and UK-EU trade would be determined by both parties’ international commitments (i.e. Most Favored Nation protocols).

Presently, when goods are imported into an EU member country, they are in free circulation within the EU territory (including the UK) for subsequent distribution. After January 1, the free movement of goods between the EU and the UK will end, requiring customs clearance and other government formalities to be carried out on goods moving between the parties.

Depending on how soft or how hard the final Brexit turns out to be, for Canadian companies dealing in the UK as well as with other EU countries, Brexit will surely affect their logistics and will likely require setting up segregated supply chains for goods destined to the UK versus goods going to other EU countries, or conversely on goods sourced from the UK versus the EU that are destined for Canada.

Keep in mind that after January 1, any UK materials and components incorporated into articles produced in an EU country may affect the “originating” status of the finished goods under CETA. Likewise, EU materials and components incorporated into articles produced in the UK may disqualify the finished goods from preferential treatment under the forthcoming Canada-UK TCA (see below).

CANADA - UNITED KINGDOM TRADE CONTINUITY AGREEMENT (Canada-UK TCA):

The existing CETA free trade agreement will remain in effect between Canada and the other EU member countries. However, CETA will no longer apply to the UK starting January 1, 2021.

For Canada-UK trade, the new Canada-United Kingdom Trade Continuity Agreement will take effect on January 1, 2020.

The Canada-UK TCA is an interim deal that will be in place as Canada and the UK work towards negotiating a more comprehensive free trade agreement. This interim agreement will provide continued access to the benefits of CETA on a bilateral basis, including the elimination of tariffs on 98% of Canadian products exported to the UK.

Additional information resources are available here and here.

The CBC reports that: “[t]he two sides agreed to "roll over" the CETA in a short-term transitional agreement, replicating most of the existing language and renegotiating only what was required to make it fit U.K.-only trade.”

The CBC further reports that the deal needs Parliament's approval: “Now that negotiations have concluded, the deal must be approved by both governments. In Canada's case, legislation to change regulations and laws (including its custom tariff) to comply with the new agreement must be approved by Parliament before the deal can take effect.”

W2C will continue to monitor the situation and advise once the details (i.e. rules of origin, proof of origin requirements, tariff treatment coding, etc.) are published by the Canada Border Services Agency and other participating government agencies.

W2C offers various consulting services related to free trade agreements:

1. Training courses and seminars on management of origin preferences
2. Determining correct HS Tariff Classifications (needed to ascertain applicable rules of origin)
3. Carrying out origin analysis (NAFTA, CUSMA, CETA, CPTPP, etc.)
4. Duty recovery and post-entry corrections
5. Audit support during CBSA or CBP origin audits
6. Requests for Advance Rulings (CBSA) or Binding Rulings (CBP) on origin

For more information, contact your W2C representative today.