30 January 2024

BCC: Trade with Canada – What Happens Next?

Negotiations with Canada on a new free trade deal break down - what does this mean for businesses trading with the country and what happens next? The impact does not stop at cheese...end-March, UK businesses lose the ability to cumulate EU content in goods they make and sell to Canadian customers.

Negotiations with Canada on a new free trade deal have broken down, but what does this mean for businesses trading with the country and what happens next? 

BCC Head of Trade Policy, William Bain, examines the implications: 

One of the immediate effects of dialogue ending is that there will be no reprieve for cheese or dairy exporters in the UK. They have already been told they must access the non-EU quota for Canada cheese and dairy imports – this took effect on 1 January.  

They will face stiff competition to access this quota, from the likes of Mexican and Swiss exporters, with long-standing contracts and supply chains into the Canadian market.  

Any exports that UK cheese makers agree outside of the quota will face tariffs of 275%, making them completely uncompetitive. 

Chambers have said that some affected cheese exporters in their areas have already accepted they will lose substantial sales in the Canadian market.  

But the impact does not stop there.  At the end of March, UK businesses will lose the ability to cumulate EU content in goods they make and sell to Canadian customers. Currently these goods are subject to tariff preferences in the UK-Canada continuity trade agreement.  

But from April onwards, any EU content in these manufactured items will be classified as non-originating content. If EU parts cannot be counted then firms could see the qualifying content for tariff free trade slip below the minimum percentage. 

That means tariffs will apply to those goods. For the automotive sector, with annual sales of cars worth £784m to Canada, this will run into tens of millions of pounds per year. Other manufacturing sectors will also be affected.  

What does this mean for UK-Canada trade? 

The prospects of a resumption of talks before elections in the UK this year or Canada, likely next year, are minimal. Canada was reported to be seeking additional access for its beef meat beyond the existing quota and also seeking equivalence of its animal health rules on beef. But it does not appear the UK was prepared to grant this.  

Similarly, the Canadian Prime Minister, Justin Trudeau, had promised the dairy sector in Canada that he will not sign agreements which open up further access for dairy exporters from other trading partners.  

With neither side preparing to move from these positions it would seem that prospects for a bespoke free trade agreement are now very much on the back burner.  

BCC

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