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Executive Summaries Jan 7, 2021

Brexit and CETA: As the Bell Tolls, It’s Carry on with Business as Usual for the UK

As Big Ben chimed in Westminster on the evening of December 31, 2020, at 11 p.m. – or midnight in Brussels, the United Kingdom (“UK”) completed its withdrawal from its 47-year participation in the European Union (“EU”).

The withdrawal process had commenced on January 31, 2020, with the implementation of the Withdrawal Agreement which was followed by a holding over period. Throughout that period, all the rights and obligations of the EU continued in the UK for a transition during which the two sides would negotiate the terms and conditions of their relationship past December 31, 2020.

Of interest to Canada during that transition period was the status of Canada-EU Comprehensive Economic and Trade Agreement (“CETA”) that had taken seven years to negotiate with the EU and had been provisionally implemented on September 21, 2017. With the December 31, 2020 end of the Withdrawal Agreement transition period would also end the CETA free trade agreement as it applied to the UK.

Canada and the UK already both shared the same sovereign and were members together in North Atlantic Treaty Organization, the G7, the G20 and the Commonwealth. These historical and political ties underscored the extent of the trade and investment relations between two countries:

  • For the year ending December 31, 2019, Canada had exported $19.2 billion of goods to the UK;
  • For the year ending December 31, 2019, Canada imported $9.2 billion of goods from the UK;
  • Canada’s total 2019 trade relationship in goods with the UK was $28.4 billion: an increase of 15.5% over the 2016 trade in goods between the two countries prior to the implementation of CETA;
  • The UK is Canada’s 5th largest global trading partner in goods behind the United States, China, Mexico and Japan;
  • The UK is Canada’s 4th source of direct investment;
  • 700 UK firms have a presence in Canada; and
  • 1,100 Canadian firms have a presence in the UK.

Eager to avoid an absurd situation where Canada and the UK would have to go from a free trade situation under CETA back to a World Trade Organization trade situation, with all the applicable tariffs on goods and non tariff trade barriers associated with that status, negotiations between the two countries concluded with a joint announcement on November 21, 2020, whereby the provisions of CETA would be rolled over and continued after the end of the Withdrawal Agreement transition period until such a time that it would be replaced by a formal Canada-UK free trade agreement. The counties undertook to commence negotiations of the Canada-UK free trade agreement in 2021.

Thus, it is business as usual for those entrepreneurs importing from, or exporting to, the UK as it was before Brexit with all the advantages of CETA, such as:

  • Tariffs on 98% of all goods are at zero;
  • Regulations for the provision of services are unchanged: $15 billion in annual bilateral trade in services;
  • Labour mobility and mobility rights of the business travellers remain enhanced;
  • Mutual recognition of standards is maintained;
  • Enhanced access to public procurement opportunities is continued: the UK’s annual procurement is approximately $118 billion;
  • Geographical indications rights for UK and Canadian alcoholic beverages, agricultural products or foodstuffs are unchanged (alcoholic beverages not specifically covered under CETA, but under 1989 and 2003 agreements between Canada and the EU).

If prior to December 31, 2020, you were considering doing business with the UK, the advantages of CETA will continue post-Brexit. As such, the same questions regarding doing business in a foreign country will need to be considered:

  • Do you have a tax plan?
  • Do you have a commercial strategy?
  • Is your intellectual property adequately protected?
  • Are you properly prepared to deal with the rules of origin of your products?
  • Have you planned out your labour mobility or business travel?

Our BCF team will be pleased to advise you concerning the opportunities offered by the continuation of CETA with the UK post-Brexit.

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