Tax Insights: CETA continues to apply to trade in goods with the United Kingdom post-Brexit

Issue 2020-06

In brief

The Canadian government has indicated that the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) will continue to apply to trade between Canada and the United Kingdom (UK) for tariff preferences, while the UK finalizes its exit from the European Union (EU). Businesses, which export to or import from the UK, should therefore continue to benefit from the preferential tariff benefits for CETA-originating goods that are available during the transition.

In detail

Background

Canada and the EU signed CETA in October 2016 and the agreement’s provisions relating to tariff benefits took effect for Canada and the EU in September 2017. CETA reduces tariffs on a wide range of Canadian-originating goods.

Given the UK’s membership in the EU, CETA’s preferential tariff benefits applied to trade between Canada and the UK. However, when the UK left the EU, the trading relationship between the UK and Canada became unclear. Canada’s announcement that CETA’s preferential tariff benefits will continue to apply provides clarity on the Canada-UK trading relationship for the remainder of this year.

Post-Brexit

On January 31, 2020, the UK is no longer considered an EU member country, and will start a transition period to exit the EU that will last until December 31, 2020. During this transition period, the UK has committed to honour its obligations under all EU-negotiated international agreements, including CETA. Canada’s Minister of Foreign Affairs has agreed to interpret its EU obligations as also applying to the UK. Practically, this means that the tariff preferences for CETA-originating goods between Canada and the UK continue uninterrupted while the UK negotiates its future relationships with the EU.

Looking forward, businesses will benefit from a degree of business certainty, at least until December 31, 2020. The transition period may be extended by up to two years, so theoretically CETA could continue to apply to Canada-UK trade until 2022. In the longer term, the UK will need to negotiate a separate trade agreement with Canada (and other countries). Given that CETA took about seven years to negotiate, and that the UK will be simultaneously negotiating trade agreements with many other countries, a Canada-UK trade agreement may take some time.

How can PwC help

PwC can help your business:

• take advantage of the benefits available under free trade agreements
• stay up-to-date on trade developments that may impact your business operations
• navigate the compliance requirements for exporting and importing into Canada and minimize unnecessary non‑compliance penalties