New U.K. tariff list ramps up urgency of Canada-U.K. trade talks

Only half of U.K.'s imports will enter tariff-free after Jan.1, with trade under CETA set to expire

Posted: May 19, 2020
Last Updated: May 20, 2020

British Prime Minister Boris Johnson, left, welcomes Prime Minister Justin Trudeau during official arrivals for a NATO leaders meeting at The Grove hotel and resort in Watford, Hertfordshire, England, Wednesday, Dec. 4, 2019. (Francisco Seco/The Associated Press)

The United Kingdom has revised its global tariff strategy, laying out for Canada and other trading partners the rates that will apply to their exports as of Jan. 1, 2021 — and in the process, setting out Britain's starting position for future bilateral trade talks.

The new list published Tuesday replaces a temporary regime announced a year ago that would have cut tariffs on nearly all (an estimated 95 per cent) of what the U.K. imports — a hastily-developed scheme designed to the cushion the blow to British consumers of a sudden no-deal Brexit that, in March of 2019, appeared possible.

Under the new regime, Most Favoured Nation (MFN) tariff rates higher than zero will apply to about half of the products imported by the U.K. from around the world, or about 60 per cent of the value of its global trade, once it completes its transition out of the European Union trading bloc.


The U.K. continues to negotiate the final terms of this exit.

Many trading partners, Canada included, want clarity on exactly how future trade between the EU and its former member will work before proceeding with their own bilateral talks with the U.K.

Canada has had preferential trading terms with the U.K., its third-biggest export market, under its Comprehensive Economic and Trade Agreement (CETA) with the EU.

The CETA will continue to apply until the end of this year, but beyond that, the terms of Canada–U.K. trade are uncertain.

"We've always paid particular attention to what is happening in the U.K., and of course they are in discussions with the European Union on their agreement," International Trade Minister Mary Ng told CBC News Tuesday. 

"We want to make sure that any negotiations are in the interests [of] and benefit ... our Canadian exporters," she said, adding that the U.K. is a "key trading partner" and the Canadian government expects to have more to say in the days to come.


What to expect if Canada has no deal

Tuesday's tariff list adds more certainty to key industries' preparations for the end of the year, when they begin to trade with Britain as an independent partner.

The British government considers its new list a simplified and more liberal version of the European Union's MFN rates, which set out the tariffs that apply when World Trade Organization members trade with each other. 

Canada has enjoyed better access to the EU market than that since September 2017, when the CETA took effect.

At first glance, the tariffs on many of Canada's essential natural resource exports to the U.K. — gold, diamonds, uranium, other energy exports — remain at zero or are extremely low.

In fact, none of Canada's top 25 exports to the U.K. appear to face steep new tariffs.

But some of Canada's hard-fought gains in the CETA would be lost. For example, tariffs on popular Canadian seafood products, cut to zero under CETA, would be re-applied in the U.K. market, according to this list.


A new U.K. tariff list would re-impose tariffs on Canadian seafood that were cut to zero under the CETA deal. (AP)

The U.K. is maintaining tariffs on lamb, beef and poultry to protect its domestic farmers.

It's also maintaining its ten per cent tariff on imported cars, something that was cut under the CETA.

In general, the new list aims to reduce tariffs on inputs for British supply chains, so it does not deal a blow to the manufacturing sector in this already-uncertain Brexit period.

It has cut tariffs on identifiable consumer products that may come from Canada in the future, like Christmas trees. It also cut tariffs on over 100 products that support a green economy, from LED lamps to bicycle tire tubes.

In response to the COVID-19 pandemic, the U.K. became one of several countries that also have cut tariffs temporarily on essential medical products and supplies.

Analysis continues on all sides to determine what the overall impact on Canada–U.K. trade would be if a bilateral trade agreement is not concluded between now and Jan.1.


Build on CETA, or replace it?

Both sides say they want to keep trading on preferential terms. That means Canada and the U.K. have two options in the coming months.

They could agree to "roll over" the terms of the CETA and come to an understanding on how it might continue to apply to trade between the two countries, with some minor adjustments. Beyond its preferential tariff rates, the 2017 CETA deal also removed other non-tariff barriers to trade and set out common standards that both sides may want to preserve.

The two sides also might opt to start from scratch and negotiate an entirely new "bespoke" arrangement between themselves, reflecting the unique aspects of their trading relationship separate from the EU priorities that drove the CETA talks.

Negotiations toward this latter option could take longer and become more complicated — at a time when British negotiators already are being stretched thin by multiple trade negotiations fundamental to the U.K.'s economic future.

Even though talks could not officially start until Brexit was complete, Canada was in discussions with the U.K. about rolling over the terms of the CETA. The two sides had nearly reached an agreement in early 2019 when Canada was caught off-guard by Britain's sudden move to cut most of tariffs to zero.


The Canadian government then stepped back from these talks, uncertain it wanted to continue to offer the same concessions to the U.K. if, in fact, the entire world was about to have access to the same liberalized tariffs.

Since then, opinions have varied on the urgency of negotiating with the U.K. Opposition Leader Andrew Scheer once said he'd have been "eager to sign" and encouraged the Trudeau government to prioritize a deal.

Others, including former interim Conservative leader Rona Ambrose, argued there was "no point" in rushing to make a deal before the terms of Brexit had been worked out and before Canada had a good idea of how the U.K. intended to trade post-Brexit.