Brent Cameron
Brent is the Government Relations Advisor for
CANZUK International in Eastern Ontario, Canada
Recently, it was announced by British High Commissioner Susannah Goshko that the United Kingdom would be suspending its activities with regard to trade negotiations with Canada.
Central to this announcement, and taking the proverbial 30,000 foot view, the three questions that need to be asked are:
• What was the purpose of these negotiations – to what end?
• Why have the negotiations reached an impasse?
• What comes next?
The first question is the easiest. In October of 2016, the Comprehensive Economic and Trade Agreement (CETA) was signed and came into provisional force. The agreement has had the effect of removing 98% of preexisting tariffs between Canada and member states of the European Union. For Canada, the EU represented the largest export market outside of the United States. For the EU, it represented not only access to a G7 market, but a signal to its NAFTA partner in Washington that it could do business.
• What was the purpose of these negotiations – to what end?
• Why have the negotiations reached an impasse?
• What comes next?
The first question is the easiest. In October of 2016, the Comprehensive Economic and Trade Agreement (CETA) was signed and came into provisional force. The agreement has had the effect of removing 98% of preexisting tariffs between Canada and member states of the European Union. For Canada, the EU represented the largest export market outside of the United States. For the EU, it represented not only access to a G7 market, but a signal to its NAFTA partner in Washington that it could do business.
According to the Government of Canada, during the first full year of CETA’s implementation, the value of the EU market in merchandise goods exports was C$44 billion – a significant amount for Canadian companies looking to expand overseas.
But the headline numbers obscured a reality of that trade – that C$16.5 billion of it, or 37.5 percent of the total – went specifically to one of the 28 member economies, and that country had made the decision to withdraw from the EU.
If one looks at the exact trade flows for all 28 EU member states for that initial year, there were only 6 that Canada enjoyed a merchandise trade surplus with. The aggregate surplus they generated was C$8.13 billion, and Britain accounted for 91 percent of it.
Commentators with a cursory view of Brexit, mostly because of partisanship – and including Canadians – would have leaned in on the view that Britain was going to be negatively impacted, but it can hardly be said that negotiating a trade deal that loses nearly 40 percent of its book value and becomes significantly more unbalanced with the departure of one party constituted a ‘win’ for Canada.
In short, Canada needed to resolve its post-Brexit relationship with Britain as much as the other way around. Because of the late start in negotiations between London and Ottawa, the realities of trade negotiations and their complexities, as well as the pending deadline for Britain to fall out of the CETA treaty, it was not exactly a feat of prognostication to have predicted that an 11th hour deal that “grandfathered” CETA terms into a place-holder Canada-UK Agreement would be struck. And it is that “Trade Continuation Agreement” or TCA that has governed trade between the two countries since 2020.
The TCA was seen as a temporary agreement, pending a new bespoke and (according to Canadian Prime Minister Justin Trudeau) “better” deal. In reality, the announcement by the British High Commissioner does not change anything with regard to the TCA. Temporary it may be, it will remain for as long as it takes to conclude its successor.
But what does not remain are three particular aspects of the trade relationship that had sunset clauses applied to them. Gully Foyle, writing for Global Britain, summarized the three:
• Britain’s access to the cheese tariff rate quota negotiated under CETA, which expired at the end of 2023;
• Rules of origin treatment where EU component parts of British manufactured export products are treated as British, which expires this April; and
• Suspension of Investor-State Dispute Settlement (ISDS) clauses agreed to under CETA, which are also set to expire.
The second question is undoubtably the hardest to answer, as trade negotiations are not openly broadcast like sessions of Parliament. In that regard, we can only rely on what is said publicly by the parties.
To that end, we know that the British government has expressed its displeasure with the loss of tariff rate quota access where cheese is concerned – according to the BBC, the impact of this sunsetting has been to place a 245% tariff on British cheese sold in Canada as of January 1st of this year, applicable to approximately 2.2 million kilograms per year (the total EU quota amounts, by way of reference, add to about 17 million kilograms per year).
British concerns also extend to the automotive industry, especially with marquee luxury brands like Rolls-Royce, Aston Martin, and Land Rover that, while iconic British brands manufactured in the UK, have a certain amount of parts content from suppliers in the United Kingdom. The sunsetting of this particular side-agreement means a difficult parsing of what percentage of a Range Rover can be considered British and what percentage of the vehicle is not, and therefore subject to tariffs. Whatever that proportion proves to be, it will not be zero, therefore leading to the increase in prices for Canadian customers.
For Canada, the concerns mostly relate to the British policy that bans hormone-treated beef, which has the practical consequence of an outright ban on Canadian imports. Canada’s Beef Producers have been vocal on this issue, during the CETA negotiations, the hammering out of the TCA, and more recently during the UK accession negotiations with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.
A further complication regarding cheese comes from Bill C-282, which has passed the Canadian House of Commons and – at the time of writing – is at the second reading stage in the Senate. A one-page bill, it essentially says that the Government would not be permitted to negotiate any international treaty that would allot any additional tariff rate quota for dairy, poultry or eggs, nor negotiate a tariff reduction if the amount of imports exceed what an existing tariff rate quota allows.
Once this bill becomes law, Ottawa has no latitude to negotiate a separate tariff rate quota with Britain in whatever trade agreement exists in the future.
And so, the final question is this – what comes next? Ironically, very little.
In terms of the Beef issue, it is unlikely that London will budge, so Canada will have difficulties with making progress. Because of the pending legislation, the dairy tariff rate quota cannot be used as a negotiating tool. It will be taken off the table, and if a trade deal does get concluded, it would probably be because agriculture was taken out of the treaty altogether in a mutually recognized “agree to disagree” treatment. This happened with softwood lumber during the negotiation of the original Canada-US Free Trade Agreement.
But Britain’s cheese exporters are not exactly without an option, and for that they can thank the CPTPP.
The newly expired temporary access deal for British cheese was in lieu of Britain being covered under the CETA tariff rate quota. But as they lose this temporary fix, they are about to become full members of the CPTPP later this year – and therefore able to share in a tariff rate quota that allowed for 4.12m kilograms of cheese in 2019 – not as lucrative as the recently sun-setted allocation, and it does include Australia and New Zealand – but some tariff relief nonetheless.
The bigger issue will be going forward, specifically Canada’s ability to negotiate trade deals that essentially omit the dairy sector. That is not to say it will be impossible, but if Ottawa’s position is to maintain both supply management and a moratorium on any more tariff rate quota allocations beyond what currently exist, it will make negotiations with markets that have a significant dairy producing sector (like New Zealand) almost impossible.
Given that reality, the path to getting to a CANZUK agreement that harmonizes best practices among the five existing trade agreements (Canada-UK TCA, CPTPP, ANZCERTA, Australia-UK, Australia-New Zealand) would have to either grandfather the CPTPP tariff rate quota terms, or omit the sector entirely. Supply management is arguably as much a third rail issue as public delivery of healthcare to a significant number of Canadians. Governments have avoided the issue and the electoral consequences that come with it, by using the combination of tariff rate quota allocations and compensation to producers for loss of market share.
This is not to say that supply management is good or bad, or that the suggestion is to end it. It can be said, however, that it is an issue that has consequences in the electoral prospects of federal parties in key central Canadian constituencies, and at the negotiating table with other nations where billions of dollars of market access are at stake.
However federal governments in Canada – present and future – attempt to reconcile these pressures and forces will have significant consequences for that sector and the entire economy.
But the headline numbers obscured a reality of that trade – that C$16.5 billion of it, or 37.5 percent of the total – went specifically to one of the 28 member economies, and that country had made the decision to withdraw from the EU.
If one looks at the exact trade flows for all 28 EU member states for that initial year, there were only 6 that Canada enjoyed a merchandise trade surplus with. The aggregate surplus they generated was C$8.13 billion, and Britain accounted for 91 percent of it.
Commentators with a cursory view of Brexit, mostly because of partisanship – and including Canadians – would have leaned in on the view that Britain was going to be negatively impacted, but it can hardly be said that negotiating a trade deal that loses nearly 40 percent of its book value and becomes significantly more unbalanced with the departure of one party constituted a ‘win’ for Canada.
In short, Canada needed to resolve its post-Brexit relationship with Britain as much as the other way around. Because of the late start in negotiations between London and Ottawa, the realities of trade negotiations and their complexities, as well as the pending deadline for Britain to fall out of the CETA treaty, it was not exactly a feat of prognostication to have predicted that an 11th hour deal that “grandfathered” CETA terms into a place-holder Canada-UK Agreement would be struck. And it is that “Trade Continuation Agreement” or TCA that has governed trade between the two countries since 2020.
The TCA was seen as a temporary agreement, pending a new bespoke and (according to Canadian Prime Minister Justin Trudeau) “better” deal. In reality, the announcement by the British High Commissioner does not change anything with regard to the TCA. Temporary it may be, it will remain for as long as it takes to conclude its successor.
But what does not remain are three particular aspects of the trade relationship that had sunset clauses applied to them. Gully Foyle, writing for Global Britain, summarized the three:
• Britain’s access to the cheese tariff rate quota negotiated under CETA, which expired at the end of 2023;
• Rules of origin treatment where EU component parts of British manufactured export products are treated as British, which expires this April; and
• Suspension of Investor-State Dispute Settlement (ISDS) clauses agreed to under CETA, which are also set to expire.
The second question is undoubtably the hardest to answer, as trade negotiations are not openly broadcast like sessions of Parliament. In that regard, we can only rely on what is said publicly by the parties.
To that end, we know that the British government has expressed its displeasure with the loss of tariff rate quota access where cheese is concerned – according to the BBC, the impact of this sunsetting has been to place a 245% tariff on British cheese sold in Canada as of January 1st of this year, applicable to approximately 2.2 million kilograms per year (the total EU quota amounts, by way of reference, add to about 17 million kilograms per year).
British concerns also extend to the automotive industry, especially with marquee luxury brands like Rolls-Royce, Aston Martin, and Land Rover that, while iconic British brands manufactured in the UK, have a certain amount of parts content from suppliers in the United Kingdom. The sunsetting of this particular side-agreement means a difficult parsing of what percentage of a Range Rover can be considered British and what percentage of the vehicle is not, and therefore subject to tariffs. Whatever that proportion proves to be, it will not be zero, therefore leading to the increase in prices for Canadian customers.
For Canada, the concerns mostly relate to the British policy that bans hormone-treated beef, which has the practical consequence of an outright ban on Canadian imports. Canada’s Beef Producers have been vocal on this issue, during the CETA negotiations, the hammering out of the TCA, and more recently during the UK accession negotiations with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.
A further complication regarding cheese comes from Bill C-282, which has passed the Canadian House of Commons and – at the time of writing – is at the second reading stage in the Senate. A one-page bill, it essentially says that the Government would not be permitted to negotiate any international treaty that would allot any additional tariff rate quota for dairy, poultry or eggs, nor negotiate a tariff reduction if the amount of imports exceed what an existing tariff rate quota allows.
Once this bill becomes law, Ottawa has no latitude to negotiate a separate tariff rate quota with Britain in whatever trade agreement exists in the future.
And so, the final question is this – what comes next? Ironically, very little.
In terms of the Beef issue, it is unlikely that London will budge, so Canada will have difficulties with making progress. Because of the pending legislation, the dairy tariff rate quota cannot be used as a negotiating tool. It will be taken off the table, and if a trade deal does get concluded, it would probably be because agriculture was taken out of the treaty altogether in a mutually recognized “agree to disagree” treatment. This happened with softwood lumber during the negotiation of the original Canada-US Free Trade Agreement.
But Britain’s cheese exporters are not exactly without an option, and for that they can thank the CPTPP.
The newly expired temporary access deal for British cheese was in lieu of Britain being covered under the CETA tariff rate quota. But as they lose this temporary fix, they are about to become full members of the CPTPP later this year – and therefore able to share in a tariff rate quota that allowed for 4.12m kilograms of cheese in 2019 – not as lucrative as the recently sun-setted allocation, and it does include Australia and New Zealand – but some tariff relief nonetheless.
The bigger issue will be going forward, specifically Canada’s ability to negotiate trade deals that essentially omit the dairy sector. That is not to say it will be impossible, but if Ottawa’s position is to maintain both supply management and a moratorium on any more tariff rate quota allocations beyond what currently exist, it will make negotiations with markets that have a significant dairy producing sector (like New Zealand) almost impossible.
Given that reality, the path to getting to a CANZUK agreement that harmonizes best practices among the five existing trade agreements (Canada-UK TCA, CPTPP, ANZCERTA, Australia-UK, Australia-New Zealand) would have to either grandfather the CPTPP tariff rate quota terms, or omit the sector entirely. Supply management is arguably as much a third rail issue as public delivery of healthcare to a significant number of Canadians. Governments have avoided the issue and the electoral consequences that come with it, by using the combination of tariff rate quota allocations and compensation to producers for loss of market share.
This is not to say that supply management is good or bad, or that the suggestion is to end it. It can be said, however, that it is an issue that has consequences in the electoral prospects of federal parties in key central Canadian constituencies, and at the negotiating table with other nations where billions of dollars of market access are at stake.
However federal governments in Canada – present and future – attempt to reconcile these pressures and forces will have significant consequences for that sector and the entire economy.
Heading photo: EPA
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