Thank you, Madam Chair and honourable members, for the invitation to appear before the Standing Committee on International Trade to address Bill C-18, an act to implement the agreement on trade continuity between Canada and the United Kingdom of Great Britain and Northern Ireland.
We thank the committee for its ongoing interest in Canada’s trade relationship with the United Kingdom and its attention to this bill to implement the Canada-U.K. trade continuity agreement, TCA.
In my remarks today, I will provide a brief overview of the context for the TCA and the highlights of the concluded agreement. My colleagues and I then look forward to taking your questions.
Turning to the context for the Canada-U.K. TCA, as you are aware, the United Kingdom's departure from the European Union has had a real impact on our bilateral trade relations, because it means that the U.K. can no longer participate in our existing preferential trade agreement, the Canada-EU Comprehensive Economic and Trade Agreement, CETA.
The express aim of the trade dialogue, and the trade continuity agreement that resulted, was to substantively replicate the CETA on a bilateral basis in order to ensure a seamless transition of our trade relations and seek to avoid potential cliff edges for business.
While still an EU member, the U.K. was not legally able to negotiate new trade agreements. However, it could discuss replicating the terms of existing EU agreements as it prepared for Brexit. Therefore, negotiating a transitional trade agreement based on CETA offered the best opportunity for Canada to provide as much predictability and continuity as possible for our stakeholders. However, the exercise to replicate CETA was unlike any other trade negotiation Canada has undertaken. The Brexit process was not straightforward either, as the departure date shifted multiple times and the U.K. contemplated changes in its post-Brexit trade approaches.
For Canada, in order to finalize our trade continuity agreement and discussions with the U.K. and to reach an agreement that was in the best interests of Canadians, we needed as much clarity as possible. In May 2020, the U.K. published its most-favoured-nation applied tariff schedule that would take effect when its departure from the EU was complete. In June 2020, the U.K. provided formal notification to the EU that it would complete the departure by the end of 2020 without opting for a one- or two-year extension where CETA would have continued to apply to the U.K.
These two developments were key to informing Canada’s interests in finalizing the trade continuity agreement with the U.K. last November. With the ratification process for the trade continuity agreement ongoing, and seeking to mitigate the effect of a gap in preferential trading terms where possible, we subsequently signed a memorandum of understanding with the United Kingdom on December 22 to provide reciprocal tariff preferences on an interim basis.
It is important to note that these mitigation measures, by way of duty remission orders by Canada and the U.K., cover trade in goods only. Only the ratification and implementation of the TCA will provide the certainty that stakeholders are currently seeking as well as coverage across both goods and non-goods areas, as replicated from CETA.
Turning to the Canada-U.K. TCA texts, in reference to the CETA replication you will see that the TCA incorporates CETA by reference into a short-form treaty format and identifies the necessary modifications to the CETA provisions in the annexes to the short-form treaty. As such, the TCA text needs to be understood in conjunction with CETA. In most areas, the TCA is a replication of CETA, which means it is therefore a known quantity to stakeholders, provinces and territories, exporters and members of Parliament.
A small but important list of chapters required intensive negotiation to turn the CETA obligations into Canada-U.K. obligations. For these areas, we undertook targeted consultations with stakeholders in those implicated sectors and kept them informed of developments. In addition to providing stakeholders with updates on progress throughout the trade dialogue, we have also been keeping provincial and territorial representatives informed via the committee on trade, or, as we call it, “C-Trade”. What we heard from both groups was a strong interest in ensuring continuity of our trade relations with the U.K. and the ability to return to the negotiating table to discuss a future FTA that would be tailored to the bilateral trade relationship.
I'll now outline some of the highlights of the TCA.
In goods market access, the TCA carries forward 100% of CETA tariff elimination commitments, immediately eliminating tariffs on 98% of Canadian exports to the U.K. Canadian exporters across all sectors—agriculture, fish and seafood, and non-agriculture—will benefit from continued preferential access to the U.K. market, with access to the same tariff rates as they have to the EU market under CETA.
For tariff rate quotas, like CETA, Canada maintains duty-free quota access for eight Canadian agriculture and seafood products that are subject to transitional or permanent tariff rate quotas, TRQs. The agreement provides commercially meaningful access for all Canadian products, subject to transitional and permanent TRQs. In addition, under the TCA, the TRQ administration process was streamlined for beef, pork and wheat. These exporters will no longer face import licensing requirements and will have access to the U.K. market through a first-come, first-served system.
With respect to supply management under the TCA, Canada made no new market access commitments for cheese or any other supply-managed products. Canada has agreed to a temporary outcome that will provide continuity to the U.K.'s access under Canada's WTO cheese tariff rate quota until December 31, 2023. The total amount of market access Canada provides for cheese remains unchanged.
With respect to rules of origin, the TCA allows for accumulation with the European Union. In other words, materials sourced from the EU that are used in the production of goods in Canada or the U.K. will count towards the originating status of those goods for purposes of Canada-U.K. trade.
The TCA includes origin quotas with the same volume to CETA for trade, textiles and apparel, and for certain seafood products. The origin quota volumes for certain agriculture and seafood products as well as for motor vehicles have been revised, but remain significantly higher than recent Canadian exports of these goods.
Provisions on accumulation with the EU and the origin quotas are set to expire in three years unless Canada and the U.K. agree to extend them. Without the ability to accumulate with the EU, it would be very difficult, if not impossible, for many U.K. goods to qualify for preferential treatment under the TCA. This provides a real and meaningful incentive for the U.K. to negotiate a subsequent FTA with Canada within three years of entering into force.
The areas I've just covered are currently in effect by the duty remission orders and the MOU that is in place on an interim basis. These provisions are not in place with cross-border trade services.
With respect to cross-border trade services, the TCA fully preserves the benefits of CETA and includes key obligations such as non-discrimination and market access. The TCA will continue to guarantee comprehensive access to the U.K. for Canadian service providers, which remains among the best commitments that the U.K. has ever signed with a trading partner.
As with CETA, the TCA also ensures that Canada maintain flexibility to take measures regarding sensitive sectors such as health, public education and cultural industries.
The investment chapter is a technical replication of CETA. Canadian investors will continue to enjoy the right to establish, acquire and operate investments in the U.K. on an equal footing with domestic and other investors. Investment obligations are carefully formulated such that Canada and the U.K. fully preserve their right to regulate in the public interest, including through exceptions and reservations. However, the replicated investment dispute resolution provisions will be suspended upon the entering into force of the TCA, pending a review by the parties, which is to commence three months after entering into force.
The purpose of the review will be to consider the approach to investment dispute resolution that best reflects the bilateral relationship between Canada and the U.K.
With respect to government procurement, Canadian suppliers will have guaranteed and predictable access to opportunities to supply their goods and services to all levels of government in the U.K., including regional and local governments, bodies governed by public law—for example, hospitals and universities—as well as a number of entities operating in the utility sector and public services. The U.K. market on access commitments, under the TCA, is estimated to be worth approximately $118 billion.
Looking forward, a subsequent negotiations clause in the TCA commits Canada and the U.K. to enter into new trading negotiations within a year of entering into force, and to strive to conclude a new agreement within three years from the TCA's entry into force.
The government will undertake public consultations with Canadians ahead of any formal launch of subsequent negotiations with the U.K. and fully intends to follow the revised policy on tabling of treaties in Parliament with regard to a new comprehensive FTA initiative.
Along with my colleagues here today, I look forward to your questions and our discussion.
Thank you very much.
