On 21st November, the UK government announced an ‘agreement in principle’ with Canada as part of ongoing post-Brexit trade deal negotiations. The agreement will bridge the gap between the Brexit transition deadline and a final free trade deal.
Experts believe a comprehensive UK-Canada trade agreement will take several years to negotiate, so what can UK businesses expect in the meantime? Here’s how the deal will affect you and what the future could hold for UK businesses.
What does this post-Brexit trade deal mean for UK businesses?
This is less of a post-Brexit trade deal with Canada and more of an agreement to extend current trading conditions until a more comprehensive, tailored deal can be negotiated.
Unlike the recent deal with Japan, which boasted several UK-specific benefits on top of the EU deal template, the agreement with Canada is a carbon copy of the original EU deal. It will take effect on January 1st, when the Brexit transition period ends.
By choosing to continue trading under the provisions of the Comprehensive Economic and Trade Agreement (CETA), UK businesses are guaranteed the £11.4bn of goods and services they currently export to Canada.
Business opportunities created by free trade with Canada
The UK-Canada Trade Continuity Agreement has created the possibility of a bespoke post-Brexit trade deal which covers environmental areas, digital trade and more. As it stands, the rollover trade agreement has saved UK businesses an estimated £42m in export tariffs.
Canada is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and UK Government officials are hoping a future deal will open up the potential for businesses to gain access to the 11 key Pacific markets it contains.
Under the free trade deal with Canada, the UK car industry enjoys £757m of export trade, tariff-free. Without the continuity agreement, a standard tariff of 6.1% would apply to car exports. When combined with the food and drink sector, automotive exports to Canada will create jobs for more than half a million people in Britain.
Food and Drink
The food and drink industry will continue to enjoy tariff-free trade on 98% of exported goods to Canada under the rollover agreement. This includes soft drinks, chocolate and confectionary. Without the agreement, UK consumers could face an 8% tax on Canadian food imports like salmon and maple syrup under the UK Global Tariff.
The UK exported £344m worth of produce to Canada last year — a trade which can continue into 2021 under the rollover agreement. Exports including beef, fish, seafood, fruit and vegetables will be tariff-free for UK businesses.
How has the UK and Canada trade deal affected exchange rates?
The exchange rate between CAD and GBP has improved since the announcement of the rollover deal. In late November, £1 was worth $1.74 CAD, which is a vast improvement from September, when the value fell to $1.68 after a period of tense trade negotiation.
Both markets will benefit from the trade continuity agreement in light of economic struggles caused by the pandemic. Canada is predicted to reach full economic recovery by Q2 of 2022. A deal with the UK will help maintain the trading pool for both countries concerned to help speed recovery efforts.
The exchange rate has seen several extreme dips this year as negotiations have progressed. We may see more of the same over the next few years as a comprehensive deal is fleshed out. You can protect your business from foreign exchange market volatility and currency risk by working with a foreign exchange specialist. Expert advice and tailored products can help you continue smooth overseas trade — no matter what a future post-Brexit trade deal holds.
Find out how you could save money and time with a foreign exchange business account or contact one of our currency specialists today.