There has been a lot of talk in the press recently regarding a ‘Canada Style Free Trade Agreement’ which is one of the options available to the UK if it wants to leave the Customs Union.

Whilst the PM has talked down this option other politicians such as David Davis are reportedly behind this alternative.

But what will this type of arrangement actually mean for UK business if there is a similar deal with the EU?

Canada’s free trade deal with the EU known as the Comprehensive Economic and Trade Agreement (CETA) took seven years to negotiate and was signed in October 2016. It removes 99% of customs duties on goods moving between the two trading blocs, but is not built around the single market.

One thing is wont do is provide frictionless borders, all ‘exports’ and ‘imports’ to and from the EU would need to have a customs declaration.

It would probably mean that although there would be no duty to pay on goods which qualify under preferential rules of origin i.e. goods which are classed as being of UK origin. Under each Tariff heading there is a rule attached and the product must meet this rule, some can be very complex and the UK company will need to ensure they have evidence on record including supplier declarations should they receive an audit.

It could also be an issue for businesses who currently import third country products and then ship these throughout Europe. For example, a UK company imports Chinese goods into the UK and then ships these products into the EU they would have to pay duty and Vat as normal at import but then the customer in the EU would also have to pay duty and vat again as these goods would not qualify under the preference origin rule. The opposite would happen on an import from the EU.

On the positive side a Canada style agreement would mean that the UK can develop new Free Trade Agreements throughout the world, however, we already have access to large number of FTA through the EU and there is no guarantee the new agreements will be in place once we exit the EU or that they will be any better or even as good as the ones already in place. Therefore if you export to countries such as Mexico, Chile and South Africa for example and trade using an existing FTA you will need to check what impact this will have on your exports if the UK were to lose access to the agreements though the EU.

If you would like to speak to our Brexit Adviser, please contact brexitdesk@emita.org or call 01522 846949 for more information.

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