UK and Canadian governments halted trade negotiations earlier this year. While the existing UK-Canada ‘Trade Continuity Agreement’ remains in place, a vital ‘EU cumulation’ clause which helped UK businesses to enjoy zero-tariffs is set to come to an end. What does this mean for beauty?

In 2019, Canada was the UK’s 15th largest trading partner, accounting for 1.6% of total UK trade. What’s more, UK imports from Canada were £10.9 billion, making it the UK’s 16th largest import source.

Knowing this the UK and Canadian governments set out to ensure smooth trading post-Brexit. In 2021 the UK-Canada Trade Continuity Agreement (TCA) came into force and has been the only free trade agreement in force between the UK and Canada after the end of the transition period. The TCA is based on the Comprehensive Economic and Trade Agreement (CETA), previously agreed between the EU and Canada.

Before we delve into expected tariffs…

What is the UK/Canada TCA?

The trade agreement came into effect three years ago and, with the inclusion of an ‘EU cumulation’ clause, enabled UK businesses to use EU content to meet Rules of Origin.

It allowed UK businesses to treat inputs imported from the EU as ‘originating’ when considering whether UK goods made from these inputs and traded between the UK and Canada are eligible for zero-tariff treatment.

Despite the pause in negotiations for an updated FTA, the TCA remains in force, with reduced tariffs available across most manufactured goods for businesses that meet the required Rules of Origin. However, the TCA’s EU cumulation clause is set to expire on 1 April 2024. 

How will this increase the costs of trading?

With the EU cumulation clause coming to an end, businesses that are reliant on EU inputs in the goods they export to Canada could face MFN tariffs.

Expected MFN Tariffs for beauty and cosmetic products are set out in Chapter 33 of the Canadian Customs Tariff. You can read the chapter here.

The Department for Business and Trade is encouraging businesses to consider whether they may be affected by the scheduled expiry of the EU cumulation clause and potential tariff liabilities due to this change.