UK says rules of origin deal with Canada probably won’t be extended

London | Reuters—Britain said on Wednesday that post-Brexit trade arrangements with Canada that enable its carmakers to avoid high tariffs there were likely to expire next week, marking the latest deterioration in trade ties between the historic allies.

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Britain and Canada paused talks over a new free trade agreement in January amid disagreement on Rules of Origin (ROO) arrangements, due to expire at the end of March, as well as mutual unhappiness about a lack of access to agricultural markets.

On Wednesday, Britain said Canada had decided not to roll over the Rules of Origin arrangements it had agreed when it left the European Union, terms that had been used as a stop gap while the two sides tried to agree on a full trade deal.

Under the terms, both sides agreed that U.K. goods that used inputs either from the EU or processed in the bloc should count as made in the U.K. and as such qualify for lower tariffs in Canada. An end to the agreement could leave carmakers that do not meet the new ROO requirements facing a tariff of 6.1 per cent in Canada.

“Canada’s decision not to roll over these Rules of Origin will increase the cost of trade and hurt businesses on both sides of the Atlantic,” a spokesperson for Britain’s Department for Business and Trade said.

“The U.K. government remains ready to work with Canada to find a solution that works for both countries, but we won’t accept rowing back on the current terms.”

Canada’s trade ministry did not respond to a request for comment.

British auto exports to Canada were worth almost 700 million pounds ($883.68 million) in 2023. Britain’s Society of Motor Manufacturers & Traders (SMMT) said new tariffs would be deeply disappointing.

“We urge all parties to be pragmatic, to resume negotiations on an upgraded trade deal and, in the meantime, agree the extension of EU cumulation that would avoid the imposition of tariffs until a new deal is finalized,” said SMMT Chief Executive Mike Hawes.

In late 2023, Britain rolled over similar ROO arrangements with South Korea and Mexico.

Britain and Canada, both members of the Commonwealth and the G7, are allies with close historical ties. But the negotiation of new trading terms has brought their competing interests to the fore.

British sensitivity to Canadian hormone-treated beef and spats over cheese quotas marred talks over a new free trade agreement.

A U.K. government source said the government had been trying to find an agreement with Canada over ROO for several months but that Ottawa had shown “no willingness” to agree an extension.

—Additional reporting for Reuters by David Ljunggren in Ottawa.