[co-author: Adam Walji - Articling Student]

On April 16, 2024, Bill C-282 passed second reading in the Senate of Canada. If adopted, this legislation would restrict Canada's trade negotiators from conceding further market access for products in the dairy, poultry and egg supply-managed industries in future free trade negotiations. The progress of Bill C-282 is relevant to Canada's trade negotiations with the United Kingdom (U.K.), which were temporarily suspended in January 2024, though technically remain ongoing. Negotiations have been in progress for more than two years to establish bilateral trade terms to replace those that Canada and the U.K. previously enjoyed under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) before "Brexit". Reports indicate that concerns with Canadian-produced beef and pork and access to Canada’s cheese market, among other issues, caused the U.K. to walk away from the negotiating table.

Access to Canada's Cheese Market

In Canada, dairy is a supply-managed industry, under which domestic production volumes and imports are controlled through quotas and a pricing mechanism to stabilize market prices.

When the U.K. left the European Union (E.U.), it concluded a Canada-UK Trade Continuity Agreement (CUKTCA) with Canada that allowed British cheese imports into Canada to continue to benefit from cheese quotas they received as a member of the EU, effectively maintaining the existing tariff-rate quota (TRQ) while the countries negotiated a new agreement. Pursuant to the side letter of the interim agreement that dealt with cheese TRQs, the U.K.’s access to the E.U. reserve TRQ expired on December 31, 2023. This has resulted in a decreased cheese quota for the U.K. to only the WTO Non-EU Reserve Quota, with “over access” British cheese imports subject to tariffs of up to 245.5 percent.

Throughout the negotiations, the U.K. has sought an increased TRQ so that more British cheese products receive the preferred tariff rate. In particular, the U.K. would like to recover the share of the Canadian market that it gave up when it left the E.U.

U.K. Ban on Hormone-Treated Beef and Pork

Canadian beef and pork exporters have long expressed frustration over the U.K.’s ban on imports of hormone-treated beef and pork under its food safety standards. The E.U. maintains a similar ban, which was found to be a violation of applicable WTO rules. The United States and Canada settled that dispute by agreement to accept an increased quota for high-quality "Hilton Beef" to compensate. The U.K. has also raised concerns regarding the carcass washes used in Canadian processing facilities.

Since the U.K. is no longer bound by the E.U. ban or the WTO ruling stating that it does not conform to trading rules, Canada has sought a relaxation of the prohibition, but the U.K. has stated that it will not budge on its import ban.

Automotive and Manufactured Goods Rules of Origin

Under CETA, the rules of origin grant E.U. and Canadian-origin automobiles and other manufactured goods preferential access to each other’s markets. Since the U.K. is no longer a member of the E.U., E.U.-origin components in U.K. autos will prevent them from qualifying for preferential treatment in a bilateral agreement absent a new deal. The U.K.’s biggest export to Canada is cars. Although the U.K.’s car exports to Canada are smaller in quantity than those to the EU, Canada remains an important market for the U.K. auto industry.

Constraints to Negotiations

Several considerations have significantly constrained the negotiators’ flexibility to reach a compromise in reaching a permanent Canada-U.K. bilateral trade agreement.

One such consideration is Bill C-282, which has been approved by the House of Commons and is currently at the committee stage in the Senate (the last step before final passage). The legislation aims to prevent the Canadian government from negotiating: (1) increases to TRQs applicable to dairy products, poultry or eggs; or (2) reductions to the tariff applicable to those goods when they are imported in excess of the applicable TRQ. The adoption of Bill C-282 could have lasting impacts on Canada's bargaining power, particularly with the Canada-United States-Mexico Agreement (also known as USMCA) coming up for review in 2026.

The Canadian dairy industry argues that the U.K. should be negotiating with the E.U. to recover the share that it left behind as a result of Brexit, rather than with Canada.

In the U.K., beef and pork farmers already face increased competition from New Zealand and Australia, whose exports benefit from free trade deals with the U.K. This has resulted in heightened pressure on the government to protect its farmers.

In addressing automobiles, Canada has numerous trade agreements that need to be navigated when negotiating in relation to rules of origin of U.K. automobiles. These include the USMCA, CETA, a bilateral agreement with South Korea, and an agreement with Japan through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

More broadly, Canada and the U.K. are grappling with the same points of contention under the CPTPP, to which the U.K. acceded in 2023. The CPTPP's terms do not apply between the U.K. and Canada unless or until Canada ratifies the accession, and the differences set out above may delay Canada's ratification.

What This Means for Business

The impasse that is preventing progress on the post-Brexit Canada-U.K. agreement has implications for various sectors of Canadian business.

• Importers of cheese products from the U.K. should be aware of the recent decrease of the U.K.’s cheese quota and the resulting increase in tariffs. They should consider how to adapt accordingly and prepare for the possibility that these restrictions may be in place for some time. One effect of this change has been German, French, Dutch and other European cheeses becoming relatively more competitively priced and more readily available.
• Canadian cheese producers should consider how they might replace market niches previously filled by U.K. cheeses, now less competitively priced.
• Canadian beef and pork producers will likely continue to face difficulties in increasing access to the U.K. market.
• Automobile importers should prepare for the potential increase in tariffs on U.K.-origin autos and its impact on the Canadian market for such vehicles.
• The adoption of Bill C-282 will fetter Canada’s negotiating leverage in future free-trade agreements, but should result in greater stability and predictability for the dairy, poultry and egg producing sectors.