After 31 March 2024, UK companies exporting goods to Canada which include EU textiles or other inputs, will lose preferential tariff access to the market unless they meet the new narrower Rules of Origin set out in the agreement. If they do not, UK companies will still be able to export those goods to Canada but their goods will attract duty at Canada’s MFN duty rate. Companies manufacturing in the EU will need to look at alternative logistics options which UKFT can assist members with.

Under the current UK-Canada Trade and Continuity Agreement (CEPA – also known as UK-CAN TCA), EU cumulation arrangements automatically expire on 1 April unless the two governments agree to extend or improve on the agreement before that date.

The UK and Canadian governments have been engaged in a lengthy series of negotiations on a new Trade Agreement to improve on the UK’s existing trade agreement with Canada which came into effect when the UK left the EU.

In January 2024 the UK government announced that it has paused the negotiations as no agreement on a new trade agreement has been reached.

As a result, whilst the existing UK-Canada trade agreement remains intact, the automatic inclusion of EU inputs to meet the Rules of Origin (ROO) for preferential/duty free treatment will come to an end on 1 April 2024.

What will happen on 31 March?

• The UK-Canada trade agreement will remain intact, but importantly
• The current EU cumulation provisions of it will end on 31 March 2024

What does this mean in practice for UK fashion and textile companies?

• With the expiry of EU cumulation, EU inputs and production will be considered non-originating, and UK companies exporting goods to Canada will need to meet the rule of origin applicable to their goods on the basis of UK materials and production alone.
• UK companies exporting goods to Canada of 100% UK origin (i.e. made in the UK of UK textiles or other materials) will be able to export to Canada on a preferential/duty free as they currently do
• After 31 March 2024, UK companies exporting goods to Canada which include EU textiles or other inputs will lose preferential tariff access to the market. They will still be able to export to Canada but their goods will attract duty at Canada’s MFN duty rate
• UK companies exporting goods to Canada which are certified EU origin would be able to export to Canada on a preferential basis through their EU subsidiary if the goods meet the ROO of the EU-Canada FTA (CEPA).

Some flexibility to use third-party inputs is built into the current rules of origin and will remain in place after 31 March. For example, unembroidered fabric from outside the FTA territory can be used within certain limits, i.e. as long as its value does not exceed 40% of the price of the final product. Without EU cumulation, these limits would apply to EU inputs in the same way they do to inputs from any other third party. UKFT members can speak to UKFT about this and the Government’s Export Support Service may be able to help UK companies at www.gov.uk

Similarly, the UK-CAN TCA includes a ‘Tolerance’ article which allows for the use of certain amounts of non-originating inputs, building additional flexibility into individual rules. These limits will now apply to EU materials.

UK exports which no longer comply with the UK-CAN TCA rules of origin will be subject to MFN duties. These duties vary by individual product and we strongly suggest checking the schedule in the link below to find the rate applicable to your specific exports. As a guide, however, the highest MFN duty rates for each product category are outlined below:

• Accessories: Up to 12%
• Bed linen: Up to 18%
• Carpets: Up to 13%
• Footwear: Up to 20%
• Garments: Up to 18%
• Headwear: Up to 15%
• Knitwear: Up to 18%
• Leather belts and saddles: Up to 8%
• Leather gloves: Up to 15%
• Table linen: Up to 18%
• Textiles (with exceptions): Free

Full details are at https://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2024/menu-eng.html

If companies are planning to export goods from the UK which include EU fabric or components under CEPA to Canada, this will need to have cleared Canadian customs before midnight on 31 March to qualify for preferential tariffs.

What happens next?

It is too early to tell whether the two sides will go back to the negotiating table but the deadline for a seamless transition for the EU cumulation benefits to be rolled over or extended by 31 March appears to have passed.

UKFT is working closely with the UK government and will provide further information as soon as it becomes available.

Any goods reliant on EU cumulation to meet origin requirements under the UK-Canada trade agreement for preferential duty-free clearance would need to pass through Canadian customs before 31 March 2024. Thereafter, duty would apply to such goods at the MFN rate unless they met the new ROO for the agreement.

UKFT: Helping UK fashion and textile companies to trade overseas