UK car exports to Canada face 6% tariffs within days as trade dispute deepens


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British car exports to Canada are facing tariffs of more than 6 per cent within days, as a deadlocked trade spat between the two allies descended into further acrimony on Wednesday.

British government officials said Kemi Badenoch, UK trade secretary, felt like she was banging her head “against a brick wall” as the tariff cliff-edge of April 1 approached.

Tensions escalated last month when Canada denied Badenoch’s claim that trade talks were continuing, even though she had unilaterally suspended them on January 25.

The resulting stand-off means that on April 1 a post-Brexit trade arrangement with Canada will expire, leaving some British car exports facing a 6.1 per cent tariff if they contain significant EU content.

“It’s a shame that Canada can’t see now, more than ever, it’s vital for allies to work together and remove barriers to trade, not reinforce them,” said a British official. “There’s only so long you can bang your head against a brick wall when the other side isn’t willing to find solutions.”

The dispute started in January when Badenoch halted free-trade negotiations with Ottawa in a row over Canadian hormone-treated beef, a move that left British cheesemakers and carmakers facing significant tariffs.

The UK and Canada have a trade agreement that was rolled over when the UK left the EU. The deal included preferential terms on rules of origin for certain products; these will expire on April 1.

British-origin cars must be 50 per cent UK-made in order to qualify for export to Canada without paying tariffs, a proportion that rises to 55 per cent in September.

Until April 1, UK carmakers can include parts from their EU supply chains to meet this threshold. Preferential terms for UK cheesemakers expired at the end of last year.

After pulling the plug on talks on January 25, Badenoch told MPs she was continuing to talk to Canada. Ralph Goodale, Canada’s high commissioner to London, denied that claim on February 20.

Badenoch did hold talks with Mary Ng, her Canadian counterpart, at a World Trade Organization conference in Abu Dhabi at the end of last month, but the discussions remain deadlocked.

The UK business and trade department said: “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.”

The dispute covers a relatively small area of trade: while eight in 10 UK-made cars are exported, Canada accounts for only 1.3 per cent of exports — worth about £700mn in 2023 — which are dominated by Jaguar Land Rover.

The Canadian High Commission in London said: “Canada has been clear that any agreement to extend these provisions must be mutually beneficial.

“Canada has also emphasised that extension should contribute to the timely conclusion of a bilateral free-trade agreement that serves the interests of both parties,” it said.

“While the decision by the UK to pause bilateral trade negotiations is disappointing and was not helpful towards achieving an outcome on this issue, Canada remains ready to engage further with the UK towards building upon our existing strong and long-standing trade relationship.”

Separate talks on a UK-India trade deal, originally scheduled to conclude before the Hindu Diwali festival in October 2022, were this month put on ice until after India’s general election, after months of haggling failed to yield a breakthrough.

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