As the EU and UK once again return to negotiations over a new deal, businesses remain uncertain exactly how trade will continue once the transition period ends on 31 December 2020.
Up until recently, the UK Government was said to be focusing on a Canada-style deal, but as negotiations ground to a halt earlier this month the Prime Minister, Boris Johnson, warned the UK to prepare for an ‘Australian-style deal’.
To the average individual, it may not be clear what the difference between the two deals means in reality so to help we have produced a quick guide on the pros and cons of each arrangement.
Of course, alongside these two deal options there remains the prospect that the UK does not sign a trade deal at all with the EU.
Canada-style
Canada has had a trade agreement with the EU since 2017, known as the Comprehensive Economic and Trade Agreement (CETA), which gives Canada almost completely tariff-free trade in goods.
The deal also protects EU ‘geographical indications’, whereby products with a specific geographical origin are protected, such as Camembert cheese or Champagne. This prohibits Canada from importing any goods using the same names from another country.
Under CETA, Canada and the EU also cooperate on standards, ensuring that a product cleared under EU safety and security rules does not have to undergo further checks if imported into Canada.
The main selling point of the deal are the increased quotes on exports, which allows a certain amount of a product to be exported before tariffs are applied, however, it doesn’t eliminate charges altogether.
As an example, under CETA the amount of tariff-free cheese that the EU can export to Canada increased from 18,500 tonnes to 31,972 tonnes a year.
However, while 98 per cent of products are tariff-free, import taxes do remain on some goods, such as meat, eggs and poultry.
Although these arrangements reduce regulatory trade barriers, Canada still faces more red tape and costs than EU countries do when trading with each other.
Australian-style
Despite all the talk of an Australian-style deal, the reality is that the EU doesn’t have a free trade agreement with the EU – although it is currently negotiating one.
Should the UK trade with the EU using the current Australian terms, businesses would not have the favourable access to the EU market they currently enjoy.
Instead, they would face the EU’s standard World Trade Organisation (WTO) tariffs when exporting to the continent, and EU businesses would face the UK’s standard WTO tariffs when exporting to the UK.
This could mean that cars imported to the UK from the EU could be 10 per cent more expensive, while the price of exported milk, cheese and some meat would increase by up to 30 per cent.
More importantly, the UK’s key services market would lose any preferential access to EU markets under an Australia-style deal.
In some ways, some commentators have pointed out, an Australian-style deal is very similar to a no-deal scenario.
Here to help
Regardless of what type of deal is achieved, the team at Reanda UK will be on hand to provide advice and support to businesses in need.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg & Co Limited. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please contact us.