The UK and Canada have agreed to continue trading under the same terms under the current European Union agreement after the Brexit transition period ends.
The government said the deal paves the way for talks to begin next year for a new comprehensive agreement with Canada, which has been touted as one of the benefits of the UK leaving the EU.
UK prime minister Boris Johnson and Canadian counterpart Justin Trudeau sealed the “agreement in principle” in a video call on Saturday, the Department for International Trade (DIT) said.
The deal “in principle” locks in certainty for UK businesses trading goods and services with Canada worth £20bn ($26.6bn).
International trade secretary, Liz Truss, said the “deal means certainty for businesses and industry and a foundation for a new advanced trade deal” adding that the agreement brings Britain a “step closer to joining the Trans-Pacific partnership.”
Truss added: “Today’s agreement underpins £20bn worth of trade and locks in certainty for thousands of jobs.
“We look forward to striking a new more ambitious deal next year with the aim of creating more opportunities for businesses and improving the lives of people across the country.”
The deal rolls over the settlement agreed by the EU with Canada in the Comprehensive Economic and Trade Agreement (CETA). It does not give any new benefits to UK businesses.
But, the DIT said it avoids an estimated £42m of tariffs, exporters in the UK would have faced without a deal.
Reaching an agreement with the “friendly ally” opens the doors to future discussion on collaborations on the environment, digital trade and women’s economic empowerment.
The UK-Canada Trade Continuity Agreement will be subject to final legal checks before it is signed.
Leading UK industry groups expressed relief that businesses will not face higher trade tariffs with Canada next month.
Federation of Small Businesses (FSB) chairman Mike Cherry said: “There was always a danger that the end of the transition period would mean losing wider international market access that we enjoyed as part of EU membership.
“The fact that this new agreement upholds the small business chapter that was previously in place is very welcome. We look forward to such chapters being at the centre of all future UK trade deals.”
Confederation of British Industry (CBI) director-general Josh Hardie said it was “great news for businesses” and that the agreement can “lay the foundations for an even deeper trade agreement.”
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