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Britain's Prime Minister Boris Johnson shakes hands with Canada's Prime Minister Justin Trudeau at the G7 summit in Biarritz, France, in August 2019.

POOL/Reuters

Canada and Britain have signed an interim trade deal that will take effect on Jan. 1, 2021, the day the U.K. cuts its final ties to the European Union.

Prime Minister Justin Trudeau and British Prime Minister Boris Johnson announced the deal in a video conference call on Saturday. “This is a good moment,” Mr. Trudeau said. The deal “makes sure that our businesses and [Britain’s] continue to work well together.”

Britain formally left the EU last January but it remains inside the bloc’s single market during a transition period which ends on Dec. 31. The U.K. and EU have been negotiating a comprehensive trade agreement but the talks have stalled. In the meantime, Britain has been eager to strike deals with other countries as it begins life outside the EU.

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“This is a fantastic agreement for Britain which secures transatlantic trade with one of our closest allies,” Mr. Johnson said in a statement.

The agreement between Canada and the U.K. will essentially roll over the provisions in the Canada-EU Comprehensive Economic and Trade Agreement, or CETA, which will no longer include Britain on Jan. 1. Both countries plan to start negotiations on a more detailed pact next year, which British officials said could involve areas such as digital trade, environmental issues and women’s economic empowerment.

The interim deal “will provide continued access to the benefits of CETA on a bilateral basis, including the elimination of tariffs on 98 per cent of Canadian products exported to the United Kingdom,” said a statement from Global Affairs Canada. “This will provide a competitive edge to Canadian exporters and businesses who will maintain preferential access to the United Kingdom market, even as the country exits the EU.”

“We do want an ambitious high-level trade agreement, a comprehensive agreement with the United Kingdom,” said Mary Ng, Minister of Small Business, Export Promotion and International Trade. She added that officials were in the process of finalizing the legal text which will then be put to Parliament for ratification.

Britain is Canada’s fifth largest trading partner – behind the U.S., China, Mexico and Japan – and trade between the countries totalled $29-billion in 2019.

Saturday’s announcement was welcomed by business groups in both countries. Josh Hardie, acting director-general of the Confederation of British Industry, called it a “real milestone” and added: “The signing of this deal can now lay the foundations for an even deeper trade agreement, tailored to both economies.”

Mark Agnew, senior director of international policy at the Canadian Chamber of Commerce, said the agreement was “a bright spot amid a gloomy and trying year for Canada’s exporters, importers and investors.” He also called on the Canadian and British governments “to publish details of the agreement so that businesses can understand all the practical details.”

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Negotiations on a more detailed Canada-U.K. deal won’t be easy. Canada and the EU spent eight years negotiating CETA, which is considered one of the most far-reaching trade agreements in the world.

Financial services will likely be a major focus for Britain in the negotiations. The service sector makes up nearly 80 per cent of the U.K. economy with financial services employing about one million people. CETA doesn’t cover financial services in any detail, but U.K. officials have indicated that liberalizing trade in services will be one of their priorities.

Agriculture is also expected to be a tricky area.

Last year, Britain’s former International Trade secretary, Liam Fox, flagged Canada’s supply management system for dairy products as a concern. “We are well aware from previous trade discussions that that is an issue,” Mr. Fox told reporters after a speech in London. “Of course the more that you want, the more you will have to give. The less you want, the less you have to give. That is the discussion that we will have.”

Canada’s dairy sector is already facing pressure from three major trade agreements: CETA; the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP; and the Canada-United States-Mexico Agreement. Each required Canada to give up some access to its dairy market. CETA alone is expected to more than double EU cheese imports to 31,972 tonnes, or about 7.5 per cent of the Canadian cheese market.

Dairy Farmers Canada have said that as a result of the three agreements, Canadian producers have lost at least $450-million in annual revenue. Pierre Lampron, the organization’s president, added that 18 per cent of Canada’s dairy production will be outsourced to foreign countries. “Due to these agreements, foreign producers will supply imported milk for dairy products which will displace Canadian dairy products on supermarket shelves,” he said in a press release this month.

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The British dairy industry is worth about £11-billion, or $18.8-billion, in annual sales, with cheese accounting for about £3-billion. Most British dairy exports go to other EU countries, but sales of cheddar cheese and milk powder to the United States have soared in recent years and the U.S. now represents around 15 per cent of total U.K. dairy exports. Those same products would likely head to Canada under a trade deal, say farm experts.

Dan Darling, president of the Canadian Agri-Food Trade Alliance, welcomed the interim agreement but called it a “stop-gap measure.”

The deal “simply reinforces a situation that remains unacceptable under CETA due to the persistence of trade obstacles that continue to hinder Canadian exports,” he said in a statement Saturday.

Both sides should begin talks on a more ambitious agreement that removes “tariffs and non-tariff barriers, provides liberal rules of origin and creates a level playing that will enable increased trade and deliver commercially viable two-way growth for agri-food,” he said.

Conservative trade critic Tracy Gray accused the government of presenting an “11th-hour trade deal” that was temporary and would require more negotiation.

“We will do our due diligence as expected by Canadians to study the enacting legislation for this transitional agreement to ensure it is a good deal for Canada and does not leave Canadian exporters worse off compared to CETA,” Gray said.

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With a report from The Canadian Press

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