Britain and Canada paused talks over a new free trade agreement in January amid disagreement on Rules of Origin (ROO) arrangements, due to expire at the end of March, as well as mutual unhappiness about a lack of access to agricultural markets.

On Wednesday, Britain said Canada had decided not to roll over the Rules of Origin arrangements it had agreed when it left the European Union, terms that had been used as a stop gap while the two sides tried to agree on a full trade deal.

Under the terms, both sides agreed that UK goods that used inputs either from the EU or processed in the bloc should count as made in the UK and as such qualify for lower tariffs in Canada. An end to the agreement could leave carmakers that do not meet the new ROO requirements facing a tariff of 6.1 per cent in Canada.

“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,” a spokesperson for Britain’s Department for Business and Trade said.

“The UK government remains ready to work with Canada to find a solution that works for both countries, but we won’t accept rowing back on the current terms.”

Canada’s trade ministry did not respond to a request for comment.

British auto exports to Canada were worth almost 700 million pounds ($883.68 million) in 2023. Britain’s Society of Motor Manufacturers & Traders (SMMT) said new tariffs would be deeply disappointing.

“We urge all parties to be pragmatic, to resume negotiations on an upgraded trade deal and, in the meantime, agree the extension of EU cumulation that would avoid the imposition of tariffs until a new deal is finalized,” said SMMT Chief Executive Mike Hawes.

In late 2023, Britain rolled over similar ROO arrangements with South Korea and Mexico.

Britain and Canada, both members of the Commonwealth and the G7, are allies with close historical ties. But the negotiation of new trading terms has brought their competing interests to the fore.

British sensitivity to Canadian hormone-treated beef and spats over cheese quotas marred talks over a new free trade agreement.

A UK government source said the government had been trying to find an agreement with Canada over ROO for several months but that Ottawa had shown “no willingness” to agree an extension.

—Additional reporting for Reuters by David Ljunggren in Ottawa.

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The talks – which started in March 2022 – are among a number of negotiations Britain has launched around the world in the wake of its decision to leave the European Union, which excluded it from existing EU free trade deals.

“We are disappointed that negotiations with the UK are being paused. Their decision to continue to maintain market access barriers for our agriculture industry and unwillingness to reach a mutual agreement has only stalled negotiations,” said a spokeswoman for Canadian Trade Minister Mary Ng.

Ng has contacted British business minister Kemi Badenoch to express Canada’s disappointment, the spokeswoman added.

Canadian farmers complain they have been effectively shut out of the British beef market because of regulations banning the use of hormones.

In a statement posted on social media platform X, a British government spokesperson said “we reserve the right to pause negotiations with any country if progress is not being made”.

Before Britain left the EU trading sphere at the end of 2020, Canada rolled over existing trade arrangements to ensure free trade could continue.

One particular arrangement dealing with cheese access has now expired and a Canadian government official blamed Britain for the lack of an extension deal.

“Unfortunately, Britain did not act as fast as it should have in negotiations, and expects Canada to just give (it) these things,” said the official, who requested anonymity because they were not authorized to speak to the media.

Both sides said they were ready to resume talks. According to official British data, total bilateral trade in goods and services was 25.9 billion pounds (CAD $44.4 billion) in the year ending June 30, 2023, when Canada was Britain’s 18th largest trading partner.

According to Canadian data, bilateral trade with Britain in 2022 accounted for just 2.7 per cent of the total.

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Japanese Economy Minister Yasutoshi Nishimura told reporters he welcomed the start of Britain’s joining process after hosting an online meeting of ministers from the 11 countries that make up the trans-Pacific trade pact.

“I think there’s a big meaning to this from a strategic viewpoint of strengthening economic relations between Japan and the United Kingdom,” Nishimura said.

The United Kingdom’s admission into CPTPP would bring the nominal gross domestic product of the zone covered by the pact almost on par with that of the European Union, he added.

“The commencement of an accession process with the United Kingdom and the potential expansion of the CPTPP will send a strong signal to our trading partners around the world,” the 11 member countries said in a statement.

Britain made a formal request to join the trade deal in February as it sought to open new avenues for post-Brexit trade and influence.

The CPTPP removes 95 per cent of tariffs between its members: Japan, Canada, Australia, Vietnam, New Zealand, Singapore, Mexico, Peru, Brunei, Chile and Malaysia. Unlike the EU, it does not aim to create a single market or a customs union, and it does not seek wider political integration.

The United Kingdom and Japan signed off on a trade agreement in October last year, marking its first major post-Brexit deal on trade.

— Reporting for Reuters by Daniel Leussink.

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“For what we went through with China this whole year, this trade war, you had corn, wheat and soybeans close higher for the year on Dec. 31,” said Scott Capinegro of Barrington Commodity Brokers at Barrington, Ill.

“I think it’s a win for 2019,” he said, but cautioned the gains “weren’t really anything to talk about.”

As 2020 gets underway, the U.S. Department of Agriculture (USDA) is scheduled to release its January supply and demand report on Friday.

“We got a lot of corn still out in the field. What is the USDA going to say about that?” Capinegro said.

He’s hoping USDA’s world agricultural supply and demand estimates (WASDE) take into the account a large amount of corn that wasn’t harvested in 2019. He noted there was a particularly large amount left to overwinter in North Dakota.

When it comes to trade, one factor that has rankled Capinegro are the mixed messages that have come out of China regarding corn.

“Just two years ago China said they found all of this corn they stored. This morning, they’re saying their corn supply is down.”

China announced on Wednesday it has suspended plans to blend its gasoline to contain 10 per cent ethanol by 2020. The National Development and Reform Commission (NDRC) said the country’s corn stocks were too low to proceed with the plan that China originally promised in 2017, according to Reuters.

Capinegro also noted African swine fever reduced China’s usage of corn for feed and meal.

“It doesn’t add up,” he said, adding “China loves talking the markets down.”

The broker is hoping that next week’s expected signing of the Phase One trade deal between the U.S and China will be a boon to the markets.

As well, he said the U.S.-Mexico-Canada Agreement, which succeeds NAFTA, will soon be ratified by the U.S. and Canada. When both trade agreements are secured, Capinegro expects demand to pick up in 2020.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market reporting.

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China agreed to import more U.S. farm goods under the Phase 1 deal struck this month, providing support for farm markets. Chinese Vice-Premier Liu He will visit Washington this week to sign the agreement, the South China Morning Post reported.

China separately approved two new genetically modified crops for import that could boost agricultural purchases from the United States, the agriculture ministry said.

Traders and farmers hope increased Chinese demand will reduce inventories of U.S. crops that built up during the trade war. China, the world’s biggest soybean importer, shifted purchases to South America from the U.S. because of the dispute. Details have not been announced about what farm goods China will buy under the trade deal or when the purchases will occur.

“The big story of the day was the report that China has accepted an invitation to the U.S. to sign the Phase 1 trade deal,” said Karl Setzer, commodity risk analyst for AgriVisor.

Most-active soybeans futures on the Chicago Board of Trade rose 11 cents to $9.52-1/2 a bushel (all figures US$). They reached the highest price for a most-active contract since June 13, 2018.

A rally near three-year highs in Malaysian palm oil futures lent support to wider oilseed markets, including soybeans. Volumes were light at the CBOT, and traders were adjusting positions before the end of the year.

Corn slipped 1-3/4 cents to $3.88-1/4 a bushel after touching its highest price since Oct. 22, 2019.

Wheat futures pulled back after the most-active contract reached its highest price since August 2018 at the CBOT. The contract ended down 1/4 cent at $5.56.

The market advanced recently on hopes for increased Chinese buying and concerns about unfavourable crop weather reducing harvests in rival wheat exporters such as Russia, Ukraine and Australia. Export prices in Russia, the world’s biggest wheat supplier, rose for a seventh straight week last week.

However, prices were looking too high to some analysts.

“We think wheat is getting overdone,” said Craig Turner, senior commodities broker for Daniels Trading in Chicago.

Weekend rains in crop-growing areas of the U.S. Plains helped weigh on wheat futures, traders said. Rain and snow “provided local relief in areas experiencing drought,” according to a daily U.S. Department of Agriculture weather report.

— Reporting for Reuters by Tom Polansek in Chicago; additional reporting by Gus Trompiz in Paris and Emily Chow in Shanghai.

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The two men were picked up separately in December 2018, shortly after police in Vancouver held Huawei Technologies chief financial officer Meng Wanzhou on a U.S. arrest warrant. The two Canadians face state security charges.

Trudeau said Canada has been working with Washington in a bid to convince China to release the two men: businessman Michael Spavor and former diplomat Michael Kovrig.

“We have said that the United States should not sign a final and complete agreement with China that does not settle the question of Meng Wanzhou and the two Canadians,” Trudeau told Quebec television station TVA.

It was unclear whether Trudeau was referring to the so-called ‘Phase One’ deal between China and the United States, which has yet to be signed, or a more complete agreement.

U.S. Treasury Secretary Steven Mnuchin said on Thursday that the two sides would sign the Phase One trade pact, which calls for U.S. farm product exports to China to double over the next two years, at the beginning of January.

Joseph Crook, a spokesman for the U.S. embassy in Ottawa, said Washington was deeply concerned by the arrest of the two Canadians.

“President Trump and other senior officials have called for the release of the two detained Canadians in meetings with the highest levels of the Chinese government,” he said by email.

— Kelsey Johnson reports for Reuters from Ottawa.

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Trudeau’s Liberal government said from the start it wanted to work in tandem with Washington to formally approve the U.S.-Mexico-Canada Agreement (CUSMA), which was signed last year.

The United States, Mexico and Canada agreed last week to revised terms for CUSMA to replace the 1994 North American Free Trade Agreement.

Mexico has already ratified the deal and the U.S. House of Representatives will consider legislation on Thursday to implement the pact, a senior Democrat said. The House ways and means committee approved the revised pact by voice vote on Tuesday,

Canadian legislators, however, are not due back from a winter break until Jan. 27. The Liberals lost their majority in an October election and must work more closely with opposition parties to push through legislation.

“We might — because of our parliamentary calendar — be the last parties to ratify, so we’re going to have to try to get to it as quickly as we can,” Trudeau told Toronto’s Citytv.

Trudeau said he was reasonably confident his government would find enough votes to approve the treaty.

Eleanore Catenaro, a spokeswoman for Trudeau, said Ottawa still wanted to work with the United States as much as possible on ratification. She declined to say whether Trudeau might call lawmakers back to work ahead of schedule in January.

Canada’s two main opposition parties suggested last week they could move to delay ratification, accusing the Liberal government of botching revisions to the treaty.

— Reporting for Reuters by David Ljunggren and David Lawder.

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Chicago Board of Trade March corn futures settled up 6-1/2 cents at $3.77-3/4 per bushel, their biggest single-day advance in nearly two weeks (all figures US$).

CBOT March wheat ended up 11 cents at $5.30-1/4 a bushel and January soybeans rose 4-3/4 cents to settle at $8.98-1/4 a bushel.

All three markets advanced after Trump said the United States was “very close” to nailing down a trade deal with China, and the Wall Street Journal reported that U.S. negotiators had offered to suspend tariffs due to go into effect on Dec. 15. The White House had no comment on the report.

China is the world’s largest soybean importer and a major buyer of U.S. sorghum, pork and other agricultural products.

After the CBOT close, Bloomberg TV and Reuters reported that the United States had reached a deal in principle with China.

Additional support stemmed from news that the U.S. Department of Agriculture confirmed private sales of 1.6 million tonnes of corn to Mexico, the fifth-biggest one-day U.S. corn sale on record.

“As of the beginning of December, export commitments to everybody else but Mexico were record low,” said Bill Tierney, analyst with AgResource Co. in Chicago, citing cheaper supplies from South American suppliers.

“So luckily for us, the only market we are competitive in, price-wise, happened to be a huge market for corn,” Tierney said of Mexico.

The sale to Mexico, announced through the USDA’s daily reporting system, came after the agency reported stronger-than-expected weekly corn export sales totaling 876,000 tonnes. Weekly sales of U.S. wheat and soybeans also topped trade expectations.

In addition, with the U.S. harvest virtually wrapped up, CBOT futures were due for a rebound, Tierney said.

“We are near the seasonal lows, and here is this possibility that we could get a trade agreement which could stimulate exports to China. I would rather buy the market at this level than sell it,” Tierney said.

Wheat futures drew support from a forecast from consultancy Strategie Grains that soft wheat production in the European Union would fall 3.6 per cent in 2020 to 140.5 million tonnes, reflecting a decline in seedings.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago; additional reporting by Naveen Thukral and Sybille de La Hamaide.

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“Traders are trading headlines,” Reilly, an analyst for Futures International in Chicago, said in reference to the latest developments in U.S.-China trade talks.

Reports on Wednesday morning said the two countries were close to signing phase one, a partial trade deal that has languished unsigned since it was tentatively agreed to in October. Phase one was to have been signed last month at the since-cancelled Asia-Pacific Economic Co-operation summit in Chile.

Only on Tuesday, U.S. President Donald Trump stated a trade deal with China would very likely not be signed until after his country’s elections in November 2020.

As for wheat, the analyst said Minneapolis bids have remained fairly strong due to a possible durum shortage in Europe, as well as uncertainty surrounding the size of durum crops in Canada and North Dakota.

Statistics Canada issues its next crop production report on Friday and Futures International predicted Canadian durum to come in at 4.956 million tonnes. That would be down slightly from the federal agency’s September projection of 4.998 million.

Also, the U.S. Department of Agriculture (USDA) comes out with its next supply and demand report on Tuesday next week.

With USDA’s weekly export sales report to be released on Thursday, Reilly expects it to be uneventful. In particular, he said U.S. wheat will continue its struggle to find more international buyers.

Overall, Reilly expects CBOT to remain quiet, with prices “to wobble back and forth on headline news and geopolitical events.”

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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Officials are trying to agree on a series of tweaks to the U.S.-Mexico-Canada Agreement (CUSMA) to overcome concerns that provisions aimed at ensuring Mexico lives up to commitments on labour reforms are not strong enough.

“There is still a little more work to do,” Trudeau said ahead of a meeting with Mexican deputy foreign minister Jesus Seade. “Canada is extremely supportive of Mexico’s steps towards labour reforms.”

Seade, the Mexican official in charge of CUSMA negotiations, was due to hold talks on Friday with Canadian Deputy Prime Minister Chrystia Freeland.

Seade said on Wednesday that adjustments could be made to how labour disputes are handled to help push through CUSMA ratification. But earlier in the week he said Mexico would not accept what he called intrusive U.S. demands for greater labour market oversight.

Mexico is the only one of the three nations to ratify the deal, which was signed almost exactly a year ago. Canada says it will move in tandem with the United States.

— Reporting for Reuters by David Ljunggren.

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