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Canada 'hedging their bets' on trade agreement with UK while they wait to see how Brexit turns out
Talks on rolling over a trade deal with Canada after the UK leaves the European Union have stalled over uncertainty about the possibility of a no-deal Brexit, international trade secretary Liam Fox has told MPs.Dr Fox said that Canada was one of a number of countries “hedging their bets” and holding back from a rollover agreement as they wait for the UK’s position to become clearer.Rather than agreeing to maintain the terms of its Ceta free trade agreement (FTA) with the EU, as he had hoped, Ottawa was looking to gain advantage from temporary tariff rates published by the UK Government which would grant tariff-free access to 87 per cent of imports in the case of a no-deal Brexit without requiring similar arrangements for British exports.The trade secretary dismissed claims from Conservative leadership frontrunner Boris Johnson’s claims that the UK could continue commerce with the EU on unchanged terms after a no-deal Brexit until a new FTA is sealed.Dr Fox, who is backing Jeremy Hunt as Theresa May’s successor, said it was “unrealistic” to think that the UK could use a process known as “Gatt 24” to continue trading with the EU on the same terms, as Mr Johnson has suggested.And he said it was “fanciful” to suggest Brussels will agree a future FTA without first securing a withdrawal agreement dealing with divorce issues.Dr Fox told the Commons International Trade Committee that a no-deal Brexit would be “sub-optimal economically” for the UK, undoubtedly causing a “market shock” to sectors such as farming.But he insisted that cancelling Brexit would be worse, because it would amount to a “grave democratic offence” with incalculable consequences.“Leaving without a deal would be sub-optimal, but if that’s what we have to do to fulfill out democratic mandate, that’s what we have to do,” said Dr Fox.“If you look at the political fragmentation in other places when the democratic will of the people has been denied, that’s not a route I want for the UK, because it brings with it its own economic disruption. Revocation - betraying the British people over Brexit - will bring greater economic turbulence than a managed no-deal.”The Leave-backing international trade secretary promised in 2017 that up to 40 FTAs from which the UK benefits as a result of EU membership would be replicated by the time of Brexit. Ceta was one of the largest and most important of these. So far only 11 rollovers have been completed.Dr Fox told the committee that a number of countries were holding back from concluding rollover deals because of the “understandable temptation” to see how negotiations with Brussels turn out.Talks with Canada were at an “advanced” stage last month, with more than 99 per cent of the agreement in place, he said.But he told the committee: “Countries were negotiating with us on the basis that there was a potential of a no-deal exit. When parliament then says parliament will make sure there is no possibility of a no-deal ext, those we are negotiating with get mixed signals. If parliament continues to be inconsistent, it is very difficult for the government to maintain a consistent position.”Dr Fox said that Canada hoped to gain advantage from the temporary tariff rates announced in March. But he urged Ottawa not to give up on rolling over the Ceta arrangements, warning that the temporary rates are guaranteed to remain in place for only one year.Continued uncertainty about the prospects of no-deal Brexit meant that agreement on the rollover of FTAs might not be achieved until the last moment, he warned.“I can’t see, unless we are able to get a change in the narrative which convinces or trading partners that we are going to leave with no deal, that much changes until the last minute,” he said.“On trade continuity agreements, we are very close to finishing. A number of countries leave a single item on the table, knowing they could remove it very quickly if a no-deal did come around. But they are understandably hedging their bets given they are getting mixed signals from the UK about whether parliament will block a no deal“As long as we give mixed signals, there will be an understandable temptation on their part to hold back to see how much they can get in any agreement.”Dr Fox said the EU had made clear that it will impose the World Trade Organisation’s “most favoured nation” tariffs on UK imports after a no-deal Brexit, rather than following Britain’s lead in granting tariff-free access to the bulk of goods.And he rejected the idea that Brussels would be ready to strike a deal with the UK on its future trading relationship until a withdrawal agreement - covering the settlement of the UK’s divorce bill, citizen’s rights and the Irish border - was in place.“There are all sorts of things we can offer the EU, but the EU has been very clear in its position from the very beginning,” said Dr Fox. “We could offer them all sorts of ranges of things but the EU have said that they are not willing to enter into a discussion with us about any future trade arrangement until we have got a withdrawal agreement.”
Liam Fox has slapped down Boris Johnson over his claim Britain could use international world trade rules to continue tariff-free trade with the European Union (EU) in the event of a no-deal Brexit.
Mr Johnson has argued that a provision under the General Agreement on Tariffs and Trade - known as Gatt 24 - could be used to avoid tariffs under World Trade Organisation (WTO) rules for up to 10 years.
But the international trade secretary, a Brexiteer who is backing Jeremy Hunt for the leadership, said that would require the agreement of the EU, which Brussels had made clear would not be forthcoming.
"In order to benefit from the terms of Article 24, there must be an agreement between two WTO members as to the elimination of duties and other restrictive regulations on substantially all trade," he said in an article posted on LinkedIn. "Therefore, Article 24 would not, by itself, allow the UK to maintain tariff-free trade with the EU in the absence of a negotiated agreement.
"A 'no deal' scenario, by definition, suggests that there would be no mutual agreement between the UK and the EU on any temporary or permanent arrangement. In those circumstances Article 24 cannot be used. The European Union has made it clear on a number of occasions that full tariffs will be applied to the United Kingdom in the event of 'no-deal'."
He added: "It is important that public debate on this topic is conducted on the basis of fact rather than supposition, so that we are able to make decisions in the best interests of our country."
His comments echoed the Bank of England Governor Mark Carney who said that without an agreement with the EU, WTO tariffs would apply "automatically" in the event of no-deal.
In an interview with LBC radio, Mr Johnson insisted Gatt 24 did offer a possible "way forward" but accepted that Mr Carney was right to say it required "mutuality".
"Where Mark is right, is saying that implies mutuality. There has to be an agreement on both sides," he said. "But he's wrong in thinking it's not an option. It certainly is an option, people are wrong if they say it's not an option."
Press Association