Canada ‘hedging their bets’ on trade agreement with UK while they wait to see how Brexit turns out

Labour has warned that UK exporters risk being frozen out of key markets after a no-deal Brexit, after international trade secretary Liam Fox admitted that talks on rolling over an EU trade deal with Canada have stalled.

Mr Fox told a parliamentary committee that Canada was one of a number of countries “hedging their bets” and holding back from a rollover agreement as they wait for the prospect of a no-deal withdrawal from the EU to become clearer.

Rather than agreeing to maintain the terms of its Ceta free trade agreement (FTA) with the EU, as he had hoped, he said 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.

Mr 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.

Mr 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 our democratic mandate, that’s what we have to do,” said Mr 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.

Mr 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 exit, 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.”

Mr 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 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.”

Shadow international trade secretary, Barry Gardiner, responded: “Today’s revelation that Canada will not agree to roll over the Comprehensive Economic and Trade Agreement (Ceta) with the UK shows just how stubborn and ideological Fox has been in preparing our future trade relations.

“The Canadians have recognised that such an arrangement gives their exporters a significant advantage and that the government’s foolish approach will ensure that they do not have to offer trade preferences in return. A no-deal Brexit means that our exporters face being shut out of core markets or having huge tariffs levied on their goods whilst importers into our market will not. Quite simply, it will be impossible to compete.

“Those campaigning to be our next prime minister must immediately rule out a no-deal Brexit and ensure that this situation cannot be allowed to arise.”

Mr 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 Mr 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.”