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Japan-EU EPA won't apply to U.K. under no-deal Brexit; EU expects May to request three-month delay

JIJI, Bloomberg

The economic partnership agreement between Japan and the European Union will cease to apply to the U.K. if it exits the EU at the end of March without a deal, the U.K. government revealed Thursday.

If the U.K. strikes a Brexit agreement with the EU, the EPA could continue to apply to the country.

“Leaving the EU with a deal remains the government’s top priority,” the U.K. government said.

Prime Minister Shinzo Abe and his British counterpart, Theresa May, last month agreed to conclude a free trade agreement between their countries, based on the assumption that the U.K. will leave the EU with a deal.

After the prospect of a “no-deal” Brexit grew, Japan and the U.K. held talks to sign a continuity agreement to preserve the terms of the EPA, but the talks failed.

This means Japanese firms would lose the benefits they enjoy from the Japan-EU EPA arrangements when trading with the U.K. only two months after the EPA took effect on Feb. 1.

According to the BBC, the U.K. has so far concluded new trade deals with only about 10 percent of the some 70 countries that have an EPA with the EU.

If the U.K. exits from the EU without any transition period, tariffs would instantly be raised sharply, which could cause considerable economic harm.

The U.K. is now trying to conclude new free trade deals that would take effect after exiting from the EU without a deal.

London also has said it is considering joining the Trans-Pacific Partnership free trade pact that took effect on Dec. 30, of which Japan is a member.

Meanwhile, the EU expects May to be forced to request a three-month delay to Brexit, two EU officials said.

Discussions between the two sides suggest May will ask for an extension to the two-year negotiating period if Parliament backs the Brexit deal but it isn’t signed off until an EU summit on March 21 and 22. That is emerging as the EU’s current plan.

The EU sees this as a “technical extension” to give Parliament time to pass necessary legislation related to its departure from the bloc. Anything longer than three months would put the U.K. under pressure to take part in European elections on May 23 to 26, something that both sides are keen to avoid.

May is racing against the clock to change a controversial part of her deal, known as the “backstop,” in a way that would be acceptable to both Parliament and the EU. However, with just five weeks to go until the U.K.’s scheduled departure from the EU and talks at an impasse, ministers and lawmakers in her own party are threatening to vote against her next week to give Parliament control of the process.

The prime minister has repeatedly spoken out against a delay, saying she wants to take the U.K. out of the EU as scheduled at the end of March. She’s never completely ruled it out, however. Any postponement would have to be requested by the U.K. and accepted by all the remaining 27 EU governments.

EU officials say the three-month extension would happen under their most optimistic scenario. The risk remains that the U.K. could leave the bloc on March 29 without a deal. Alternatively, May could be forced to contemplate a longer delay if she can’t get backing for the agreement, according to one official.

Finance minister Philip Hammond issued another veiled threat Thursday to quit the government if the U.K. ends up hurtling into a no-deal Brexit, while 100 moderate lawmakers in May’s Tory Party signed a letter, warning they’d vote against her to force her to delay Brexit and take no deal off the table, according to The Telegraph.

The prime minister was also reported to have been put on notice by four cabinet ministers that they’re prepared to vote for a motion to effectively prevent a no-deal departure, according to the Daily Mail.

U.K. and EU negotiators are continuing talks in Brussels to find a legal guarantee that the backstop arrangement preventing a hard Irish border, contained in the divorce deal, would apply only temporarily.

The EU signaled Thursday that talks between Brexit Secretary Steve Barclay, Attorney General Geoffrey Cox and EU chief Brexit negotiator Michel Barnier didn’t reach a breakthrough. May needs at least some proof of progress by next week, when members of Parliament are threatening to take control of the Brexit process.

In their letter, the 100 lawmakers said they were considering backing a move coordinated by the Labour Party’s Yvette Cooper and Tory Oliver Letwin to force a delay to Brexit if there isn’t an agreement. They are expected to put forward an amendment to May’s motion in an attempt to extend the U.K.’s EU membership beyond the end of March.