CNBC Interview with U.K. International Trade Secretary, Dr Liam Fox MP, from the World Economic Forum 2019

Following are excerpts from a CNBC interview with Dr Liam Fox MP, U.K. International Trade Secretary, and CNBC's Nancy Hungerford.

NH: And I'm pleased to say that I am joined now by Liam Fox, the UK's International Trade Secretary, sir, it is a pleasure to have you on the show, last time-,

LF: Nice to-,

NH: We spoke, a few months ago, in Singapore-,

LF: [Laughs]. Yeah.

NH: A very different setting, I have to admit, though, still the same uncertainty hanging over Brexit, pretty much since the last time we spoke, and a lot of business leaders, policymakers here, are very concerned, still, about the ultimate outcome of Brexit, yet if you look at the UK market reaction, a lot of investors seem to be making a bet here that a no deal is off the table. Is that a safe bet?

LF: Well, there was an interesting report, this morning, from Deloitte, looking at inward investment to the UK-,

NH: Mm.

LF: And the question, not unreasonably, in the report, was why was FDI been so resilient-,

NH: Mm.

LF: In the UK, since the referendum? And the conclusions they came to are the ones that we, ourselves, come to, that the UK legal system, our flexible workforce, our labour laws, our regulatory and tax environments, the fact we speak English, our IP protection, our good universities, access to tech, are all reasons why investors, who are looking long-term-,

NH: Mm.

LF: Not at the next 18 months, are still investing in the UK. In terms of Brexit, I mean, I've been making the point, to my opposite numbers here, that we want there to be a deal, we hope there'll be a deal, we expect there'll be a deal, but there is always a chance that there won't be, and they need to make preparations for that no deal, including making bilateral arrangements with the UK, where we are a party to a trade agreement, by the virtue of our membership of the European Union.

NH: When they ask you what the odds of a deal are, what do you say?

LF: I said I'll-, I would have a better chance of predicting the lottery [laughs].

NH: [Laughs]. That's not very reassuring.

LF: I-, I think that-, I think it is a good chance that we'll get it, because I think there's a growing awareness-,

NH: Mm.

LF: Both in Europe and the UK, but perhaps, more importantly, inside Westminster, that, under the law, we-, the European treaties will not apply to Britain-,

NH: Mm.

LF: After the 29th of March-,

NH: Right.

LF: The chance of changing that law is very limited-,

NH: Mm.

LF: Therefore, unless we get a deal, then the no deal that everyone seems to want to avoid will happen. So, I think there's been-, since the-, the defeat of the government, over the previous proposals-,

NH: Yes.

LF: There's been a-, a very strong impetus to work for a deal, from both those who are remain, and those who are leave, in the referendum.

NH: And when you speak to your counterparts, European counterparts, here in Davos, do you sense a willingness, that their governments are willing to budge, especially on the key issue, which continues to be the Irish border, and the backstop?

LF: Well, of course, I don't get to speak to my trade counterparts, because they're all represented by the European Union, but I think that there is, and-, and talking to politicians-,

NH: Mm.

LF: Across Europe, and-, and in the Commission, I think there's a growing understanding that, if we were to set the framework for a good trade agreement with the European Union, which, of course, we can only enter in to-,

NH: Mmm

LF: Once we've left the EU itself, it's in everybody's interest to have agreed that withdrawal package, to set the scene for what should be a very effective FTA between the UK and the EU.

NH: Before we get there, there's been talk of the amendments on the table for the next vote, including an extension of Article 50 process. Do you think that's inevitable, at this stage?

LF: Well, of course, if you extend the Article 50 process, to give Britain time more-, to give Britain more time, in any negotiation, it's likely to trigger Britain's participation in the next European elections. And-,

NH: Right.

LF: I can't see that it's to the advantage of our European partners to have 70 UK MPs who don't really want to be there, or do I think it would go down very well with British voters, who would have to go to the expense of such an election, knowing that we're just going to be leaving, a few months later.

NH: But you could extend, with the hard line, saying before the May vote.

LF: Well, which gives us what? April?

NH: Yeah. Not much.

LF: It's-, it's not a-, there's not a huge amount in that. So, I think that, you know, we have promised we would leave, and-, and it-, a lot of this is not about the economics, it's about-,

NH: Mm.

LF: The-, the politics, and the credibility of the political process. Parliament in Britain gave the voters-,

NH: Right.

LF: The choice, on the EU, and they said, 'We will honour that referendum result.' We passed the Article 50, the legislation that enables it to happen, and we said, way back then-,

NH: Mm.

LF: Two and a half years ago, 'The end date will be March 29th.'

NH: Sure.

LF: One of the biggest problems there would be, would be to tell the British people that they had voted for something two and a half years ago, and Parliament, which promised to give it to them, was still denying it. I think there, you would get a-, a dislocation of the political process, of parliament from the voters, in a way that you've seen the, sort of, fragmentation of continental European politics. I don't want to see that in Britain.

NH: In some ways, I wonder, too, if it just fuels the populist anger out there. I mean, so much of the discussion here about populist politics, how to quell it, if you will, and we're talking about something, where those in parliament would be saying, 'Oh, the voters didn't really know what they wanted here.' I mean, do you think that only exacerbates the problem, how we got here in the first place?

LF: Well, I-, I-, I think it's-, it's wonderful insight, that you say that, because I think, if you look at the last election in Britain, 80% of the voters voted for one of the two main parties-,

NH: Mm.

LF: Totally different from what's happening in Europe, where there's fragmentation, and in France, the-, the main parties have just fizzled away. I don't want to see that fragmentation in British politics, and the best way to avoid that is for Parliament to keep its side of the bargain. It made a contract with the people. It must fulfil that contract.

NH: In order to do that, though, you have to get the EU back on board, and going back to the issue of the backstop, I mean, do you think this 'sunset clause', that has been touted, do you think EU will get on board that?

LF: Well, I think we should-, we need to explore all the possible ways. I mean, if you take it down to its most basic, we do not want there to be a hard border with Ireland-,

NH: Mm.

LF: A Northern Ireland/Ireland border, the Irish government don't want there to be a hard border-,

NH: Right.

LF: We both signed up to it in the Good Friday agreement. The problem, at the moment, is the mechanism that would guarantee that would potentially keep the UK locked in to a customs union, against its will, that's why we lost heavily in the House of Commons. It's surely possible for us to find a mechanism, given that we both want the-,

NH: Yes,

LP: The same end point, to get there, that's what we have to explore.

NH: And you've talked about the fact that you don't want to stay in the customs union, because that wouldn't deliver on the result of the vote initially, but isn't it still a less bad outcome, if you will, than a no deal? Would you still prefer staying in the customs union, over crashing out completely?

LF: I don't think a customs union delivers what the people voted for, and ultimately, I go back to the instruction we were given by the voters, they want to leave the European Union.

NH: But do they know-,

LF: If we're-,

NH: The details, of what-,

LF: Well, if they're unable to-, if we're unable to have an independent trade policy, and if we're unable to determine the countries that we make agreements with in the future-,

NH: Mm.

LF: If we have to apply European common external tariff, it's hugely restricting on what we can do, I can't see how you would get in to, for example, a free trade agreement with the US, or how we could get global liberalisation of services-,

NH: Yes.

LF: Through FTAs, if we were unable to do that. So the price would be very high, and I think that the democratic pushback in the UK would also be very high.

NH: Can you give us an idea of the progress you're making, in trying to replicate the 40 agreements, once the deadline hits here? Because I know you have been meeting with counterparts here in Davos. Have you been frustrated by the progress on this front?

LF: Not really. I mean, we've been making good progress, and to understand that, among the 37 or so agreements that we have, five of them make up three quarters of that-,

NH: Mm.

LF: So we're talking about 11.1% of total UK trade, the top five of those agreements make up 8 of that 11. Some countries are still saying to us, they don't want to put the work in to making these preparations, because they believe there will be a deal. My advice is-,

NH: Yeah [laughs].

LF: That your businesses will never criticise you for being over prepared, but they will certainly criticise you for being underprepared-,

NH: And-,

LF: Therefore, put in the extra work.

NH: And if they are underprepared, can you give us a better idea of what the no deal scenario looks like? Because it's often talked about, but when it comes to the actual tariffs you'll face, on day one, after the deadline, falling back in to WTO rules, what does that actually mean?

LF: Well, at the moment, all these agreements give us preferential access, and they deal not just with tariffs, but, of course, non-tariff barriers, which are the biggest impediments, potentially, to trade. And-, and-, and some countries say to us, 'Well, we assume that there will be an agreement, and we can look to our future trading relationship.' My argument is, any short-term disruption-,

NH: Mm.

LF: In some sectors, in particular, could be quite disruptive, so don't take the risk.

NH: Had you known what you know today, about the complications around the Irish border issue, would you still have backed the leave campaign?

LF: Yes. I backed it because I am a constitutional leaver. To explain it to American voters, it's like having a court, that has a higher authority than the Supreme Court, that sits in Ottawa, and tells-,

NH: [Laughs].

LF: The Supreme Court what to do. I don't imagine that going down very well with Americans, and as a UK citizen, I want to control the politicians, and the judicial system, under which I am governed-,

NH: Mm.

LF: I do not want it to belong to a foreign power, which I view has happened in the European Union. When I make it-, that analogy-,

NH: Mm.

LF: To my American political counterparts, they say, 'Yeah, absolutely-,'

NH: [Laughs].

LF: 'We would never accept that.'

NH: Well, we haven't had such a referendum, so who knows.

LF: [Laughs].

NH: It's been an absolute pleasure, sir, thank you-,

LF: As ever.

NH: So much for your time. That is Liam Fox, UK's International Trade Secretary with me.

ENDS