A major US-based military vehicle manufacturer has warned the Canadian government against terminating a $12bn arms deal with Riyadh, after Prime Minister Justin Trudeau suggested that Ottawa was seeking a way out.

General Dynamics Land Systems (GDLS), a Canadian subsidiary of General Dynamics Corporation, a US-based multinational aerospace and defense corporation, stated on Monday that the potential severance of the 2014 deal would strike a heavy blow to the company, its Canadian employees and to the Canadian defense industry in general.

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“Were Canada to unilaterally terminate the contract, Canada would incur billions of dollars of liability to General Dynamics Land Systems-Canada,” a GDLS statement reads.

If Ottawa moves forward with scrapping the contract, it “would have a significant impact on our highly skilled employees, our supply chain across Canada, and the Canadian defense sector broadly,” it stressed.

The warning comes a day after Trudeau, under mounting pressure to cancel the deal after journalist Jamal Khashoggi’s murder in a Saudi consulate in October, hinted that his government has been exploring options to end the controversial agreement.

“We are engaged with the export permits to try and see if there is a way of no longer exporting these vehicles to Saudi Arabia,” the PM told Canadian CTV broadcaster on Sunday.

Trudeau’s statement is a stark turnaround from his previous stance on Canada’s arms sales to Saudi Arabia. While several countries, including Germany, Denmark and Finland, halted their arms trade with Riyadh in the wake of the scandal, Canada, like the US, defended its billion-dollar arms contracts with the Saudis.

Speaking in October, Trudeau said that, although the brutal killing of Khashoggi was “extremely preoccupying to Canadians,” he does not want to leave Canada “holding a billion-dollar bill because we are trying to move forward on doing the right thing.”

Canada is liable to incur $747 million in penalties (Can$1 billion) if it pulls out of the contract, apart from whatever it ends up owing General Dynamics.

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The deal to deliver hundreds of armored vehicles to Saudi Arabia was clinched under the Stephen Harper-led conservative government, the predecessor of Trudeau’s liberal government, which came to power in 2015. Despite controversy over Saudi Arabia’s questionable human rights record, Trudeau voiced support for the deal. Although it did not initiate the agreement, the current Canadian government’s approval was crucial in its implementation. In 2016, it covertly greenlighted export permits covering some 70 percent of the deal.

As revealed by CBC News this year, the vehicles, to which Trudeau once referred as “jeeps,” include 119 highly-advanced LAV6 heavy assault vehicles furnished with 105mm cannons, as well as 119 “anti-tank” vehicles and the same number of “direct fire” support vehicles. The deliveries have been underway since at least early 2017.

After the Canada-made armored vehicles were spotted taking part in the Saudi government’s crackdown on Al-Qatif province –with its historically Shia population– last year, the Canadian authorities sounded the alarm, with Foreign Affairs Minister Chrystia Freeland launching an investigation into the clashes.

However, the deal stood intact, Riyadh arguing that it was using the combat vehicles to fight “terrorists” in Shia communities.

After the deal was given a blessing by the Trudeau government, Canada became the second biggest arms supplier to the Middle East, trailing only the US.

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