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UK government Brexit reforms ‘risk trade war with Brussels’

The UK government has angered the EU by unveiling legislation that would allow it to disapply parts of the Northern Ireland protocol, prompting business leaders to warn of an impending trade war. 

In draft legislation and accompanying notes published late on Monday, the government says the protocol has imposed “burdensome bureaucracy and paperwork” for companies moving goods from Great Britain to Northern Ireland, and that ministers should be free to ignore parts of the protocol if deemed necessary.

But in a statement issued on Wednesday, European Commission vice president Maroš Šefčovič said the decision amounts to breach of international law, and that retaliatory measures would follow immediately.

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“There is no legal, nor political justification whatsoever for unilaterally changing an international agreement. Opening the door to unilaterally changing an international agreement is a breach of international law as well,” he said. “Let’s call a spade a spade: this is illegal.”

The protocol, agreed in 2019, means those goods are subject to checks and controls at Northern Irish ports, rather than when crossing from Northern Ireland into the Republic of Ireland.

Only a sixth of goods that move into Northern Ireland are likely to enter the EU market, yet all exports are subject to customs declarations and potential physical checks, the government argues. Goods must also comply with EU rules even if they remain in Northern Ireland. 

Foreign Secretary Liz Truss says the bill “will end the untenable situation where people in Northern Ireland are treated differently to the rest of the United Kingdom” without threatening the Good Friday Agreement, which forbids a “hard border” with the Republic of Ireland. 

“We are ready to deliver this through talks with the EU. But we can only make progress through negotiations if the EU are willing to change the protocol itself.” 

The UK is proposing the introduction of a so-called green lane for goods that will remain in Northern Ireland, and a red lane for goods that will be moved into the EU. Red lane goods would be subject to checks, controls and customs procedures, underpinned by strict penalties and robust data sharing, the government says. 

Use of the green lane would be subject to membership of a “trusted trader scheme” overseen by UK authorities and requiring detailed information on participants’ supply chains. 

European Commission vice-president Maroš Šefčovič says the move has been met “with significant concern” in Brussels. “Unilateral action is damaging to mutual trust,” he said in a statement issued on Monday. 

Šefčovič said that following extensive negotiations, the protocol was deemed the only viable solution to protect peace in Northern Ireland while addressing “the type of Brexit chosen by the UK government”. 

“No workable alternative solution has been found to this delicate, long-negotiated balance,” he added. “Any renegotiation would simply bring further legal uncertainty for people and businesses in Northern Ireland. For these reasons, the European Union will not renegotiate the protocol.” 

Fellow European Commission vice-president Josep Borrell Fontelles also emphasised the unilateral nature of the UK’s decision, saying it “casts an unnecessary shadow on EU-UK co-operation, undermining trust and credibility”. 

 

A looming trade war 

The growing impasse has prompted warnings from business leaders of an impending trade war. Richard Burge, chief executive of the London Chamber of Commerce and Industry, says the UK government’s action “risks significant harm to businesses in London and right across the whole of the UK”. 

“The introduction of this bill means we are now teetering on the brink of a trade war with the EU and that will mean further economic pain and falls in investment,” he says in a statement issued following the government’s announcement. 

Šefčovič said on Wednesday the European Commission will revive legal action against the UK, having formally opened infringement proceedings in March last year over its refusal to implement the protocol fully.

That process had been halted in September “in a spirit of constructive co-operation”, but the commissioner says the UK must now respond within two months or the case will be brought to the EU Court of Justice.

Šefčovič added that two new infringements were also being brought against the UK. The first alleges the country has failed to carry out legally required checks at the border in Northern Ireland, lacking adequate staffing and infrastructure to do so, while the second says the country has not provided with the EU with essential trade statistics.

However, experts believe a full-blown trade war is unlikely. 

Mujtaba Rahman, managing director for Europe at political risk consultancy Eurasia Group and a former European Commission economist, acknowledges that trust between the UK and EU “is completely broken”, but says Brussels officials are “keen not to escalate confrontation further”. 

The EU fears further dividing allied western nations during the war in Ukraine, and is wary of worsening concerns over rising food and energy prices, Rahman adds. 

Šefčovič said Brussels would remain open to exploring flexibilities within the existing protocol text, acknowledging “practical difficulties” in implementation so far. He noted that the commission has already proposed bespoke arrangements to facilitate the movement of goods between Great Britain and Northern Ireland. 

There also remains uncertainty over whether the proposed legislation will pass. Opposition parties have already vowed to vote against the reforms, and Prime Minister Boris Johnson also faces resistance from within his own party. 

Conservative MP Simon Hoare, who chairs the cross-party Northern Ireland Affairs Committee, told the House of Commons last month: “Respect for the rule of law runs deep in our Tory veins. I find it extraordinary that a Tory government needs to be reminded of that.” 

The proposals also coincide with fresh research suggesting Brexit has had a devastating effect on UK trade. In a report published last week, The Centre for European Reform estimates goods trade is 13.6% lower than had the UK remained an EU member state. 

Comparing the British economy to a basket of countries with similar economic performances prior to Brexit, the Brussels-based think tank suggests UK GDP is 5% smaller and investment 14% lower as a result of leaving the bloc. 

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