UK threatens to scrap parts of Brexit deal

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Johnson will travel to Northern Ireland on Monday for emergency talks.

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LONDON — The British government is again threatening to unilaterally roll back large parts of the Brexit deal struck with the European Union, raising the prospect of a trade war amid a power-sharing crisis in Northern Ireland .

British Prime Minister Boris Johnson will travel to Belfast on Monday in a bid to defuse tensions over the Northern Ireland Protocol, part of the post-Brexit trade deal that requires checks on certain goods entering Northern Ireland from the rest of the UK.

The hastily organized trip comes shortly after Northern Ireland’s largest Unionist party blocked the election of a Stormont Assembly speaker, preventing the formation of a new executive in the province .

The Democratic Unionist Party, which came second to Sinn Fein in the May 5 election, has refused to rejoin the executive until the protocol is rewritten. The deal came into force in January last year, having been designed to avoid the need for a hard border between Northern Ireland and the Republic of Ireland, which is still part of the EU.

The DUP says UK lawmakers must scrap the protocol, arguing that a customs border has been created across the Irish Sea and this undermines Northern Ireland’s place in the UK.

Northern Ireland protocol requires checks on certain goods entering the province from the rest of the UK

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Sinn Fein, which agrees to the protocol, has the right to appoint the executive premier after becoming the first nationalist party to win the most seats in Northern Ireland’s 101-year history.

However, under a power-sharing agreement introduced in the 1990s, a new government cannot be formed without the DUP. The Prime Minister and the Deputy Minister must be a Unionist and a Nationalist.

The lack of a functioning devolved government has caused concern among UK lawmakers. Indeed, without it, there are fears of a return to street violence that could threaten the fragile peace since the Good Friday Agreement.

Signed on April 10, 1998, the Good Friday Agreement is a historic truce that ended three decades of sectarian violence in Northern Ireland between Irish separatists and British loyalists.

Why is the protocol in danger?

Johnson – despite renegotiating and signing the Northern Ireland Protocol – is again considering making changes to the deal, a move that would risk retaliation from the EU and could spark a trade war.

Writing in the Belfast Telegraph on Sunday, Johnson said “it will be necessary to act” on the protocol if the EU’s position does not change. He said the deal was now obsolete given that it was designed before the coronavirus pandemic, Russia’s war with Ukraine and a cost of living crisis.

Foreign Secretary Liz Truss warned last week that the UK would have “no choice but to act” if European lawmakers did not show the “required flexibility” on the protocol.

European Commission Vice-President Maros Sefcovic said it was “simply not acceptable” for the UK to make such threats, adding it was still “gravely concerning” that the Johnson government intends to embark on the path of unilateral action.

Sinn Fein’s Michelle O’Neill, the newly elected First Minister of Northern Ireland.

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The EU proposed amendments to the protocol in October last year, focusing on new flexibilities in the area of ​​food, plant and animal health and medicines, among other issues. The United Kingdom rejected this plan.

“The UK government, for its part, is just looking for what I think in the jargon of current political chatter in Westminster is known as ‘red meat,'” said Christopher Granville, chief executive of consultancy TS Lombard, to CNBC by phone.

“So hanging on to an emotional Brexit issue of the EU trying to divide the UK and dictate to the UK – and the UK government shows it’s standing up to Brussels and abandoning the protocol,” Granville said.

Asked if Downing Street’s stance on the protocol appeared to be designed to distract the British electorate from issues such as the cost of living crisis and damaging local election results, Granville replied: “Exactly. It’s my reading – and that’s why it comes around every once in a while.”

“The reality is that the EU, under the leadership of Commissioner Sefcovic, has always been open to discussing pragmatic ways to adapt the operation of the protocol and has agreed to various derogations and moratoriums… but of course that does not make the matter politically. either for the DUP or for the British government.”

Belgium’s De Croo and Germany’s Scholz have both called on the UK to avoid taking unilateral action on the Northern Ireland protocol.

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Germany’s Olaf Scholz called on the UK to avoid taking unilateral action on the protocol, while Belgian Prime Minister Alexander De Croo said the UK’s failure to stick to the deal would create a significant problem for the EU internal market.

“Our message is pretty clear. Don’t touch it,” De Croo said at a press conference alongside Scholz on May 10. “It is something we have agreed on and the agreements must be respected.”

The United States, meanwhile, has encouraged dialogue between Britain and the EU to resolve the impasse.

Former British Prime Minister Theresa May has warned that the UK scrapping parts of the protocol could damage Britain’s reputation for respecting international law.

trade war

The UK government is not believed to have decided to trigger Article 16 of the protocol, a safeguard mechanism that allows either party to suspend parts of the deal if it appears to be on hold. cause serious problems.

Mujtaba Rahman, chief executive of consultancy Eurasia Group, said legislation allowing the government to unilaterally roll back the protocol would take at least six months to a year to pass, citing opposition to the measure in the House of Commons. lords.

“In the short term, a more combative UK-EU relationship is likely to come with relaunched legal action from Brussels, with the risk of a trade war only next year,” Rahman said in a research note. .

The pound was last seen at $1.2216 on Monday morning, down around 0.4% for the session.

“There are many reasons why the British pound is weakening at the moment. First and foremost, the superior aggressiveness of the US Fed and the strength of the US economy which can sustain interest rates higher compared to the high risk of stagflation in the UK,” Granville said. said.

“But, at the margin, if the extreme risk of a blowout of the UK-EU trade deal were seen to be magnifying – which is certainly a scenario – then you could expect further weakness in the pound,” he added.

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