EU Threatens U.K. With Tariffs as Northern Ireland Spat Escalates

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The European Union warned it could impose tariffs and quotas on the U.K. as a bitter Brexit dispute over trade with Northern Ireland escalates.

“We are at a crossroads in our relationship,” European Commission Vice President Maros Sefcovic told reporters on Wednesday after talks with U.K. Brexit Minister David Frost ended without a breakthrough. “Patience is wearing very, very thin.”

At issue is Prime Minster Boris Johnson’s effort to backtrack from a legally binding agreement the U.K. spent years negotiating to secure its orderly withdrawal from the bloc. In a bid to avoid customs checks on the island of Ireland, he agreed to put a trade border in the Irish Sea.

The U.K. has since said it underestimated the disruption the move would wreak on businesses in Northern Ireland, and has sought to delay implementing parts of the accord -- something the EU has strongly resisted.

If the U.K. makes more unilateral changes to the accord, Sefcovic said the bloc could retaliate by suspending cooperation in certain sectors and that quotas and tariffs “could come into play.”

“We hope to avoid it,” he said. “It’s not too late. Let’s correct the path, let’s focus on what unites us.”

Relations Worsen

While Brussels officials have previously warned in private that the bloc could take retaliatory measures under the terms of Britain’s Brexit deal, Sefcovic is the first to make the threat in public and detail the potential reprisals. His comments signal how far relations between the EU and U.K. have deteriorated six months after the two sides struck a zero-tariff, zero-quota trade accord.

“For now, the short-term trajectory is an escalatory one,” Mujtaba Rahman, Eurasia’s managing director for Europe, said in a research note on Wednesday, rating the chances of a trade war as early as July at 30%. Johnson will see “standing up to Brussels” as a popular move among voters, making it unlikely he will back down, he wrote.

Johnson said any solution must protect Northern Ireland’s trade to and from both Great Britain, as well as with the Republic of Ireland.

“I think it is easily doable,” he told broadcasters on Wednesday. “What we want to do is make sure that we can have a solution that guarantees the peace process, protects the peace process, but also guarantees the economic and territorial integrity of the whole United Kingdom.”

‘Excessively Purist’

A senior U.K. official close to the negotiations said Britain doesn’t want a trade war, and that the EU should “think hard” before retaliating. The bloc’s “excessively purist” approach is “risky” given Northern Ireland’s history of violence, the official added.

The pound gave up its earlier gains and fell 0.2% to $1.4120.

“Sterling is under pressure as the tensions between the EU and the U.K. were put on a full display,” said Valentin Marinov, head of G-10 currency research at Credit Agricole. “The post-Brexit uncertainty is still very much there and could continue to cloud the outlook for the U.K. services sector.”

Tensions are set to grow in coming days. A grace period allowing traders in the rest of the U.K. to continue selling sausages and chilled meat in Northern Ireland is set to expire on June 30. After that, some products will be banned because the EU rules have no provision for certifying that they are safe to eat.

The senior British official stated that a unilateral extension is one option being considered by the U.K. -- a step Sefcovic warned could provoke the EU to respond “swiftly, firmly and resolutely.”

Border Checks

Asked if the EU was prepared to be flexible on the grace period, Sefcovic said it would be “very difficult” because the U.K. hasn’t set up the border controls it promised to.

“We still do not have, obviously, the basic prerequisites of the agreement in place, like IT systems, facilities and people,” he said. “We do not have the tracing, the labeling and all of the things which have been promised to us.”

Despite the saber-rattling, the two sides said they had made progress in some areas of the negotiations, including rules allowing guide dogs to enter Northern Ireland from Great Britain and the taxation of second-hand vehicles. The U.K. said it expects progress will be made to improve the supply of medicines to Northern Ireland -- an issue Sefcovic told reporters he is personally taking “very seriously.”

Frost is now heading to this week’s Group of Seven summit in Cornwall, southwest England. His presence suggests that Johnson is preparing to mount a stiff defense of his position if he comes under pressure from U.S. President Joe Biden and EU leaders.

The Times newspaper reported this week that Biden will warn Johnson not to renege on the Brexit pact, while several senior U.S. politicians have previously said that Britain can forget a trade agreement if the deal is broken.

©2021 Bloomberg L.P.

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