EU to proceed with legal action if UK ignores Northern Ireland Protocol

• EU to potentially hit the UK with retaliatory trade tariffs
• Lord Barwell states that UK Government knew Northern Ireland protocol was a ‘bad deal’
• US President Joe Biden to tell UK Prime Minister Boris Johnson to honour the Northern Ireland protocol during this week’s G7 summit
• French President Emmanuel Macron says UK must find a way to make NI protocol work
• GBP/JPY edges higher despite growing post-Brexit concerns

The European Union (EU) has threatened to proceed with legal action this week if the UK fails to honour the Northern Ireland (NI) protocol and continues to breach Brexit trade terms. An EU official stated that the EU’s patience is now wearing thin ahead of this week’s negotiations between European Commission Vice President Maroš Šefčovič and UK Brexit Minister Lord Frost.

Currently, the two sides are locked in a disagreement regarding checks for goods entering Northern Ireland from the UK after London decided to extend the grace period on supermarket goods and parcels in March. These actions introduced to minimise supply chain disruption soon prompted the EU to take legal action against the UK, believing the move to be unlawful and in breach of the Brexit trade deal.

The UK/EU Brexit trade deal agreed in 2019 and instated a trade border in the Irish Sea. The trade deal maintained Northern Ireland in the EU single market, meaning EU customs rules were to operate at its ports. Whilst the UK and EU agreed to phase checks through a series of ‘grace periods’, the UK extended some of these unilaterally, much to the frustration of the EU.

Tensions between the UK and Brussels are set to intensify after reports emerged that the UK is considering extending its grace period on chilled meat products. The EU official confirmed the EU had given the UK an ultimatum to reverse its unilateral measures or ‘continue down a confrontational path’.

The next steps of the EU’s legal procedures instruct the UK to withdraw the postponement of border checks. If the UK fails to fulfil the request within two months, the case will head to the Court of Justice of the EU. If the UK still fails to comply with EU orders, the bloc could impose retaliatory tariffs on UK exports.

Responding to the EU’s reaction, Lord Frost stated that the bloc should show greater flexibility regarding UK/NI border checks, offer more pragmatic solutions and accused the EU of ‘legal purism’. Whilst the EU stated they were willing to be flexible on issues such as medicine and livestock, the UK’s unilateral decision making and ‘not respecting international obligations’ would not be tolerated.

UK Government ‘knew NI protocol was a bad deal’

Former Chief of Staff to Prime Minister Theresa May, Lord Barnwell, has argued that the UK Government was aware that the Northern Ireland protocol was a poor deal from the outset. He accused UK Prime Minister Boris Johnson of agreeing to the deal in a bid to ‘get a Brexit deal done’ with the intention of backing out at a later date.

Over the weekend, Lord Frost admitted that the UK underestimated the impact of the NI protocol and the effects this would have on the movement of goods between the two countries. However, shortly after the deal was agreed in 2019, the UK Government conducted an impact assessment which outlined that businesses should anticipate greater complexity when moving goods between the UK and Northern Ireland.

Lord Frost and Maroš Šefčovič will meet on Wednesday to assess what progress has been made so far in abridging the NI protocol. The talks are set to address around thirty issues surrounding the movement of goods between the UK and Northern Ireland, ranging from pet travel, food products and VAT on used cars.

UK officials are hopeful that the UK and EU can reach viable solutions on a handful of matters, though they believe the majority will be subject to ongoing disagreements. Mr Šefčovič stated that the European Commission would not stand any further defiance from the UK, and the EU would not hesitate in acting swiftly, firmly and resolutely.

Mr Šefčovič’s warning follows reports that US President Joe Biden will highlight the importance of honouring the NI protocol to UK Prime Minister Boris Johnson during this week’s G7 summit.

Biden to put pressure on Johnson to resolve NI protocol woes

US President Joe Biden lands in the UK this week for the G7 summit in Cornwall on Friday 11th June. The President is to meet with Mr Johnson in London the day before the summit for a private discussion concerning the NI protocol.

The US has previously shown support for the protocol as it’s anticipated that Mr Biden, who is of Irish heritage, will state that the protocol coincides with the Good Friday Agreement signed in 1998. The agreement ended decades of political conflict in Northern Ireland, in which the US acted as a guarantor. A group of Irish Americans have urged Mr Biden to stand up for the Good Friday Agreement and encourage Mr Johnson to respect the protocol.

It’s thought that the impending US/UK trade deal will rest on the UK honouring the protocol. Lord Frost recently stated that time is running out for the UK to reach a solution to amend the protocol, placing further pressure on Mr Johnson.

It’s reported that President Biden will also address the EU and warn them against their bureaucracy regarding the protocol. A US diplomat stated that the protocol is integral to the peace process, highlighting the urgency for a solution.

Boris Johnson also spoke with French President Emmanuel Macron this week, who stated that the UK had an obligation to make the protocol work. After speaking with the French President via telephone on Monday, Downing Street confirmed that the UK Prime Minister recognises the UK’s responsibility in establishing a solution regarding the protocol.

GBP/JPY edges higher despite growing post-Brexit concerns

The British pound to Japanese yen (GBP/JPY) exchange rate has edged higher after recently experiencing its worst weekly performance since late April 2020 during the previous trading week. The currency pairing saw a 0.10% increase during Monday’s trading session, as the British pound to Japanese yen (GBP/JPY) exchange rate hit JPY 155.20. The increase was surprising given the emergence of new reports highlighting renewed tensions between the UK and EU.

Over recent weeks the British pound to Japanese yen (GBP/JPY) has struggled as a result of the UK’s growing post-Brexit tensions and its quest for economic recovery. During the early European sessions, the currency pairing has reverted to JPY 154.83, with the progress of the exchange rate likely to be further impacted by UK/EU discussions this week.

The course of the British pound (GBP) could also be curtailed as the UK Government stated this week that it is open to delaying the full lifting of coronavirus restrictions from 21st June if necessary. The full reopening of the UK economy would see nightclubs open their doors and no limits on weddings and live performances. Any hindrance to Boris Johnson’s roadmap out of lockdown could see the British pound (GBP) slip further against its currency competitors and potentially derail the UK’s economic recovery.