Brussels urged to prepare contingency plan for UK trade war

Leading EU member states are pressing Brussels to draw up tough retaliatory measures should the UK carry out its threat to suspend trading arrangements for Northern Ireland enshrined in the Brexit deal.

Representatives of five member states on Monday met European Commission vice-president Maros Sefcovic, the EU Brexit negotiator, to demand he come up with contingency plans for a possible trade war, diplomats have told the Financial Times.

France, Germany and the Netherlands, a traditional UK ally, were the most vocal, supported by Italy and Spain, the diplomats added.

Among the options being discussed in EU capitals are curbing UK access to the bloc’s energy supplies, imposing tariffs on British exports, or in extreme circumstances terminating the trade agreement between the two sides.

UK Brexit minister Lord David Frost on Tuesday warned that London could seek to suspend much of the Northern Ireland protocol, the part of the withdrawal agreement that sets out the region’s trading arrangements since Britain left the EU.

The protocol mandates customs and regulatory checks on goods going from Great Britain to Northern Ireland that took effect in January, and these arrangements have become a bitter source of dispute between the two sides.

By invoking Article 16 of the protocol, the UK could disregard many of its requirements, but the EU would be expected to retaliate in such circumstances.

One diplomat said EU capitals wanted the commission to draw up a “legally sound, proportionate and robust response”.

Under the Brexit deal, the UK agreed to allow Northern Ireland to remain in the EU single market for goods to avert a hard border on the island of Ireland.

Sefcovic on Wednesday proposed changes to the protocol, including scrapping many of the checks on foods going from Great Britain to the region, in an effort to resolve the dispute with the UK.

But EU member states fear the UK, after demanding a fundamental rewrite of the protocol, will reject the bloc’s proposals and instead trigger Article 16.

“There’s a significant chance that Frost will say ‘We want the moon,’” said another diplomat, adding that the UK Brexit minister might try to get rid of the Northern Ireland protocol altogether.

“Frost knows he’s playing with fire. But when you play with fire, you get burnt. The EU has a broad palette of options for hitting back at the UK: for example, energy supplies.”

The UK relies on undersea cables and pipelines connecting it with the EU for up to 10 per cent of its electricity supplies and 12 per cent of its gas. France has already threatened to shut off its 2 gigawatt electricity cable to the UK in a separate dispute over post-Brexit fishing rights.

Frost travels to Brussels on Friday for talks with Sefcovic, with both sides far apart on the crucial issue of whether the European Court of Justice should continue to play a role in overseeing the Northern Ireland protocol.

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UK health secretary Sajid Javid said “there should not be a role for the ECJ in any part of the UK”. Frost, however, has left himself some leeway, saying the issue was not a “red line”.

Neither side has so far shown any appetite for adopting a possible compromise legal solution similar to the one used in bilateral treaties signed by the EU with neighbours such as Ukraine.

Under that model, proceedings first go to an arbitration panel, while the ECJ would continue to issue binding opinions on matters of EU law.

“What stands in the way of progress is the politics,” said Anton Spisak, a former UK adviser on Brexit. “Substantive solutions require changes to the text of the protocol, which the EU says it cannot do, while the UK says it won’t agree to anything less.”

If the UK triggered Article 16, there would be a month of talks between the two sides after which the EU could retaliate with “proportionate” countermeasures, pending a ruling by an independent arbitrator.

Measures by the EU could include tariffs on UK exports such as cars. Simply increasing EU checks already allowed on British goods moving across the English channel could lead to huge congestion.

The question is why enter into any new deals with the UK, if two such important agreements . . . are not respected?

The EU could ultimately terminate its trade and co-operation agreement, which guarantees tariff-free trade with the UK, with a year’s notice.

“The EU would take a close look at possible countermeasures along the whole EU-UK co-operation landscape, including the TCA,” said another diplomat.

Sefcovic told the Financial Times in an interview on Wednesday that he preferred a “constructive path” with the UK.

“This week is not about Article 16, to be honest, it is about the proposals. And I trust Lord Frost and the UK government will see the huge merit in what we are putting on the table,” he added.

Sefcovic said he was open to different solutions when he meets Frost on Friday but added: “This process cannot go on forever.”

He warned British intransigence was blocking collaboration with the EU in fields such as defence and foreign policy.

Sefcovic said the EU saw the withdrawal agreement and the trade and co-operation accord as a “baseline” from which to build a wider relationship.

“The question is why enter into any new deals with the UK, if two such important agreements . . . are not respected?” he added. “That is to be honest quite a fundamental issue. I thought with such a country like the UK we would never have this discussion. Once you sign a deal you respect it.”