Lord Frost’s hard line on re-negotiating the Northern Ireland Protocol has won some flexibility from the EU. But talks have stalled amid an exchange of threats. The Prime Minister will need to decide what best serves his political interest: a possible trade war with the EU in the run up to Christmas, or a negotiated settlement.
Where things stand
To avoid a customs and regulatory border on the island of Ireland, the Withdrawal Agreement’s Northern Ireland Protocol leaves Northern Ireland de facto within the EU’s customs union and single market for goods. Because the rest of the UK now trades with the EU via a low-integration free trade agreement, this means there are new controls on goods entering Northern Ireland from Great Britain. These controls are disruptive for British businesses and have provoked a backlash from Northern Irish unionists.
Lord Frost is attempting retroactively to re-write the Northern Ireland Protocol. This would involve stripping out as much EU law as possible, removing any role for the European Court of Justice, and limiting checks on goods entering Northern Ireland to those ultimately destined for the EU.
To achieve this, he is prepared to use the Protocol’s safeguard provision – Article 16. This allows for elements of the Protocol to be suspended if it is causing “serious economic, societal or environmental difficulties that are liable to persist, or diversion of trade”. Frost would gamble that any EU retaliation would be limited, and that litigation would take months to conclude. Meanwhile he hopes the UK’s approach would take hold in Northern Ireland, and the evidence would show little risk to the integrity of the EU’s single market.
The EU has shown some flexibility in negotiation. It accepted UK requests to extend grace periods for movement of food from GB to NI and made new proposals on medicines and customs. Measures proposed by the EU to ease the challenges of moving goods were more generous than the UK expected. But the EU has now upped the stakes. It has started to brief publicly on the adverse consequences of any “illegitimate” use of Article 16, including possible termination of the whole EU-UK Trade and Co-operation Agreement (TCA).
As ever with Brexit, political tensions are running high. The Prime Minister is under pressure following the Owen Paterson affair, Unionists in Northern Ireland are threatening to collapse the Assembly, and President Macron is looking ahead to domestic elections in the spring and the French EU Presidency. It is hard to distinguish between rhetoric and genuine policy intent. Neither side has a clear strategy and the risk of miscalculation is high.
Speaking past each other
From an EU perspective, technical solutions on issues such as medicines, customs and food remain available. But EU negotiators do not believe the UK is currently interested in a negotiated outcome and fear that any further EU concessions will simply be met with new demands.
Negotiations this week have focused on finding a compromise on medicines. This has proved difficult: the EU wants technical tweaks while the UK wants to remove medicines from the scope of the Protocol. The existing EU proposal to allow UK medicine authorisations to be recognised in Northern Ireland applies mainly to generic and non-prescription medicines. If the EU and UK could agree to extend the scope to cover more complicated medicines and veterinary drugs, that would signal a de-escalation.
Lord Frost’s stated intentions and red lines should be taken seriously, but any decision to trigger Article 16 would be for the Prime Minister. Johnson is instinctively in favour of a confrontational stance with the EU. It is Frost who often argues for more time for negotiation. Johnson has confidence in Frost and relies on his advice. His recent political travails might also make him more cautious.
Triggering Article 16 would carry broad political risks including the economic and political consequences of a possible trade war with the EU in the run-up to Christmas. If the EU followed through on its threat to suspend the TCA, the whole of 2022 could be spent discussing a possible return to a Brexit “no-deal” scenario. This would show that Brexit was not “done”, handing political ammunition to a revitalised Labour Party.
In previous negotiations with the EU, the Prime Minister has in the end opted for compromise. This time there is no immediate cliff-edge to force him to choose either way, so things could drag on for some time. That might even suit the UK, if it normalised continued low-level non-compliance with Protocol obligations.
Scope for fudge
Whether the UK “triggers” Article 16 is not the whole story. Much would depend on why and how it is done, and whether the EU views its use as legitimate.
A limited move such as using Article 16 permanently to extend some of the current grace periods and mitigations would prompt measured EU retaliation, but would be unlikely to call the entire EU-UK trade relationship into question. A more extreme act like the suspension of large swathes of the protocol would provoke a stronger reaction, perhaps combining the medium-term threat of TCA suspension with more immediate measures such as disruption at roll-on-roll-off ports, increased regulatory pressure on UK firms, and a threat to rescind the UK’s data adequacy decision. Possibly even some reimposition of tariffs.
The domestic and international costs of triggering Article 16 are potentially high. In the medium-term, a negotiated outcome remains more likely than not. But businesses should not be complacent.
Sam Lowe Flint Director, Trade was a senior research fellow at the Centre for European Reform and advises clients on trade policy, with a particular focus on regulatory barriers to trade, customs, trade in services and Brexit. To find out more about how Flint can help you navigate the risks and opportunities of these developments, please get in touch.