The Next Trade War
In the EU, threats are made to unleash a trade war against Great Britain over the Northern Ireland protocol dispute. The self-inflicted damage would add to the damage already provoked by anti-Russia sanctions.
BERLIN/BRUSSELS/LONDON (Own report) – The EU may be at the threshold of its next trade war, according to remarks pertaining to today’s appointment of Liz Truss as the next Prime Minister of the United Kingdom. It is caused by the dispute between Brussels and London over the Northern Ireland protocol, which, becoming effective in the aftermath of Brexit, imposes the establishment of a customs border between Great Britain and Northern Ireland, obligating London to comply with single market regulations in Northern Ireland. Given the fact that, until now, the EU has only been willing to allow minor corrections to the protocol, even though it is provoking serious tensions in Northern Ireland, the British government is preparing to institute changes unilaterally. It has been reported that Truss could suspend parts of the protocol soon after taking office. Such a move could provoke a “trade war” between the EU and Great Britain, Katarina Barley (SPD), Vice President of the EU Parliament, was quoted to have said. The damage that would ensue from that trade war, would add to the severe damage inflicted on the economies of Germany and the EU from their sanctions on Russia. In addition, because of the power struggle with Beijing, there is also a danger of a slump in business with China.
The Northern Ireland Protocol
The Northern Ireland protocol, an element of the Brexit Accords, which went into effect on February 1, 2020 is at the heart of the dispute with London. It is supposed to ensure that the border between the Irish Republic and Northern Ireland – as was provided for in the Good Friday Agreements of April 10, 1998 – can remain open. Because it now constitutes an external border of the EU, Brussels had insisted on modalities that guarantee that no unauthorized goods enter the Union. After bitter disputes, both sides agreed that the usual customs inspections would not be carried out at the borders of Ireland and Northern Ireland, but rather within the United Kingdom – in the middle of the Irish Sea separating Great Britain from Northern Ireland. In addition, Northern Ireland must continue to follow the EU single market regulations, which is very disadvantageous for London. For example, Britain can no longer set Northern Ireland’s value added tax and the delivery of British products to Northern Ireland has become perceptibly more complicated. This is provoking growing tensions in Northern Ireland.
Bureaucracy Reduction à la EU
Since some time, the British government has, therefore, been pressing for pragmatic corrections to the Northern Ireland protocol – which the EU consistently refuses. The concessions Brussels is prepared to make are limited, for example, to reduce customs declarations by 50%.[1] Frustrated by the lack of progress, the British government had pushed a bill through the House of Commons in July that foresees the UK government taking unilateral measures. For example, British goods destined solely for Northern Ireland should be imported without any significant formalities, while controls would focus on goods sold onward to the Republic of Ireland via Northern Ireland.[2] That bill must pass the House of Lords in the fall, which is not seen as a mere formality. The EU, for its part, is unwilling to accept any reforms to the Northern Ireland protocol and seriously criticizes the planned legislation in London, because it proposes unilateral amendments to the protocol. In July, the EU lodged 4 infringement proceedings against the United Kingdom, particularly aimed at halting the bill’s passage.[3]
Article 16
According to reports, previous Foreign Minister, Liz Truss, who assumes office today as Prime Minister of the United Kingdom, could quickly escalate the dispute with the EU. It is speculated that Truss may trigger Article 16 proceedings of the Northern Ireland protocol against the EU, within days of taking office. This paragraph carries the option of suspending parts of the protocol, should these lead to “serious economic, societal or environmental difficulties”.[4] From the British perspective, this has long been the case in Northern Ireland. The EU threatens to take action against British measures. “There is a broad consensus in the European Parliament that we should apply countermeasures, if the agreements are not respected,” reported French MEP, Nathalie Loiseau, a member of the liberal “Renew” parliamentary group.[5] There is already talk of imposing sanctions on the United Kingdom. Katarina Barley (SPD), Vice President of the EU Parliament, considers that a “trade war” between the EU and Great Britain is quite possible.[6] Barley declared that she hopes that London will “not let things degrade to that point.”
Sanctions and their Damage
A possible EU trade war against Great Britain would be a serious blow to German industry. In 2015, in the immediate run-up to the Brexit referendum, the United Kingdom was the third largest sales market for German companies, following the USA and France. At the time, exports to that market were valued at nearly €90 billion. Last year, the German export volume to Great Britain – also due to the pound’s devaluation, but particularly due to the Brexit – had sunk to nearly €65 billion. That put it 8th in Germany’s export ranking– after Poland (5th) Italy (6th) and Austria (7th). An EU trade war against the United Kingdom would reduce German exports still further. This would happen at a time, when, above all, EU sanctions against Russia are having a serious impact on Germany’s economy – not only, but particularly the sanctions and the threats of sanctions on the energy sector.[7] In addition, the German government wants to appreciably cut back on business with China, thereby also threatening serious losses for German enterprises.[8]
From Reykjavik to Ankara
Even while the EU threatens a trade war with Great Britain, it is dependent on close cooperation with that country – not only economically but politically as well. For example, London is due to be invited to a meeting in Prague on October 6, which will focus on ways to strengthen EU ties to European non-EU members – especially those, such as Ukraine or Georgia, who would need decades to be eligible for EU membership, as well as with countries, such as Great Britain, who are not – or no longer – seeking EU membership. The meeting is supposed to be held on the margins of an informal meeting of EU heads of states and governments. Prague was chosen as venue, because of the Czech Republic’s EU Council Presidency at that time. The objective is to create a “geopolitical community” extending from “Reykjavik to Baku or Yerevan, from Oslo to Ankara,” European Council president Charles Michel was recently quoted to have said.[9] If London is absent at the meeting, the “geopolitical community” would be lacking Europe’s strongest political, economic and military power.
1] Lisa O’Carroll: Brexit protocol row: what are the issues dividing UK and EU? theguardian.com 16.05.2022.
[2] Jayne McCormack: NI protocol: Legislation clears House of Commons. bbc.co.uk 20.07.2022.
[3] EU-Kommission leitet vier Verfahren gegen Großbritannien ein. lto.de 22.07.2022.
[4] Peter Foster, Sebastian Payne, Alice Hancock: Truss considers triggering Article 16 over Northern Ireland protocol. ft.com 25.08.2022.
[5], [6] Carsten Volkery: EU stellt sich auf Handelskrieg mit Großbritannien ein. handelsblatt.com 05.09.2022.
[7] See also Die Sanktionen schlagen zurück.
[8] See also Entry into Decline.
[9] Sam Fleming, George Parker, Jude Webber: EU planning to invite UK to security summit. ft.com 03.09.2022.
