Brexit Northern Ireland protocol: Ian McConnell: Preposterous to claim protocol changes do not warrant robust reaction from EU

As is often the case with the current UK Government, it is best to ignore the hot air emanating from its senior members and look for the cold, objective analysis of a situation.

In the context of the UK Government’s plans to make wholesale changes to the checks and controls it agreed with the EU on goods moving from Great Britain to Northern Ireland as part of its hard Brexit, the currency markets would seem like as good a place as any to look for such a cold analysis.

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As Secretary of State for Foreign, Commonwealth and Development Affairs Liz Truss and Mr Johnson have banged the drum ever-more loudly in their drive to scrap key parts of the very arrangements they agreed to in order to facilitate their administration’s determination to leave the single market and customs union come hell or high water, the pound has dropped sharply. Fear of a trade war has been flagged by experts as one key factor in sterling’s recent decline.

On Tuesday, sterling tumbled below $1.20, having traded above $1.30 as recently as April 21. Ms Truss has been making robust noises about changing key parts of the Northern Ireland protocol for weeks and weeks now.

Taking a longer-term view, the pound is far adrift of the near-$1.50 levels at which it traded on June 23, 2016, ahead of the Brexit vote result.

The Northern Ireland protocol in the UK-EU Withdrawal Agreement was formulated painstakingly to avoid the re-emergence of a hard border on the island of Ireland, and creates a customs and regulatory border in the Irish Sea. Northern Ireland, to avoid checks and controls on the island, is required to apply EU customs rules and align with a list of single-market regulations.

Unveiling the Johnson administration’s Northern Ireland Protocol Bill on Monday, the Foreign, Commonwealth & Development Office and Ms Truss declared in a statement that the “legislation enables the Government to bring forward durable solutions in each of the four key areas”.

They went on: “The solutions are: 1. green and red channels to remove unnecessary costs and paperwork for businesses trading within the UK, while ensuring full checks are done for goods entering the EU; 2. businesses to have the choice of placing goods on the market in Northern Ireland according to either UK or EU goods rules, to ensure that Northern Ireland consumers are not prevented from buying UK standard goods, including as UK and EU regulations diverge over time; 3. ensure Northern Ireland can benefit from the same tax breaks and spending policies as the rest of the UK, including VAT cuts on energy-saving materials and Covid recovery loans; 4. normalise governance arrangements so that disputes are resolved by independent arbitration and not by the European Court of Justice.”

There has seemed this week to be an attempt by Mr Johnson and Ms Truss to portray these proposals as changes which should not be big enough for the EU to be justified in being annoyed about them. Mr Johnson even used the word “trivial” and flagged a belief that it would be a “gross, gross overreaction” from the EU if the planned changes led to a trade war.

Ms Truss, for her part, claimed: “This is a reasonable, practical solution to the problems facing Northern Ireland. It will safeguard the EU single market and ensure there is no hard border on the island of Ireland. We are ready to deliver this through talks with the EU. But we can only make progress through negotiations if the EU are willing to change the protocol itself – at the moment they aren’t. In the meantime the serious situation in Northern Ireland means we cannot afford to allow the situation to drift.

“As the Government of the whole United Kingdom, it is our duty to take the necessary steps to preserve peace and stability.”

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At a time when Mr Johnson and his administration have been coming under intense pressure on various fronts, it is perhaps not surprising to see this UK Government ramping up its rhetoric against the EU, given such bluster has seemed to go down a treat in the past with the Brexiters who swept it to power.

However, whatever Ms Truss might think or claim about the UK being “reasonable”, the summary of the “solutions” surely makes it plain that what the Johnson administration is proposing is wholesale change to the very arrangements they sought and agreed.

It really is a remarkable stance by the UK Government – to propose such dramatic change and then claim it is somehow no big deal.

The EU has this week, not surprisingly, announced legal action against the UK over the Northern Ireland protocol, claiming a breach of international law.

So it is hardly surprising at all that fears of a trade war are mounting.

The Confederation of British Industry observed on Monday: “With the cost-of-living crunch showing no sign of abating, airports struggling to cope, national rail strikes on the horizon and Groundhog Day battles with the EU over the Northern Ireland protocol, there is real risk that the economy stays a distant second to politics this summer.”

As the CBI cut its growth forecast for this year from 5.1% to 3.7% and its projection of expansion in 2023 from 3% to 1%, chief economist Rain Newton-Smith said: “This is a tough set of statistics to stomach. War in Ukraine, a global pandemic, continued strains on supply chains – all preceded by Brexit – has proven to be a toxic recipe for UK growth.

“The bottom line is that the outlook for UK exports remains far worse than our worldwide competitors.”

She added: “Post-Brexit regulatory reforms to support growth, innovation and sustainability can build competitiveness. But divergence for the sake of it could introduce further red tape and friction, undermining that mission.”

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Yet, based on the statement on the Northern Ireland Protocol Bill, further divergence continues to look like a priority for the Johnson administration. And it looks like the divergence drive will continue to be very much for the sake of it, regardless of the economic cost to the UK.

On May 11, Scotland’s salmon sector raised fears of a “trade war” with the EU being triggered by the UK Government over the Northern Ireland protocol, warning this could have a “devastating impact on Britain’s export market”.

Industry body Salmon Scotland noted at that stage that “ongoing media reports” suggesting UK Government ministers “want to urgently amend the Northern Ireland protocol” had “sparked concerns of retaliatory action by the EU”.

And Salmon Scotland chief executive Tavish Scott declared: “As the political rhetoric ramps up, the wider interests of all exporters to continental Europe are not being considered.

“A trade war should be avoided at all costs. Like many sectors, our members have spent months addressing the challenges of Brexit, including the extra paperwork required.”

He is absolutely right.

The last thing exporters need is for this bumbling Johnson administration to exacerbate the woes they have been facing following EU exit.

Why should exporters pay the price for the UK Government playing to the Brexit-loving gallery by rattling sabres at the EU? And, of course, the further breakdown in relations with the EU which the Johnson administration seems intent on ensuring with its irresponsible attitude on the Northern Ireland protocol would affect the economy more generally, and exacerbate the deterioration in living standards.

Ipek Ozkardeskaya, senior analyst at Swissquote, declared on Wednesday: “The softer pound makes the British oil stocks cheaper for foreign investors. Yet, besides the energy and commodity stocks, investors become less comfortable with the British blue-chip index as the renewed Brexit worries and the increased risk of a trade war with [the] EU could take a severe toll on the index.”

This is the reality of the situation. And it would not be in any way “preposterous” for the EU to react robustly to what the UK has done. The pair had an agreement, over which the UK Government is now trying to ride roughshod.

It is an incredible, but also very worrying, state of affairs.