It’s an intense week on the trade front in the United Kingdom.
UK prepares to ditch Northern Ireland Protocol
The United Kingdom has served notice that it will act next week to give itself powers to unilaterally override parts of the Northern Ireland protocol.
If enacted, this move would significantly ramp up the threat of a trade war between the UK and the EU, less than 18 months after the UK left the single market.
EU leaders have held back from directly threatening reprisals against London if unilateral action were to be taken over Northern Ireland – but there is consensus among EU member states that such a move would inevitably have consequences.
Protocol disapplication would be ‘lawful, say government lawyers
The British government said on Thursday (12 May) that it had received legal advice that it would be legitimate to disapply parts of the protocol, on the grounds that, as currently implemented, it represents a threat to peace and security within Northern Ireland.
It was initially unclear whether the intention would be to trigger Article 16 of the protocol – which allows either side to suspend application of some of the protocol’s provisions under given circumstances, pending further negotiations – or to act unilaterally in simply refusing to comply with the protocol’s requirements for checks on certain products entering Northern Ireland from Great Britain.
The latter course of action would be a more obvious contravention of the protocol, which forms an integral part of the EU-UK Withdrawal Treaty, signed in 2019.
There are reports Liz Truss could act as early as next Monday (16 May) in tabling legislation to override the protocol’s trade provisions.
Fraught political situation in Northern Ireland
The protocol issue has been on the back burner in recent months in the run-up to last week’s elections to the Northern Ireland assembly.
But the UK government has now clearly been alarmed by the outcome of the elections, in which the republican Sinn Féin party became the largest party for the first time.
The Democratic Unionist Party, which has been the most prominent voice in Northern Irish politics for the last two decades, has said it will refuse to form an administration in partnership with Sinn Féin – as required under Northern Ireland’s complicated constitutional set-up – unless the protocol is removed first.
This means that the political machinery within Northern Ireland cannot function for the time being.
Unilateral action ‘not acceptable’, says Šefčovič
The EU has reacted with disappointment and frustration to the UK’s threatened move.
“I am convinced that only joint solutions will work,” Šefčovič said on Thursday.
“Unilateral action, effectively disapplying an international agreement such as the Protocol, is simply not acceptable … Such unilateral action will also undermine the conditions which are essential for Northern Ireland to continue to have access to the EU single market for goods.”
The UK would need to adopt internal legislation to push through any move to disapply the protocol, and this would face internal opposition, notably in the UK’s upper chamber, the House of Lords.
It would thus take quite some time to implement such a move – and the UK may be counting on using this period to strong-arm the EU into agreeing to additional protocol concessions which go beyond those already proposed by Šefčovič in October last year.
Would the EU apply trade sanctions against the UK?
Speculation has already begun as to what sanctions the EU might apply on the UK if the situation is not resolved through negotiations.
Calling an end to the ‘grace periods’ which currently allow movements of goods to flow comparatively freely from Great Britain to Northern Ireland might be one approach – but given that the UK is proposing to make GB-NI trade completely open in any case, this would be difficult to enforce.
A more likely scenario might be a ‘withdrawal of goodwill’ on the part of EU border control personnel, in such a way as to significantly slow down the flow of trade flows across the English Channel.
There is no indication, however, that planning for retaliatory action on the part of the EU has yet begun.
UK to adapt procurement rules to new FTA commitments
The UK will enact new primary legislation in the coming months to bring its laws on public procurement into compliance with the provisions of the free trade agreements struck last year with Australia and New Zealand.
The requirement for a “Trade (Australia and New Zealand) Bill” was identified on Tuesday (10 May) as one of 38 priority areas for new legislation in the Queen’s Speech – a ceremonial setting-out of the work programme for the new UK parliamentary session, which started this week.
Despite the wide-ranging concessions contained in the deals signed with Australia last December and with New Zealand in February , the public procurement chapter is the only one which contains provisions that need fresh primary legislation to bring them into force.
The new piece of legislation will need to be adopted separately from parliamentary approval of the FTAs themselves.
Legislating for market access for service providers
The main purpose of the bill will be to give Australian and New Zealand suppliers access to UK public procurement markets, on terms which go beyond those set out in the WTO’s Government Procurement Agreement.
It will also give Australian and New Zealand service providers the same rights as their domestic counterparts to challenge breaches of domestic procurement legislation in UK courts. At the same time, the bill will also enshrine in UK law the increased financial thresholds and other improvements which the two FTAs offer.
A number of items of secondary legislation will also have to be passed by parliament, most notably to enact the reduced tariff rates on Australian and New Zealand imports.
“Only once the steps above have been completed can [the FTA agreements] be ratified and brought into force,” a DIT statement explained.
Steps towards ratification of the UK-Australia FTA are expected to resume on the Australian side – potentially under a new government – following elections to the Canberra parliament which are scheduled for next Saturday (21 May).
UK and India in big push towards October deadline for ‘interim’ FTA
Negotiations on a free trade agreement between the UK and India are progressing with considerable energy, with three rounds of negotiations now complete.
The third and most recent round of talks wrapped up in New Delhi last Friday (6 May), with a fourth round already scheduled for next month in London.
The ambitious target set by both sides is to conclude an interim agreement by October of this year.
An official communiqué issued jointly by the two governments after the latest negotiating round offered few clues as to how the talks were progressing, or what they were focusing on.
“Draft treaty text was advanced across the majority of chapters. Technical experts from both sides came together for discussions in 60 separate sessions covering 23 policy areas,” the readout said.
India’s chief negotiator for the UK-India talks, Nidhi Mani Tripathi, tweeted on Sunday (8 May): “Two weeks of intense discussions, teams working extra hours to make good progress in policy areas, resolving to continue positive conversations.”
However, an Indian media source reported that the aim for the interim or ‘early harvest’ agreement is to cover 65% of trade in goods and up to 40% of services. The coverage for goods is expected to go up to around 90% in the full agreement – which may take considerably longer to negotiate.
During a visit to New Delhi last month, UK premier Boris Johnson spoke of his desire for an interim deal under which India lifted tariffs on UK machinery products, in return for the UK concessions on rice and textiles.
UK adds platinum and palladium to Russian trade sanction list
The United Kingdom has further ramped up the economic pressure on Russia with a third round of trade sanctions against Russia and Belarus.
The 35 percentage-point tariff surcharge which is already in force against a wide range of Russian goods is now to be extended to a selection of minerals, including platinum and palladium, as well as a range of chemical products.
“The new import tariffs will cover £1.4 billion worth of goods, hampering Putin’s ability to fund his war effort,” the department for international trade said in a statement issued on Monday (9 May).
“It will bring the total value of products subjected to full or partial import and export sanctions since Russia’s illegal invasion of Ukraine began to more than £4 billion,” it added.
Two earlier rounds of sanctions had applied tariff surcharges on a range of other goods imported from Russia and Belarus. A second round, which targeted a range of agri-food and textile products, was announced on 21 April, but has yet to enter into force.
Significant UK-Russian trade in palladium
The tariff surcharge on palladium could have a significant economic impact on UK businesses. Russia is the UK’s second biggest supplier of palladium, with UK imports worth more than US$600 million in 2019.
The product is widely used in the manufacture of both fuel cells and catalytic converters.
Meanwhile, the UK has also expanded its list of products which are banned from being exported to Russia to cover a further £250 million worth of goods. Products targeted include chemicals, plastics, rubber, and machinery.