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UK threatens to scrap parts of Brexit deal


Johnson will be visiting Northern Ireland Monday for emergency talks.

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LONDON — The U.K. government is again threatening to unilaterally override large parts of the Brexit deal agreed with the European Union, raising the prospect of a trade war amid a power-sharing crisis in Northern Ireland.

Boris Johnson, the U.K. Prime Minster will visit Belfast Monday to try to ease tensions regarding the Northern Ireland Protocol. This protocol is part of post-Brexit trade agreements and requires that goods enter Northern Ireland via the U.K.

The hastily arranged trip comes shortly after Northern Ireland’s largest unionist party blocked the election of a Stormont Assembly speaker — effectively preventing the formation of a new executive in the province.

Sinn Fein was second in the polls behind Sinn Fein’s Democratic Unionist Party. May 5election, and refused to return to the executive office until the protocol has been rewritten. This deal was made to prevent the creation of a hard border between Northern Ireland (which remains part of the EU) and the Republic of Ireland. It came into effect in January 2013.

DUP urges U.K. legislators to abolish this protocol. It argues that Northern Ireland has lost its place in the U.K. because of a border created by customs across the Irish Sea.

Some goods that enter Northern Ireland from the U.K. must be checked under the protocol.

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After becoming the first Nationalist Party to win more seats than any other party in Northern Ireland’s 101-year history, Sinn Fein accepts this protocol and can nominate the executive’s first minister.

Under a 1990s power-sharing agreement, the DUP is required to form a new government. Each of the two unionists and nationalists must have their first minister or deputy minister.

U.K. legislators are worried about the lack of a functional devolved government. Because without it there is concern about a return of street violence, which could be threatening the fragile peace that has been established since the Good Friday Agreement.

The Good Friday Agreement, signed on April 10, 1998 was a historic truce that brought an end three decades of violence between British loyalists in Northern Ireland.

Is the protocol in danger?

Johnson — despite renegotiating and signing up to the Northern Ireland protocol — is again considering whether to make changes to the deal, a move which would risk retaliation from the EU and potentially kickstart a trade war.

Writing in the Belfast Telegraph on SundayJohnson stated that “there will be an obligation to act” if the EU does not alter its position on the protocol. The agreement is now outdated because it was created before Russia’s war in Ukraine and a cost-of living crisis.

Last week, Liz Truss, Foreign Secretary warned that Britain would not hesitate to take action if EU legislators fail to show “required flexibility” in relation the protocol.

Maros, the Vice-President of European Commission Sefcovic said that it is not “simply acceptable” for Britain to threaten such a country. He added that it remains a matter of grave concern that Johnson’s government will pursue unilateral action.

Sinn Fein’s Michelle O’Neill, Northern Ireland’s new first minister-elect.

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The EU proposed changesThe protocol was signed in October 2013. It included flexibilities that could be used to address issues such as food, medicine and plant health. This plan was rejected by the United Kingdom.

Christopher Granville (managing director of consultancy TS Lombard) said that the U.K. government is looking to find what I believe in current political chatter at Westminster. He spoke via telephone to CNBC.

“So, latching onto an emotive Brexit-related wedge issue of the EU trying to divide up the U.K. and dictate to the U.K.— and the U.K. government shows it is standing up to Brussels and ditching the protocol,” Granville said.

If Downing Street’s position regarding the protocol was designed to divert the British electorate away from important issues like the cost-of-living crisisAnd damaging local election resultsGranville replied: “Exactly. That’s my reading — and that’s why it comes around from time to time.”

“The reality is that the EU, under the Commissioner Sefcovic, has all along been open to discuss pragmatic ways to adapt the workings of the protocol and has gone along with various waivers and moratoriums … but of course that doesn’t do the trick politically either for the DUP or for the U.K. government.”

Belgium’s De Croo, and Germany’s Scholz both called for the U.K.’s reluctance to take unilateral action on the Northern Ireland protocol.

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Olaf Scholz, Germany’s Ambassador to the United Kingdom has asked for the U.K.’s cooperation in avoiding unilateral actions over the Protocol. Alexander De Croo, the Belgian Prime Minister has stated that the U.K.’s failure to abide by the agreement would pose a serious problem for the EU’s internal markets.

“Our message is quite clear. “Don’t touch it,” De Croo stated at a press conference with Scholz, May 10. This is what we all agreed upon and must be observed.

The U.S. encouraged Britain to engage in dialogue with the EU, while the EU urged the U.S. to help resolve the impasse.

Theresa May, former Prime Minister of Britain, warned that scrapping certain parts from the protocol would damage Britain’s image as a country committed to international law.

Trade war

According to U.K. officials, Article 16 is not a decision that has been made by the government. Article 16 is a safeguarding clause which permits either side to suspend a portion of the deal in case it causes serious problems.

Mujtaba Raman, the managing director of consulting Eurasia Group has stated that it would take six to one years to reach agreement on legislation giving the government the power to unilaterally bypass the protocol. This is despite opposition in the House of Lords.

Rahman wrote in a research note that: “In the shortterm, a less combative UK-EU relations is likely along with legal proceedings restarted from Brussels, which could lead to a trade war only next Year.”

SterlingThe session’s last trading activity was Monday morning at $1.2216, down 0.4%.

Sterling could be weakening for many reasons, Granville said. Granville stated that the U.S. Fed’s superior hawkishness and strength, which allows it to withstand higher rates of interest than the U.K.’s stark threat of a recession, are the main reasons for sterling’s weakness.

“But, at the margin, if the tail risk of the U.K.-EU trade deal blowing up were perceived to be fattening — which is definitely a scenario — then you could expect some additional weakness in sterling,” he added.