This was supposed to be the week when the EU came round to accepting a bespoke arrangement for trade in goods between Britain and Northern Ireland (NI) that achieved the dual purpose of protecting the EU single market while reducing the prohibitive burden of having full border control procedures for every item.
The presentation of the EU proposals on Wednesday goes a long way to meeting the needs of NI business and retail and progress has been made on enabling livestock enter NI from Scotland.
Another problem emerges
The problem now is that just as the EU got to the point of recognising the need for a workable and proportionate arrangement that minimises disruption to the UK internal market, the UK has made a major issue out of the role of the European Court of Justice (ECJ) in overseeing the protocol.
This is a political issue only and not something that has exercised the minds of farmers or industry who are focused on operational issues only.
If the UK moves to suspend parts of the protocol then Brussels will have choose between allowing the UK to have its way or take countermeasures
By making the ECJ such a major issue, as Lord Frost did in a speech ahead of the EU publishing its proposals, there is now a real risk to not just the protocol but the Trade and Co-operation Agreement (TCA) itself.
If the UK moves to suspend parts of the protocol then Brussels will have choose between allowing the UK to have its way or take countermeasures.
Relations are strained not just on the protocol but in relation to fishing – 14 member states have registered their disquiet at restriction of access to UK waters for small boats as had been agreed in the deal.
Little room for manoeuvre
The problem for the EU is that the UK is in a strong position regarding the protocol as the EU requires it to administer the rules. If the UK doesn’t, then it presents the EU and Ireland in particular with a problem.
It is not inconceivable that the Irish Government would have to find a way to administer border controls if the UK opted out. In that situation, it is inevitable that the EU would react against the UK, with the selective use of tariffs a possible sanction.
The TCA achieved the avoidance of tariffs and quotas though nothing else
If a trade dispute gets to that point, then escalation becomes a real possibility right up to the suspension of the entire TCA itself. That worst-case scenario would have the same effect as a no-deal Brexit, which was a real possibility this time last year.
Beef is the most exposed at €625m of tariffs
The TCA achieved the avoidance of tariffs and quotas though nothing else. Tariffs are particularly high on agri-food produce and Irish agri-food exports to Britain in 2019 valued at €1.5bn would carry tariffs of €1bn if full tariffs were applied.
Beef is the most exposed at €625m of tariffs and, unlike the other commodities, there is no real alternative market for the volume that goes to Britain.
The protocol is also the mechanism that facilitates seamless cross-border trade on the island of Ireland for livestock and produce.
If the present dispute escalates and the TCA is suspended, then NI milk and lambs going south and cattle, beef carcases and pigs going North all become liable for tariffs crossing the border, which would make the trade prohibitively expensive.
There is a €1bn Brexit adjustment reserve fund (BAR) in place to assist with financing the cost of transition but it is based on a the current TCA, with the biggest threat to farm incomes coming from trade deals the UK is currently making with other major exporting countries of agri food.
Farmers and the food industry on the island of Ireland will be hoping that Lord Frost’s tough talking is putting down a marker for the negotiations that lie ahead
A breakdown of the TCA would have a much bigger impact that would cost a multiple of the BAR fund.
Farmers and the food industry on the island of Ireland will be hoping that Lord Frost’s tough talking is putting down a marker for the negotiations that lie ahead.
In the lead-up to the agreement on Christmas Eve last year, there were several occasions when the negotiation appeared close to breakdown, yet a deal was reached in the end.
We are back at the point where there is a real risk that the protocol and TCA itself look like they could be in jeopardy.
Farmers and exporters will be hoping that negotiations will be productive and the worst-case scenario will be avoided but while hoping for the best, we need to be prepared for the worst.