How Brussels can hit the UK – POLITICO
Hang on, it’s getting nasty.
As European Commission Vice-President Maroš Šefčovič and UK Brexit Minister David Frost meet in London on Wednesday for a dual round of Brexit talks – both on the implementation of the Brexit deal and on the post-Brexit trade deal – diplomats and officials on both sides warn to prepare for a clash rather than any progress.
Three months after the UK unilaterally postponed the introduction of controls on food entering Northern Ireland from Britain – triggering a rude cry and the launch of a double trial by Brussels – it is becoming more and more furthermore evident that the problems and conflicts of Brexit are far from being resolved.
Commission officials and EU diplomats accuse Britain of using unilateral actions to undermine the Northern Ireland Protocol, which imposes checks on goods in the Irish Sea in an attempt to preserve Northern Ireland’s open border with Ireland. The UK, in turn, argues that the EU should find a “new playbook for dealing with neighbors” which “involves pragmatic solutions among friends”.
Against this backdrop, Brussels is weighing its options for retaliation against the UK if Wednesday’s talks do indeed fail to provide a solution. “Patience is running out,” an EU official told reporters on Monday.
Here are the EU’s retaliatory options, ranked by severity on a scale of 1 to 5:
Perhaps the most serious option is legal action that could see the EU hit the UK with shrill tariffs.
The EU official suggested on Monday that if Wednesday’s talks did not lead to a breakthrough, Brussels would prepare to move forward in a two-track trial.
The lawsuit is rooted in two procedures. One is infringement proceedings against the UK, which is still in its first phase. The second is an arbitration proceeding under the Brexit Withdrawal Agreement, which has yet to really start as both sides seek a political solution.
If the EU continues the infringement action, the European Commission will then demand, via a so-called reasoned opinion, that the UK withdraw the postponement of border controls. If London does not comply within two months, the case will go to the EU Court of Justice.
Provided the court rules in favor of the EU and the UK still refuses to comply with the request, the EU could impose a financial penalty or even tariffs on UK exports.
In the course of the arbitration process, taking the next step would mean forwarding the EU complaint to a dispute resolution group. If the final settlement is in the EU’s favor and the UK still refuses to comply, Brussels could also impose tariffs.
Such tariffs, also called “cross-industry retaliation”, could apply “to all areas” of the economic part of the post-Brexit trade deal, according to a Commission fact sheet. said.
“The EU would have the discretion to choose what it targets and that includes sensitive UK exports, such as fishery products,” said Anton Spisak of the Tony Blair Institute for Global Change, which specializes in EU-UK retaliation options.
Retaliation factor: 5/5
Tackling Financial and Technology Sectors
The infringement procedure and the arbitration panel are not the EU’s only options, however.
Spisak warned that “the arbitration can take a long time and its outcome is uncertain. He suggested, “It is easier for the EU to strike back in areas where it can control the outcome. “
Two of these areas are financial services and data sharing. The UK has every interest in securing preferable market access rights for its financial as well as technology companies. Both industries would suffer significant losses if they were excluded from the EU market or faced high barriers to entry.
The carrot in Brussels’ hands is that it has the power to make UK sector laws and supervisory authorities’ equivalent ‘to EU standards, making it easier for these industries to do business within the EU. The stick, however, is withholding those equivalency decisions for different areas of financial services, or withholding an adequacy decision for data streams.
Although Brussels has already granted a preliminary fit for data flows, the deal still requires approval from national capitals, which could withdraw the plug if EU-UK relations deteriorate. It is a two-way street sword, as the EU also has an interest in the data deal surviving.
Complicating factor: the current deal was called into question after a UK court ruled that parts of it were illegal.
In the case of financial services, no equivalency agreement is in sight, much to the chagrin of the large financial sector in London. Still, some officials have warned that even without the current dispute, such a move would be unlikely to happen anytime soon, given that France and Germany want to use London’s weakened position to attract business to Paris and Frankfurt. Therefore, threatening to suspend a financial services agreement may not appear credible.
Retaliation factor: 2.5 / 5
Cut research programs
The UK is expected to participate in Horizon Europe, the EU’s research and innovation program. And under a deal struck with EU countries last week, London can even potentially participate in sensitive tech projects on a case-by-case basis.
However, UK access to the program is not granted: as with equivalence decisions, the EU could retaliate against the UK by not granting – or delaying – access to the program. the entire Horizon Europe program, which would deal a heavy blow to UK universities. and research-intensive companies. This would deprive these institutions of EU research funding, which could lead to the loss of their jobs for researchers or the termination of their projects.
To soften the shock, the UK would have to find replacement funds – an expensive endeavor given Britain’s success in securing EU grants.
Yet to take such a step would deprive the EU of valuable British scientific contributions. The bloc would also lose payments from London for its participation in the program. This could create some reluctance to block Britain from Horizon Europe.
Retaliation factor: 3/5
Refuse the police and the courts
The EU could theoretically also suspend cooperation in certain areas of security and law enforcement, such as the exchange of passenger records for flights.
However, such a step is unlikely as the EU has a huge interest in cooperating with the UK on national security issues.
In the judicial field, the United Kingdom’s candidacy for accession to the Lugano Convention – an EU treaty defining the national courts with jurisdiction in cross-border civil and commercial disputes – gives Brussels a certain weight.
With many cross-border disputes currently being settled in UK courts, denying access to the convention would be a blow to Britain. Yet, given that the Commission has already proposed to block Britain from the convention, the EU’s influence here is limited.
Retaliation factor: 1.5 / 5
Blockage of energy markets
Leaving the EU means the UK has also left the block energy market, which has created difficulties.
Both sides implemented a model to stabilize energy trade under the post-Brexit trade deal, but it is considered inferior and only applies for five years. As a result, experts warn that the two sides must soon begin to find a solution for the expiration of the agreement in June 2026.
The EU could seek to punish the UK by delaying such talks. This is a risky bet, as the EU also has some interest in maintaining energy trade with Britain, which is expected to become a net exporter of electricity in the years to come.
Retaliation factor: 2/5