Brexit trade war would have ‘immediate and devastating’ effect on UK economy, industry warns

Business chiefs and economists say huge disruption lies ahead if Downing Street triggers Article 16

British business chiefs have urged Boris Johnson’s government against suspending the Brexit agreement with the EU, warning it could launch a “devastating” trade war in the weeks ahead.

Brexit minister Lord Frost said last week that the option to trigger Article 16 to suspend the Northern Ireland protocol remained on the table if “significant gaps” with the EU cannot be bridged, but appeared to seek to calm the row for now.

But while Maros Sefcovic, the European Commission negotiator, welcomed the “change in tone” from the UK, Brussels is prepared for immediate retaliatory measures against the UK if No 10 does go ahead and suspend the protocol, legal experts and analysts have told The Independent.

Industry leaders in the UK said they feared a series of “damaging” moves that could hit British exports, further disrupt supply chains and lead to a freeze on investment.

Catherine Barnard, professor of EU law at Trinity College, Cambridge, said: “A trade war is a serious possibility. The EU is looking at a range of options – they are exploring routes to take retaliatory measures quickly.”

EU chiefs are thought to be mulling over a “nuclear” option of terminating the Trade and Cooperation Pact (TCA) if Downing Street triggers Article 16.

This would put the UK on a 12-month notice period before the pact ends and Britain is forced to trade with Europe on World Trade Organisation (WTO) terms – essentially a “no-deal” Brexit scenario.

However, the EU is also looking at whether to trigger a lesser-known part of the TCA, Article 506, to take immediate action, according to Prof Barnard.

“It means that the EU would get its retaliation in quickly before needing to go to arbitration. The retaliation ranges from stopping fishing in [EU] waters to putting tariffs on UK fish going into the EU, and then tariffs on other goods,” she said.

“The French and other countries could also do more rigorous checks on goods coming from the UK, which could gum things up pretty quickly at the border.”

David Henig, the UK director at the European Centre for International Political Economy, said a decision by Brussels to launch retaliatory moves would have a “very negative impact” on the British economy.

“If the UK triggers Article 16, I suspect [the EU] may start with things like 100 per cent physical checks on UK goods, and some retaliatory tariffs on certain goods, before deciding whether to go fully nuclear by suspending or terminating the TCA.”

He added: “If they do that, we could be back in no-deal Brexit territory, with that threat hanging over the UK economy in 2022. It could lead to a freeze on investment.”

The British Meat Processors Association said it was increasingly worried about the prospect of both short-term damage and much higher tariffs on exports if the trade deal is eventually scrapped.

Nick Allen, the body’s chief executive, told The Independent: “Trading on WTO terms would be horrendous for the meat industry. The idea that we’re back worrying about trading on WTO terms again is incredibly depressing.”

He added: “We’re struggling enough with food inflation without a damaging trade war and retaliation measures. Another year of uncertainty would be devastating for our industry and the whole of the food sector – it means all the investment our economy needs could be put on hold.”

The Road Haulage Association (RHA) fears the possibility of the EU insisting on more rigorous checks at Calais and other border points, causing delays for UK lorry drivers and knock-on disruption.

“A trade war would not be pretty,” said Rod McKenzie, the RHA’s director of policy. “It’s a big worry for all of us in the logistics trade.”

The haulage chief added: “If Article 16 is triggered, we know the EU is going to be cross and they’re probably going to want to respond. My big worry is always supply chains. If the EU retaliates, this has the potential to cause even more disruption to very stressed supply chains that exist at the moment.”

Barrie Deas, chief executive of the National Federation of Fishermen’s Organisations (NFFO), said it still wasn’t clear which agreements on fish could be suspended if a trade war develops, but warned both sides of the dangers in escalation.

“A trade war would hurt everybody,” he said. “It could have big implications for France, Netherlands, Belgium, Denmark and Ireland – all the countries which fish in UK waters quite extensively. There’s a potential for all of us to be losers.”

If No 10 does trigger Article 16, the scale of the EU response will depend on how the prime minister and his Brexit minister Lord Frost explain their actions – and the extent of their “safeguard” measures.

The government could decide to unilaterally stop checks on only some goods sent across the Irish Sea or instead suspend large parts of the protocol agreement involving all customs checks, standards and VAT rules.

The EU has offered a series of changes to the protocol, claiming they would remove 80 per cent of checks on goods between Great Britain and Northern Ireland.

But Lord Frost has continued to demand that Brussels also agree to the removal of European Court of Justice (ECJ) judges in the protocol arbitration process. “On the European court, on our side definitely nothing’s changed,” said Mr Sefcovic on Friday.

A spokesperson for the EU Commission told The Independent that Mr Sefcovic remains “fully concentrated on finding practical solutions” so Northern Ireland is given “stability and certainty”.