The United Kingdom has threatened to scrap parts of the Brexit agreement

Johnson will travel to Northern Ireland on Monday for emergency talks.

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LONDON – The UK government is once again threatening to unilaterally override large parts of the Brexit agreement agreed with the European Union, raising the possibility of a trade war amid a power-sharing crisis in Northern Ireland.

The Prime Minister of the United Kingdom Boris Johnson will travel to Belfast on Monday to defuse tensions over the Northern Ireland Protocol, part of a post-Brexit trade agreement that would require checking of certain products entering Northern Ireland from the rest of the UK.

The planned visit comes shortly after Stormont, the largest unionist party in Northern Ireland, blocked the election of the Speaker of the Assembly – effectively preventing the formation of a new executive in the province.

The Democratic Unionist Party, which came in second after Sean Fein in the May 5 election, refused to re-enter the executive branch until the protocol was rewritten. The agreement, which took effect in January last year, was designed to avoid the need for a strict border between Northern Ireland and the Republic of Ireland, which remains part of the EU.

The DUP said UK lawmakers must repeal the protocol, arguing that a customs border has been created across the Irish Sea and that it undermines Northern Ireland’s position within the UK.

The Northern Ireland Protocol requires testing of certain products entering the province from the rest of the UK

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Sean Fein, who adopted the protocol, has the right to nominate the first prime minister after becoming the first nationalist party to win the most seats in Northern Ireland’s 101-year history.

However, under a power-sharing agreement introduced in the 1990s, a new government cannot be formed without the DUP. The first minister and deputy minister must be a unionist and a nationalist.

The absence of a functioning transferred government has raised concerns among UK lawmakers. Because without it, there is a risk of a return to street violence that could threaten fragile peace since the Good Friday deal.

Signed on April 10, 1998, the Good Friday Agreement marks a historic ceasefire that ended three decades of communal violence between Irish separatists and British loyalists in Northern Ireland.

Why is the protocol risky?

Johnson – despite reconsidering and signing up with the Northern Ireland Protocol – is again considering whether to change the agreement, a move that would risk retaliation from the EU and start a potential trade war.

Writing in the Belfast Telegraph on Sunday, Johnson said the protocol would “need to be acted upon” unless the EU’s position changes. He said the agreement was now obsolete because it was designed before the coronavirus epidemic, Russia’s war with Ukraine and the crisis of life.

Foreign Secretary Liz Truss warned last week that the UK would have no choice but to “campaign” if EU lawmakers did not show the “necessary flexibility” on the protocol.

European Commission Vice-President Maros Sefkovic said such threats were “simply unacceptable” to the United Kingdom, adding that it was a matter of “grave concern” that Johnson’s government wanted to take unilateral action.

Michelle O’Neill of Sean Fein, the first new Minister-elect of Northern Ireland.

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The EU proposed changes to the protocol in October last year, focusing on more flexibility in food, plant and animal health and medicine, among other issues. The United Kingdom has rejected the plan.

Christopher Granville, managing director of consultant TS Lombard, told CNBC by telephone: “The UK government, for its part, is known as ‘red meat’ in terms of the current political chatter in Westminster.”

“So, the EU is stuck on an emotional Brexit-related wage issue that is trying to divide the UK and direct the UK – and the UK government shows that it stands by Brussels and is flouting the protocol,” Granville said.

Asked if Downing Street’s position on the protocol was designed to distract British voters from issues such as the crisis of living and the loss of local election results, Granville said: “Okay. That’s my reading – and that’s why it comes close from time to time.”

“The reality is that the EU, under Commissioner Sefkovich, was open to discussing practical ways to adapt to the protocol and has gone through various waivers and suspensions – but of course it is not a political ploy either by the DUP or the UK government.”

Both De Crew of Belgium and Scholes of Germany have called on the UK to refrain from taking unilateral action on the Northern Ireland Protocol.

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Germany’s Olaf Schulz has called on the United Kingdom not to take unilateral action on the protocol, while Belgian Prime Minister Alexander de Crow said non-compliance with the agreement would create a significant problem for the EU’s internal market.

“Our message is very clear. Don’t touch it,” de Crew told a news conference with Schulz on May 10. “It’s something we’ve agreed on and agreements need to be respected.”

The United States, meanwhile, has encouraged dialogue between Britain and the EU to resolve the stalemate.

Former British Prime Minister Theresa May has warned that repealing parts of the UK Protocol could damage Britain’s reputation for complying with international law.

Trade war

The UK Government does not appear to have decided to trigger Article 16 of the Protocol, a security measure that would allow both parties to suspend parts of the Agreement if it is found to cause serious problems.

Mujtaba Rahman, managing director of the consultancy Eurasia Group, estimated that the law would enable the government to unilaterally override the protocol, taking at least six months to a year to agree, citing opposition in the House of Lords.

“In the short term, the resumption of the legal process by Brussels, as well as a more belligerent UK-EU relationship, is likely to lead to a trade war next year,” Rahman said in a research note.

Sterling was last seen trading at $ 1.2216 on Monday morning, down about 0.4% for the session.

“There is a lot of reason for Sterling to weaken at the moment. First and foremost, the high volatility of the US Fed and the strength of the US economy that can withstand higher interest rates than the acute risk of stagnation in the UK,” Granville said.

“But, on the margins, if the risk to the tail of the UK-EU trade agreement is felt to be thickening – which is certainly a scenario – then you can expect some additional weakness in Sterling,” he added.

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