MNI SOURCES: EU To Avoid N.Ireland Dispute Sparking Trade War

The European Union is likely to confine its reaction to any further unilateral UK extensions of grace periods for trade between the British mainland and Northern Ireland to dispute resolution and infringement procedures and avoid any escalation which might threaten the overall EU-UK Brexit trade deal, EU sources said.

"We are not going to stand for the UK unilaterally doing things, so we will react to it," one source said. But any response would be carefully gauged, the source continued, dismissing the suggestion that tensions over Northern Ireland could fan a trade war' even though talks on access to the EU for UK financial services could suffer.

"Will we go all guns blazing immediately just for the sake of it? No. I think in everything we do we will want to find some kind of solution or a way out," the source said. "We use infringement procedures, or dispute settlement, and we will use those to try and resolve the situation."

Another source familiar with the Brexit negotiations and the recent difficulties between the two sides, agreed that the EU would avoid escalation. A legal approach would "take the heat out" out of the situation if the UK extends again at the end of this month, the source said.

"The [Northern Ireland Protocol] is part of UK domestic law, as well as EU law. It provided for a situation like this, so let's use it. It will kick the can down the road for a year, maybe two years," the sources said, adding that EU states have no appetite for a wider dispute.

LITTLE APPETITE FOR FIGHT

Member states as well as the European Commission will have a say in the response. But the source pointed out that many countries have little skin in the game of EU-UK trade and see scant point in a major dispute, while others, such as Ireland, Belgium and Netherlands, do a lot of trade with the UK and would have a lot to lose.

Officials from EU member states agreed that the bloc's response would be largely legalistic.

"The procedures in the TCA are foreseen just to avoid things like trade wars," one member state official said.

Sources echoed the continuing frustration felt by EU officials with what they see as a UK failure to commit to implementing the provisions of the deal on Northern Ireland, as well as the lack of constructive engagement with the EU on finding solutions.

"The bottom line is that they are hell bent on this unilateral action, not sharing information and not committing themselves to implementing anything," the first source said.

The EU insists it is ready to show more flexibility in order to ease tensions over Northern Ireland if the UK demonstrates that it is willing to do what is needed to rebuild trust.

"Trust is what we're missing now," the EU official said.

OVERSPILL INTO FINANCIAL SERVICES

As noted by Jess Sargeant at the UK's Institute for Government, in exchange for its original grace period the UK agreed to stay aligned with EU law, but it has not indicated it will do so in demanding an extension.

"Presumably the EU would ask for reassurances in return for grant of grace," Oxford EU law professor Stephen Weatherill told MNI.

While these tensions continue to simmer, sources see little progress being made in negotiations aimed at securing regulatory equivalence for the UK's financial services industry.

"There's no obvious formal link, but we don't operate in a political vacuum either," the EU source added.

An EU member state official agreed.

"What's catered for inside the TCA will be dealt with in the confines of the TCA. Not everything is catered for in the TCA such as financial services - that could come under increased scrutiny in the absence of meaningful engagement," the official said.

--Additional reporting by David Robinson