Changes to the protocol will likely include the introduction of a special arbitration mechanism to manage future disputes and streamlined importation of products destined for Northern Ireland (not EU single market). However, MNCs will still experience disruptions to their logistics and higher operational costs. While a full suspension of the trade agreement remains unlikely, given that it needs unanimous consent by EU member states, unilateral punitive measures by France could dampen the UK’s recovery in exports and require changes to existing supply chains.
The UK government seeks to renegotiate the Northern Ireland protocol and has demanded the end of ECJ oversight over the protocol’s compliance. The EU has proposed a package of measures within the existing framework to ease mounting tensions. A dispute between France and the UK over fishing continues to complicate negotiations, in light of the seizure of a British fishing boat.
Disagreements over the Northern Ireland protocol continue to cause tensions between the UK and the EU, but recent proposals confirm our expectations that a workable solution is possible. However, negotiations are likely to extend into Q1 2022, which will continue to present risks to the outlook and complicate demand planning. Additionally, the mounting row over fishing rights between France and the UK will likely significantly complicate negotiations and continue to weigh on business sentiment, as France has threatened to retaliate by tightening checks on British imports. While the UK government has taken measures to alleviate tensions on domestic supply chains by postponing checks on imports from the EU, their introduction in mid-2022 will put further strain on domestic businesses.
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