As the end of the grace period for the Northern Ireland protocol on September 30 draws near, tensions continue to mount between the EU and the UK over the Brexit deal. Major supermarkets have threatened to leave Northern Ireland if no solution to the trade dispute is achieved. The UK government has drawn Brussel’s ire by announcing it may trigger Article 16 of the treaty, which will suspend parts of the Brexit withdrawal agreement.
The UK government has announced it will ask for a renegotiation of the withdrawal treaty around the Northern Ireland protocol and has threatened to suspend part of the agreement to ensure uninterrupted trade between Northern Ireland and the rest of the UK. Such a move is likely to face a harsh backlash by the EU and potentially risks trade sanctions. While tensions continue to mount, it is likely that both the EU and the UK will seek to resume trade talks, which might result in an extension of the grace period or suspension of aspects of the deal to allow all parties to reach a more permanent solution. Both the UK and the EU have so far rejected their respective series of proposals that sought to reach a solution to the Northern Ireland issues. The UK put forward a plan that aims to establish a light regulatory regime that requires businesses to register their supplies and agree to inspections of their supply chains, which has the potential to further increase operational costs for businesses.
Despite our view that the EU and the UK will reach an agreement, likely in 2022, MNCs should note that risks of supply chain disruptions remain high and should consider their exposure to punitive trade measures by the EU. The possibility of shifting some compliance responsibilities onto businesses has so far been rejected by the EU, but the issue is likely to be brought up again during negotiations and, if implemented, could potentially put additional strains on MNCs’ supply chains.
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