Amid the global crisis caused by the coronavirus pandemic and some residual tension related to the trade disputes between the United States and China, the markets all but forgot about Brexit. That is, until this week.
Lately there has been more and more talk about Brexit, specifically in relation to Northern Ireland. The country, which is part of the United Kingdom, is stuck in a position where it has a slightly different status from the rest of the UK.
The reason for this is the so-called Irish Sea border that was created as a result of the Brexit withdrawal agreement. To allow the free flow of goods between Northern Ireland and the Republic of Ireland, NI is still adhering to EU trade rules.
However, the rest of the United Kingdom is not. Since leaving the European Union, the UK government has been able to establish its own rules and standards, and they don’t always match the EU’s. Goods like eggs, meat, and other animal products are just one notable example of where regulations might diverge.
Because the EU cannot allow such goods to enter its single market (via Ireland), all of these products now have to be checked after they leave Great Britain but before they enter Northern Ireland. This has become both an economic and a political inconvenience to the UK.
Prime Minister Boris Johnson has spoken about Article 16, a safety provision in the withdrawal agreement that can be triggered unilaterally if either the UK or the EU deems the present situation unacceptable. But if the UK triggers it (because it is unhappy about Northern Ireland being separated from it in terms of trade), the EU could take legal action.
According to representatives of both the UK and the EU, they are currently looking for a better solution to the situation in Northern Ireland. Reportedly, the EU has sent some proposals to the UK that are being looked at. Officially, neither side is eager to engage in a legal conflict.
Over the next few weeks traders interested in the British pound especially will need to pay extra careful attention to these post-Brexit negotiations. Though both sides claim they wish to avoid triggering Article 16, it is not beyond Prime Minister Boris Johnson’s MO to do something risky like that. The pound has taken a hit just from the mere speculation that he might. Thus, any developments in this regard will need to be carefully considered.
