Ministers restart no deal Brexit preparations amid trade war fears

Amid the row, there are already concerns that Scotland's food and drink sector could be badly hit by a EU/UK trade war if Brussels imposed tariffs on British seafood and agricultural products.

It is understood regular talks are taking place between the food and drink industry and the government in Edinburgh over the situation.

The sector is also liaising with officials in both the UK Government and the EU to see if tensions over the Northern Ireland protocol can be resolved.

Foreign Secretary Liz Truss earlier this month set out proposed legislation to change the post-Brexit trade deal to axe checks on goods travelling from Britain to Northern Ireland.

Boris Johnson's government agreed special arrangements for Northern Ireland in 2019 to keep the region more closely aligned to EU rules but the Democratic Unionist Party opposed them saying they create trade barriers between Northern Ireland and the rest of the UK and undermine the Union.

Responding to Ms Truss's announcement, European Commission vice-president Maros Sefcovic warned that the EU would "respond with all measures at its disposal".

The Scottish Government sources told the Herald on Sunday that parts of their 2019 no deal plans were being looked at again and the current situation was being regarded "as fluid".

A spokeswoman confirmed ministers were being "responsible" and preparing contingency plans for a trade war.

“The Scottish Government is deeply concerned about threats to unilaterally override the Northern Ireland Protocol. To contemplate this action, which could spark a disastrous trade war, in the middle of a cost of living crisis is unthinkable and indefensible," said a spokeswoman.

"We continue to urge the UK Government to pull back and focus instead on dialogue with our EU partners and finding durable, agreed solutions."

She added: “We will continue to call for a negotiated solution and as a responsible government are preparing contingency plans arrangements – including the consideration of previous no deal preparations that were in place during the negotiations for the EU-UK Trade and Cooperation Agreement.”

She added: “We are keeping a close eye on the situation and any consequences for action going forward.”

Fabian Zuleeg, chief executive and chief economist of the European Policy Centre, a leading think tank in Brussels, said while a trade war may not be imminent, Scottish ministers were being "prudent" to make contingency arrangements for the eventuality.

"There is a long process to go both in terms of the proposed [UK] legislation...and I would think from the EU's side there will be every attempt not to escalate too quickly," he said.

"But if the UK insists on going down this route then in the longer term it does become rather likely. The Withdrawal Agreement and the Trade and the Cooperation Agreement are linked, so if the UK question the Northern Ireland protocol, if it doesn't keep to what was agreed, then that puts the whole relationship into question."

Asked about the Scottish government's preparations for a trade war, he added: "From a prudent government point of view it is the right thing to prepare for the possibility [of a trade war]. And given the UK Government is insisting on going down this route, despite knowing full well this is not acceptable to the European Union..there seems to be a will from the UK Government to go for confrontation with the EU.

"For any government it would be prudent to look again at the plans of what that might mean. I don't think it will happen very quickly, but it will require preparation and it will also require that businesses understand that the deal which is there is unfortunately not only thin but is also precarious."

Experts have pointed to a number of ways the EU could retaliate.

They include imposing tariffs on UK fish and agricultural goods, suspending parts of the Trade and Cooperation Agreement (TCA) but other agreed areas intact such as visa-free holidays and police cooperation.

The EU ultimate sanction or "nuclear option" would ending the TCA using articles 770 and 779 which allow the bloc to terminate the entire trade agreement, spelling the end of tariff-free trade in both directions along with all the other elements of the deal, including 90-day visa-free holidays, and the fishing agreement.

This would essentially return the UK to a no-deal Brexit scenario, suspending police and security cooperation.

Dr Kirsty Hughes, an expert on the European Union and a fellow of the Royal Society of Edinburgh, said it would be the "worst possible time" for a deterioration in UK/EU relations given the cost of living crisis and the war in Ukraine.

She added the EU could first take "selective measures" rather than suspending the full Trade and Cooperation Agreement.

"The EU has done its best throughout the Northern Ireland protocol stand-off with the UK government - and in earlier no-deal stand-offs - to be the adult in the room," she said.

"But it has also made clear that if the UK government goes ahead with legislation to disapply parts of the protocol it will react with 'all measures at its disposal'.

"In the midst of the Ukraine-Russia war, and the cost of living crisis, it is the worst possible time for further deterioration in the UK-EU relationship.

"But the EU cannot simply ignore it if the UK starts to legislate to unilaterally abrogate an international agreement - the Withdrawal Agreement. That agreement is closely intermeshed with the wider trade and cooperation agreement so the EU could choose to take measures under that. Some selective measures may be possible more quickly than full suspension of the TCA which could take a year."

She added: "The Scottish government will need to be very active in Brussels to make sure that any selective actions from the EU side are least damaging to Scotland.

"The EU has taken steps since last year to offer ways to ease the impact of the protocol but the UK has failed to move forwards in talks on this. And the UK is now willing to jeopardise peace and stability in Northern Ireland through failing to implement an international agreement that Boris Johnson agreed and hailed as a triumph."

It is not clear whether the UK Government is making any contingency plans for a possible trade war with the EU.

The Foreign Office did not respond to an inquiry from The Herald on Sunday.

The Association of the British Pharmaceutical Industry, which represents large research focused companies such Astra Zeneca and GlaxoSmithKline, said companies "continue to have contingency arrangements to mitigate potential supply disruptions" but it was not currently receiving advice from the UK Government to make additional supply contingencies.

Food and Drink Federation Scotland’s Chief Executive Officer, David Thomson, said: “The Northern Ireland protocol has brought increased complexity and cost for businesses moving food and drink within the UK. We urge the UK Government and the EU to redouble their efforts to find a mutually acceptable solution to moving goods in and out of Northern Ireland, and to work closely with industry on both sides of the border in doing so.

"There are pragmatic, business-friendly ways of addressing the problem, which recognise the very high standards of UK food and drink and which would protect essential trade between Great Britain and Northern Ireland while safeguarding the EU’s Single Market."

David Lonsdale, director of the Scottish Retail Consortium, which represents supermarkets and high street retailers, said: “Given experience in recent years with the Beast from the East, the possibility of a ‘no deal’ Brexit outcome, the subsequent Covid pandemic, and most recently the Ukraine conflict, most retailers have well-developed contingency plans in place to deal with any potential disruptions so that shoppers have access to the products they want.”