Trade war with Britain is EU's last resort if UK reneges on Brexit treaty

Brussels will start a trade war with Britain if the UK presses ahead with plans to renege on the Withdrawal Agreement and ignores other sanctions possible under the Brexit divorce treaty, according to internal EU documents.

The bloc is also considering legal action against the UK, which could lead to large fines levied by the European Court of Justice, before the Internal Markets Bill is passed by parliament. That would heap pressure on MPs to rebel against Boris Johnson.

The EU is also prepared to use the dispute settlement process in the Withdrawal Agreement, which could result in further fines and binding rulings, a paper circulated among the bloc’s 27 capitals said.

If those sanctions fail to force Britain to cave, the EU will suspend any free trade deal or other agreements it may have with the UK, which could involve the imposition of tariffs and quotas.

“In case of non-payment or persisting non-compliance, the complaining party is entitled to suspend its obligations arising from the Withdrawal Agreement (with the significant exception of the provisions relating to citizens) or from the future EU/UK agreement," the paper said.

However, the Government is attempting to push through the legislation at speed, with the Bill expected to clear its first two hurdles in the Commons within a fortnight.

The move is likely to mean that the Bill will pass into law before any EU legal proceedings are completed.

The Telegraph understands that the sectors most likely to be targeted by the EU are agriculture and car parts. The City of London would also be likely to lose its access to the EU’s Single Market as part of a raft of sanctions levied against the UK.

“The union will take all appropriate measures to ensure the full implementation of the Withdrawal Agreement,” the document said.

The UK leaves the Brexit transition period at the end of the year but it agreed that EU legal action could be brought against it for four years from January 1. The paper suggests the EU lawsuit could be launched before December 31, which is also the deadline for the Internal Market Bill to be in place.

The EU paper said that the Internal Market Bill breaks international law because no party can “unilaterally change, clarify, amend, interpret or disapply” the Brexit treaty.

If adopted it would violate the Irish Protocol, designed to ensure no hard border on the island of Ireland, and of a string of legal principles including the direct effect of the treaty.

“In addition, already by tabling the draft bill and pursuing the policy expressed therein, the UK government is in violation of the good faith obligation under the Withdrawal Agreement [...] because this bill jeopardises the attainment of the objectives of the Agreement.”

Michael Gove is meeting with the European Commission’s Maroš Šefčovič in London on Thursday for an emergency meeting of the joint committee on the implementation of the Withdrawal Agreement.  EU diplomats from the 27 member states are expected to join the meeting online.

Mr Šefčovič has demanded urgent assurances from Mr Gove, as Ursula von der Leyen, the president of the European Commission, warned that trade negotiations, which are continuing in London, were at stake.

Mark Rutte, the prime minister of the Netherlands, said on Thursday: "I call on the British to continue to act in the spirit of the Withdrawal Agreement, which is legally binding and do nothing to contradict it."

While admitting that the Bill does break international law, the British Government insists that the clauses in the draft legislation are a “safety net” to protect the Good Friday Agreement if there is no trade deal.

The British legislation would give ministers the power to waive legal obligations in the Withdrawal Agreement that require export procedures on goods traded from Northern Ireland to Britain. It also gives ministers the power to disapply EU state aid rules in Northern Ireland.

The EU document warns such a waiver would undermine the EU’s customs rules. Under the Withdrawal Agreement, which was sealed less than a year ago, Mr Johnson agreed that Northern Ireland would continue to follow some EU rules on issues such as animal health, food safety and government subsidies after Brexit to prevent the hard border.

“In four years of negotiations this is the absolute low. UK ministers are getting the power to overrule not only national but international law. We were well used to seeing this in other parts of the world but Britain?” said one EU diplomat.

"This is certainly not cricket. We still strive to come to an agreement within the limited time that remains as the basis for future relations but the chances of a successful outcome are now small."

The diplomat added: "Capitals will now study the law. Should it be found to contravene the Withdrawal Agreement and remain intact in parliamentary scrutiny the appropriate procedures in the Withdrawal Act will apply.”

EU Europe ministers will discuss Brexit and their possible next steps at their regular meeting in Brussels on September 22.

“Even if the Bill is only a tool to put pressure on current negotiations, it is extremely cynical,” said Danuta Hübner, the chairman of the European Parliament’s group on the implementation of the Withdrawal Agreement.

“Undermining the Withdrawal Agreement and, in particular, the provisions of the Protocol would pose a serious threat to lasting peace and prosperity on the Island of Ireland. This cannot and will not be accepted,” she said.