BRUSSELS (BLOOMBERG) - The European Union is studying the possibility of legal action against the United Kingdom over Prime Minister Boris Johnson's plans to breach the agreement governing Britain's withdrawal from the bloc, according to a document seen by Bloomberg.
The EU may have a case to seek legal remedies under the divorce agreement even before controversial provisions in the UK Internal Market Bill are passed by Parliament, and would have a clear justification once the Bill becomes law, according to the bloc's preliminary analysis of the British legislation.
The pound erased gains from earlier in the session after the news.
Mr Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it is ready to break its commitments to the EU over the Irish border.
With negotiations over a future trade deal already deadlocked over how to handle state aid rules and fishing quotas, the controversy is fueling concern there may be no agreement by the year-end deadline, triggering a raft of tariffs on trade between Britain and the world's biggest single market.
"A no-deal is becoming more likely every day, everyone can see that," Mr Manfred Weber, head of the main centre-right group in the European Parliament, said on Thursday (Sept 10) in an interview with Germany's DLF radio. "We have the feeling that Britain wants a hard Brexit for ideological reasons, and as Europeans we need to prepare for the worst."
While the latest negotiating round is due to conclude on Thursday in London, the two sides will also hold an emergency high-level meeting to address the issue.
European Commission President Ursula von der Leyen said she is "very concerned" and warned that Mr Johnson's move "undermines trust".
Mr Charles Michel, president of the EU leaders' council, added that it "does not create the confidence we need to build our future relationship".
It also prompted a warning from across the Atlantic, with United States House Speaker Nancy Pelosi saying there would be "absolutely no chance" of a UK-US trade agreement if Mr Johnson's actions threatened peace in Northern Ireland.
A number of Conservative lawmakers and grandees have also weighed in with their concerns over Mr Johnson's preparedness to break international law.
"If we lose our reputation for honouring the promises we make, we will have lost something beyond price that may never be regained," former Tory prime minister John Major said.
Mr Johnson's office said the proposed law creates a "safety net" and removes "ambiguities" in the text of the withdrawal agreement.
The UK Internal Market Bill, published earlier on Wednesday, would allow ministers to override parts of last year's Brexit agreement to ensure companies in Northern Ireland have "unfettered access" to the UK internal market, potentially throwing up obstacles to trade with the rest of the island of Ireland.
That would be a "clear breach of substantive provisions" of the withdrawal agreement, according to the draft working paper prepared by the EU and circulated to member states.
The EU paper highlights that the proposed UK legislation explicitly allows some provisions to take effect even if they are incompatible with the UK's international commitments under the withdrawal agreement.
The document concludes that a breach of those obligations "would open the way to the legal remedies available under the withdrawal agreement."
Once the Brexit transition period draws to a close at the end of this year, the EU could also trigger the dispute settlement mechanism under the withdrawal agreement, which could ultimately result in financial sanctions, according to the paper.
