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Northern Ireland business groups uneasy over Brexit border plan

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The UK government on Wednesday announced temporary measures to smooth the disruption caused by a new trade border in the Irish Sea after January 1, but industry groups warned they still faced “considerable” long-term challenges as a result of the Brexit deal for Northern Ireland.

The precise implementation of the Northern Ireland protocol, part of last year’s withdrawal agreement that paved the way for Britain’s legal exit from the EU in January, has been a major cause of friction between London and Brussels.

In September prime minister Boris Johnson threatened to introduce new laws that would allow him to unilaterally override parts of the agreement — which keeps Northern Ireland in the EU’s customs code — if Brussels did not implement it in a reasonable manner.

On Tuesday that threat was withdrawn after Britain’s Cabinet Office minister Michael Gove struck an agreement-in-principle with the European Commission’s vice-president Maroš Šefčovič over the rollout of the new arrangements.

Mr Gove told MPs on Wednesday afternoon that the implementation of the Northern Irish protocol would ensure “a smooth flow of trade” between Great Britain and the region after the UK’s transition period ends in just under three weeks.

He added that the agreement, the full details of which will be published in the coming days, removed all checks on goods going from Northern Ireland to Great Britain, and limited the risk of the protocol affecting UK government state subsidy decisions after January 1.

To ease the imposition of the new border controls for goods flowing the other way — from Great Britain into Northern Ireland — Mr Gove announced that supermarkets would receive a three-month grace period from needing to fill in export health certificates on animal and plant products.

A six-month exemption from rules requiring meat products to be frozen before export was also agreed in a move that temporarily allows supermarkets to continue to send meat products as at present — but this risks expiring next year if a wider deal cannot be struck with Brussels. 

A “trusted trader” scheme will also be put in place to reduce bureaucracy for supermarkets and suppliers that can prove their products are going directly to Northern Irish consumers and are not at risk of leaking into the Republic of Ireland, which would make them subject to tariffs.

Supermarkets supplying Northern Ireland will receive a 3-month exemption from filling export health certificates. © Stephen Barnes/Alamy

Goods from Great Britain that could be shown to be going directly to Northern Ireland’s consumers would enter the region tariff-free, Mr Gove said. The medical and veterinary industries will also have a one-year adjustment period to adapt to the protocol and avoid shortages of critical medical supplies. 

Despite the temporary measures outlined by Mr Gove, Northern Irish businesses said they would still be facing significant frictions when trading in future with Great Britain.

UK officials conceded that after the grace period, all animal and plant products entering Northern Ireland from Great Britain would require export health certificates — which cost £200 each — and all goods would need import declarations.

After the expiry of the six-month grace period for chilled meat, Northern Ireland will have to source fresh meat products from either its own producers or the Republic of Ireland, unless the exemption could be extended to all UK-EU trade by agreement with Brussels.

Trade groups said privately that while Mr Gove has focused on the narrow question of “tariffs”, in reality the additional bureaucracy created by the protocol would fundamentally change the relationship of Northern Irish businesses and consumers with those in Britain.

“There are short-term measures to stop the images of empty shelves on January 1 and save face for both the UK and EU — but not enough to stop costs rising,” said a trade executive who asked to remain anonymous to preserve their relations with the government. 

Aodhán Connolly, director of the Northern Ireland Retail Consortium, said further work would be needed to protect households from unaffordable price rises and availability issues. “There will also be considerable challenges in the medium term,” he said.

Groups representing smaller businesses in the supply chain questioned whether wholesalers and suppliers to the hospitality sector would be eligible to use the trusted trader scheme.

Shane Brennan, chief executive of the Cold Chain Federation, said that a scheme that only helped big supermarkets would be an “an anti-competitive hammer blow” for wholesalers that serviced small and local food businesses. “The derogation should apply widely and not just service the biggest companies with the loudest voices,” he said.

Northern Ireland’s trade groups warned this week that despite the creation of a £200m trader support service (TSS), they would not have time to adjust to new computer systems and border processes by January 1.

In other areas of contention for Brexiters, such as whether the EU would have a permanent diplomatic presence to monitor the implementation of the protocol, Mr Gove said the EU would have no “Belfast ‘mini-embassy’ or mission”.

Instead, EU officials will be present as needed in Northern Ireland to monitor compliance and have the power to request checks, which must then be conducted by UK officials. They will also have access to relevant databases.

In the last area of contention — whether clauses in the protocol might inadvertently impinge on UK government decisions to provide subsidies for companies after January 1 — Mr Gove said that two sides had clarified the agreement in order to limit its scope to cut across UK sovereign decision making.

“It means firms in GB stay outside state aid rules where there is no ‘genuine and direct’ link to Northern Ireland, and no ‘real foreseeable’ impact on NI-EU trade,” he told MPs, although some legal experts have questioned whether the “clarification” carries legal force.





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Bets on coronavirus recovery may come good

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Markets appear to have got the pandemic right. A plummet in shares as economies locked down gave way to a robust rally: investors trusted in a mix of vaccines, corporate adaptation and central bank stimulus. Mass vaccination programmes in the US and Europe are under way and in countries where they are most advanced like Israel and the UK, economies have unlocked and customers have come flooding back to shops and restaurants.

The virus takes advantage of our social natures to spread but markets had a different, equally human, trait in mind: ingenuity. That includes tech companies whose shares have been among the big winners as they kept businesses operating during lockdowns and new business models allowed shoppers to keep spending. Others too, have adapted, and lockdowns have become less damaging.

Even more important has been pharmaceutical innovation. Researching and developing vaccines has, likely, had among the greatest returns on investment of any human activity — as production accelerates the need to lock down, with its attendant economic costs, retreats. The next challenge — political rather than scientific — is to ensure a sufficient share make their way to poor countries. 

With little experience of pandemics, policymakers looked to the financial crisis. Fresh memories of what was in many countries a “lost decade” of meagre improvements in living standards, spurred central banks and governments to open the floodgates. The unprecedented monetary and fiscal stimulus has been notable for its speed as well as its size compared to the response in 2008, reducing long term damage: America’s vast spending, in particular, has added fuel to the rally and stimulus cheques have allowed retail investors to participate.

Claiming victory would be a mistake. The pandemic has been a story of reversals and countries that once looked to have the virus under control finding themselves overwhelmed. That includes, for example, Germany — lauded for its early response but struggling with a third wave — or eastern Europe, initially less affected than elsewhere but now among the most badly hit regions. Other countries which have reopened in the past had to swiftly lock down again as new waves spread. 

In 2009, the main US index rose 66 per cent in the 12 months after the trough but it took far longer, and successive crises in the eurozone, before economies would fully recover. Investors who got into the rally early were unlikely to regret it: cheap money helped power a decade-long bull market. This time the rebound has been similar as investors have learnt there is little to be gained from standing in the way of quantitative easing.

The big question remains the outlook for inflation. With little sign of economies returning to capacity after the financial crisis central banks kept rates low and asset purchases high, flooding the financial system with liquidity. A stronger recovery from the pandemic, thanks to a mix of government stimulus and households spending accumulated savings could see prices and wages start to creep up again — central banks may start to withdraw support too. The pandemic has also disrupted supply chains raising price pressures further.

Record first-quarter growth in China, where the recovery is more advanced, has already shifted the focus to “overheating” and the prospect of rate rises. An end to the persistent “lowflation” of the decade after the financial crisis would be a far better outcome for the whole world but it might mean markets have got ahead of themselves.



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Biden imposes tough new sanctions on Moscow

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US president Joe Biden has imposed sweeping new sanctions against Russia including long-feared measures targeting its government debt in a sharp escalation of Washington’s confrontation with Moscow.

The first anti-Russian measures from the Biden administration also include the expulsion of 10 Russian diplomats from the US and sanctions against 38 entities, individuals and companies accused of taking part in efforts to interfere in US elections and conduct cyber attacks.

On Wednesday, the US for the first time formally blamed SVR, Russia’s foreign intelligence service, for the SolarWinds hack, which affected at least nine federal agencies and 100 companies. One senior administration official told reporters the hack gave Russia “the ability to spy on or potentially disrupt more than 16,000 computer systems worldwide”.

News of the measures sparked a sell-off in Russian assets and a warning from the Kremlin that they would harm efforts to reduce tensions between the two countries.

The fresh sanctions ban US financial institutions from trading in newly issued Russian state debt, known as OFZs, and bonds issued by the Russian central bank and National Wealth Fund. The ban affects debt issued after June 14.

Measures targeting new state debt have long been viewed as a “nuclear option” for the US and a milestone in Washington’s sanctions regime against Russia, which has steadily expanded since the first round of restrictions were imposed by the Obama administration in response to Moscow’s 2014 annexation of Crimea.

In remarks at the White House on Thursday afternoon, Biden played down the severity of the actions, saying the US wanted a stable, predictable relationship and was “not looking to kick off a cycle of escalation and conflict with Russia”.

“I was clear with President (Vladimir) Putin that we could have gone further, but I chose not to do so,” Biden said, referring to recent telephone conversations between the leaders. The US president said he was still prepared to take further action to respond to Russian aggression “in kind”.

The senior administration official said the new sanctions package would “impose costs for Russian government actions that seek to harm us”. The official added some US responses would “remain unseen”. The moves come after strong condemnation from Washington and other Nato powers over Russia’s heavy military build-up close to its border with Ukraine.

The package includes sanctions on 32 individuals and organisations accused of interfering in recent US elections, and six Russian technology companies alleged to support the country’s intelligence services, in view of the SolarWinds hack.

The rouble dropped as much as 2.2 per cent in early trading on Thursday to about 77.5 to the US dollar. It trimmed some of its initial losses and was down 0.7 per cent to trade at 76.41 by 2pm London time.

The decline in the value of the Russian currency erased gains made earlier in the week after a Tuesday call between Biden and Putin, in which the leaders discussed a potential joint summit aimed at easing tensions.

Moscow’s benchmark Moex stock index was down 0.6 per cent, while the market’s dollar-denominated RTS index was 1.8 per cent lower.

© Alexei Druzhinin/Kremlin/EPA/Shutterstock

The country’s benchmark 10-year bond yield rose 0.19 of a percentage point to 7.24 per cent, a touch below recent highs. Bond yields rise as prices decline.

The EU and Nato both issued statements expressing “solidarity” with the US over the sanctions.

Dominic Raab, British foreign secretary, said the US and UK were aware of Russia’s actions to undermine their democracies. “[We] are calling out Russia’s malicious behaviour, to enable our international partners and businesses at home to better defend and prepare themselves against this kind of action,” he said. “The UK will continue to work with allies to call out Russia’s malign behaviour where we see it.”

The UK’s security review, published last month, identified Russia as the “most acute threat” to its national and collective security, citing “hostile and destabilising” activity by Moscow.

Russia’s foreign ministry responded to news of the sanctions by summoning the US ambassador to Moscow for what it said would be a “difficult” discussion.

“Such aggressive behaviour will certainly be strongly rebuffed, and the response to sanctions will be inevitable,” ministry spokeswoman Maria Zakharova told reporters. “Washington must realise that it will pay for the degradation of bilateral relations.”

The Kremlin said earlier on Thursday that fresh sanctions could scupper efforts to arrange the planned summit between the two leaders.

However, in his remarks on Thursday, Biden said he thought the summit would still take place in Europe this summer, adding teams from both countries were discussing the event.

The Biden administration began drawing up measures to punish Russia following the SolarWinds hack, which officials said at the time was “likely of Russian origin”.

Russia has denied involvement and said it had never attempted to influence foreign elections.

The US has also condemned the recent arrest and jailing of Russian opposition activist Alexei Navalny after his recovery from a suspected assassination attempt, and accused Moscow of threatening Ukraine by deploying tens of thousands of troops to the country’s border.

A senior administration official said the US was not taking any countermeasures in view of a US intelligence assessment that concluded with only “low to moderate confidence” that Russian intelligence officers paid the Taliban to attack US and allied personnel in Afghanistan in 2019 and perhaps earlier. The official said the US would instead issue “strong direct messages” to Moscow.

The share of Russia’s rouble-denominated Treasury bonds held by foreigners fell to a more than five-year low of 20.2 per cent in March, down from more than 30 per cent a year earlier.

The sanctions will test the Russian finance ministry’s plans to soften the impact of restrictions against its sovereign debt. Potential countermeasures include a pause in issuance and regulatory easing for Russian borrowers, deputy finance minister Vladimir Kolychev told the FT late last year.

The ministry is also confident that, if needed, it can replace foreign OFZ holders entirely through domestic demand.

After cancelling a bond sale in March due to market volatility and sanctions fears, Russia sold a record Rbs354bn ($4.6bn) in OFZs a week later, with most of the issue going to Kremlin-run banks.

Additional reporting by Max Seddon in Moscow, Lauren Fedor in Washington and Hannah Murphy in San Francisco



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Biden will not change Putin but is right to talk to him

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The west’s approach to Vladimir Putin’s Russia regularly falls prisoner to the perennial debate about realism and idealism in foreign policy. The choice is posed as between engagement and confrontation, the pursuit of interests and defence of values.

As Putin apparently threatens war in Europe by overseeing a menacing build-up of Russian troops on Ukraine’s eastern border, two thoughts arise. The Russian president is not about to change his ways. And the US and Europe have to deal with him.

Putin has been a big loser from Joe Biden’s presidential victory. Donald Trump fell under his spell. When they met in Helsinki in 2018, the then US president said of the evidence of Russian meddling in the 2016 US election, that he preferred the word of a former KGB operative turned Kremlin autocrat above that of his own intelligence agencies.

Trump offered Putin the respect he craves. It is always a mistake to underestimate the role of vanity in politics. Putin never forgave Barack Obama for an off-the-cuff reference to Russia as a “regional” power. Above all, Putin wants to be treated — and seen by Russians to be treated — as the leader of a nation that still stands as an equal with the US. The lopsided alliance he has forged with China will never serve as a substitute.

Biden’s victory has derailed eternal Kremlin hopes of splitting the Atlantic alliance. Washington’s relations with its European partners are warmer than for many years. German chancellor Angela Merkel looks increasingly friendless in her stubborn backing for the Nord Stream 2 pipeline being built to carry Russian gas under the Baltic Sea. French president Emmanuel Macron has failed in his efforts to recalibrate the relationship with Moscow.

Western diplomats are not sure what to make of the latest troop build-up. It contains an obvious warning to Kyiv not to seek to overturn the ceasefire with the pro-Russian separatists who seized territory in Ukraine’s Donbas after Moscow annexed Crimea in 2014. And there is a message to the US and Nato not to write a blank cheque for Volodymyr Zelensky, Ukraine’s president, and his government. 

Whatever the Kremlin’s ultimate military intentions, the deployments have served Putin’s purpose in grabbing the attention of the White House. Until this week Biden had largely ignored him, while offering a blunt assessment of the Russian regime. Putin is a “killer”, he remarked last month. Moscow was put on notice that the US would respond vigorously to cyber attacks and meddling in US elections.

The US president’s offer this week of a summit on neutral territory to discuss Ukraine and a clutch of other issues looks calculated to appeal to Putin’s vanity. Success or failure, a summit will offer clarity. And if it can take some of the tension out of the relationship by massaging Putin’s ego, why not.

It will not presage, however, a fundamental change in the relationship. The “reset” story has been played out many times during the past decade or so. The offer of a fresh start has come from several western leaders.

Logically, Putin should be attracted to the idea. Russia can survive US and European sanctions, but it badly needs western investment and technology. Its long-term strategic interests lie in a close economic relationship with Europe. If the Kremlin is in search of threats, it would do better to take a close look at China’s Eurasian ambitions.

Russia’s interests, though, are not Putin’s. His priority is the preservation of his own power and wealth. Autocrats need enemies. The supposed threat from the US and its allies sustains his populist pitch to Russian nationalism.

The question then becomes how much room there is for co-operation — whether on nuclear arms control, backing efforts to restore the nuclear agreement with Iran, or promoting stability in Afghanistan when US troops complete their withdrawal this year. The answer must be that the possibilities are worth exploring. Putin has already accepted Biden’s offer to extend the last remaining strategic arms treaty.

The notion of a binary choice between realism and idealism has never held much credibility. The argument that usefully can be had is not about the fact of engagement, but about its nature. Where does the line fall between securing interests and compromising values?

The idealists have a point when they say that the some of the overtures to Moscow in recent years have looked more like capitulation than engagement. Biden seems to have got the balance about right. Where it can, the west should work with Russia. Just not on Putin’s terms.

philip.stephens@ft.com



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