The European Commission today launched legal action against the United Kingdom, after MPs passed the Internal Market Bill, which overrides parts of the Brexit divorce treaty.
Brussels had set Britain an end of month deadline to withdraw clauses in the Bill relating to Northern Ireland, which it said broke the Withdrawal Agreement and international law.
On Monday, the Commission said it would “not be shy” in taking “legal remedies” unless the UK backed down over the provisions on state aid and export declarations on goods from mainland Britain to Northern Ireland.
Downing Street refused the same day and the Bill was passed on Tuesday night by 340 votes to 256 and will now go to the House of Lords.
Ursula von der Leyen, the president of the European Commission, said, "We had invited our British friends to remove the problematic parts of their draft Internal Market Bill, by the end of September.
"This draft bill is by its very nature, a breach of the obligation of good faith, laid down in the Withdrawal Agreement. Moreover, if adopted as is it will be in full contradiction to the Protocol on Ireland and Northern Ireland.
She added,"The deadline lapsed yesterday. The problematic provisions have not been removed. Therefore this morning, the Commission has decided to send a letter of formal notice to the UK Government. This is the first step in an infringement procedure."
The lawsuit begins a lengthy process that could ultimately end in the European Court of Justice in Luxembourg. The EU’s top court could then impose hefty, daily fines until the law was changed.
The UK now has a month to respond to the formal letter of notice before the next stage of the process to punish breaches of EU law by member states. Infringement proceedings take on average 35 months to complete.
In practice there is plenty of time for Britain to agree a trade deal with the EU before the UK is taken to the European Court of Justice.
If there is a trade deal agreed by the end of October, many of the concerns the Bill seeks to solve will “fade away”, Simon Coveney, Ireland’s foreign minister, said on Monday.
As part of the Withdrawal Agreement, the UK agreed to be bound by decisions of the court on cases begun before the end of the transition period on December 31 for four years.
A UK spokesperson said, "We will respond to the letter in due course. We have clearly set out our reasons for introducing the measures related to the Northern Ireland Protocol.
"We need to create a legal safety net to protect the integrity of the UK’s internal market, ensure Ministers can always deliver on their obligations to Northern Ireland and protect the gains from the peace process.”
Mrs von der Leyen said that work with the UK would continue to ensure that the Withdrawal Agreement was fully implemented, including the new customs arrangements in Northern Ireland, by the January 1 deadline of the end of the transition period.
"We stand by our commitments," she said before meeting Micheál Martin, the Irish prime minister, for talks. Mr Martin is in Brussels for today’s European Council summit.
The commission could also bring separate action through enforcement mechanisms in the Withdrawal Agreement. These could result in fines or parts of any future trade deal being suspended, if a panel’s rulings are ignored.
In the immediate aftermath of the controversy over the Bill, Mrs von der Leyen had warned that trade negotiations with the UK, which continue in Brussels today, were at risk.
Since then the EU has looked to decouple the trade talks from the row over the Brexit treaty and continue negotiations.
A senior EU diplomat said that any final trade deal will be conditional on the UK withdrawing all of the offending provisions of the Internal Market Bill.
"The Internal Market Bill would have to be withdrawn," the source said in Brussels before adding it was implausible to expect the EU to agree to any new deal, when it had undermined the Brexit treaty.
The diplomat said that if the forthcoming Finance Bill was tabled and broke international law and the Withdrawal Agreement, it would be an "extremely serious situation".