UPDATE 1-UK rejects EU proposals to resolve N.Irish trade row

* Says could take direct action over customs checks

* Action without more talks risks trade war with EU (Adds comment by UK prime minister’s spokesman)

By Kate Holton and Elizabeth Piper

LONDON, May 11 (Reuters) – Britain on Wednesday rejected European Union proposals to resolve a standoff over post-Brexit trade rules for Northern Ireland, saying it would not shy away from taking direct action in the latest escalation between the two sides.

Striking a deal that preserved peace in Northern Ireland and protected the EU’s single market without imposing a hard land border between the British province and EU member state Ireland, or a border within the United Kingdom, was always the biggest challenge for London as it embarked on its exit from the bloc.

It agreed a protocol which instead created a customs border in the sea between Northern Ireland and the rest of the UK, but now says the required bureaucracy is intolerable.

London’s Conservative government has been threatening to rip up the protocol for months, raising the risk of a trade war with Europe at a time of soaring inflation and prompting concern across Europe and in Washington.

Brussels offered to ease customs checks in October but British Foreign Secretary Liz Truss said this failed to address the core problem, “and in some cases would take us backward”.

“Prices have risen, trade is being badly disrupted, and the people of Northern Ireland are subject to different laws and taxes than those over the Irish Sea, which has left them without a (governing) executive and poses a threat to peace and stability,” she said in a statement.

Truss said the government wanted a negotiated solution, but added we “will not shy away from taking action to stabilise the situation in Northern Ireland if solutions cannot be found”.

The Times newspaper reported that Prime Minister Boris Johnson’s government could legislate to ditch checks on goods and tell businesses in Northern Ireland to disregard EU rules.

The move to announce domestic legislation which would effectively disapply the protocol could come on Tuesday, a Conservative source said.

‘FURTHER ACTION’

Johnson’s spokesman declined to comment on what action Britain could take to try to break the deadlock, but repeated that no decision had been taken as yet.

“The EU have confirmed they’ll never change their mandate…, and so we reserve the right to take further action if solutions can’t be found urgently,” he told reporters.

But not everyone in British governing circles will back a legislative approach, which could also take months to be passed by the lower and upper houses of parliament.

Simon Hoare, a Conservative lawmaker who chairs parliament’s Northern Ireland select committee, said “no honourable country should act unilaterally within an agreement”.

Were the House of Lords to object to the legislation, the government could try to resort to the Parliament Acts, a rarely used device that solves disagreement between the lower and upper houses, to force it through.

Ireland, Germany and the EU leadership have urged Britain not to take matters into its own hands.

But elections in Northern Ireland last week added impetus and Britain says nothing must threaten a 1998 peace deal which largely ended decades of sectarian violence between Irish nationalists and unionists.

The Irish nationalist Sinn Fein, which accepts the protocol given the party’s goal of Irish unification, emerged as the largest party in the vote, while the Democratic Unionist Party (DUP), which fears losing ties with London, fell to second.

The DUP has now refused to form a new power-sharing administration unless the trading rules are overhauled. (Additional reporting by Alistair Smouth, editing by William James, Elizabeth Piper and Mark Heinrich)