The Windsor Framework – now formally adopted by the UK and the European Union – is a legal agreement that builds on the Northern Ireland Protocol. It should ease the movement of many goods between Northern Ireland and the rest of the UK, but major frictions and objections remain.
The Windsor Framework was announced on 27 February 2023 by UK prime minister Rishi Sunak and Ursula von der Leyen, president of the European Commission. This legal agreement expands on the Northern Ireland Protocol and comes after two years of negotiations between the UK and the European Union (EU).
The Northern Ireland Protocol – which has been discussed in previous Economics Observatory articles – is the set of arrangements particular to Northern Ireland that sits alongside the broader UK-EU Trade and Co-operation Agreement.
Brexit notwithstanding, the Protocol’s purpose was to ensure that Northern Ireland remained within the EU’s single market, customs union and animal health and food safety regimes. Its stated intent was that Northern Ireland would retain unfettered access to the UK’s internal market.
In practice, the Protocol did introduce restrictions and frictions on the movement of goods from the rest of the UK (Great Britain, GB) to Northern Ireland, albeit these were eased by various exemptions and grace periods.
The Windsor Framework of February 2023 is the latest attempt to square the circle to give Northern Ireland’s full access to the EU’s single market and customs union alongside seamless access in both directions with the UK’s internal market.
This article evaluates the economic impact of the Framework, particularly relative to the Protocol. It examines remaining frictions and wider implications for Northern Ireland, the UK and the EU.
How does the Windsor Framework improve on the Northern Ireland Protocol?
First, the provisions set out in the Framework prevent a potentially serious break in supplies of medicines from GB to Northern Ireland. Nevertheless, the security of supply of veterinary medicines remains incomplete.
Second, households sending parcels to friends and relatives in Northern Ireland will not have to make customs declarations under the Framework, although online sellers will.
In terms of food, chilled meats and sausages from the rest of the UK will be allowed into supermarkets and other food shops in Northern Ireland. Further, some (but not all) plants will be able to be sold from GB to Northern Ireland subject to the passport arrangements that apply within GB.
Finally, under the Framework, we would get closer to free movement of (microchipped) pets across the Irish Sea.
Changes to the Protocol such as these have been hailed as victories for common sense. Similarly, the EU pulling back from the sometimes absurd rigour of its defence of the integrity of the single market has also been commended (Briefings for Britain, 2023).
Will frictions remain?
The extent of any remaining frictions will depend on how well the much-heralded green-red lane system at Northern Irish ports works. The prime minister has said that these arrangements would ‘remove any sense of a border in the Irish Sea within the UK’ (gov.uk).
This view is open to interpretation because any firm wishing to use the green lane will have to be accepted as a ‘Trusted Trader’. The EU insists that this Trusted Trader scheme will be ‘more robust’ than the arrangements that existed in 2021-22 (European Commission, 2023).
A customs form will still be necessary to move goods from GB to Northern Ireland. But instead of 80 fields being required, ‘only’ 21 will have to be filled in under the Framework rules. The existing Trader Support Service will remain available to help with the paperwork. For lorries carrying food products into Northern Ireland, visual (identity) inspections will continue in 5% of cases. Additional physical checks will occur on a ‘risk/intelligence’ basis.
It has been estimated that since 1 January 2021, the Protocol has raised the cost of goods brought into Northern Ireland from the rest of the UK by between 3% and 8%. The lower estimate provided in 2022 by the ADS aerospace consortium relates only to their own sector, whereas the higher figure was estimated by the UK Treasury in 2018 and was based on international evidence about the non-tariff barrier impact of trade borders (UK Parliament and HM Government, 2018).
We also know that the UK government has been spending roughly £250 million annually to mitigate/administer the Protocol (HM Government, 2021, and National Audit Office, 2021). If the Windsor Framework is implemented successfully, then both these ‘cost figures’ may fall although we do not know to what extent.
Under the Protocol, a significant number of GB-based suppliers (including online) may have withdrawn from the Northern Irish market, or reduced the range of products that they offer. Under the Windsor Framework, this trend may reverse a little (Fiscal Commission Northern Ireland).
In one respect, the Framework could raise costs relative to the Protocol as it introduces a requirement to label products sold from GB into Northern Ireland but not proceeding on into the EU as ‘Not for EU’.
How far this would raise costs for GB-based businesses, notably the large grocery retailers, remains to be seen. Further, it is unclear if this will affect their decisions about how they operate in the Northern Irish market.
It may be that it will be possible to add the Northern Ireland caveat at the bottom of the labelling that is used for goods sold in the rest of the UK (thus adding no extra costs for Northern Ireland-bound goods). Equally, the UK government may legislate to ensure that this happens to all goods made and sold in the UK, hence removing the need to have a labelling process unique to Northern Ireland (Belfast Telegraph, 2023).
Importantly, given the extent to which Northern Ireland processes goods, materials and components bought in from the rest of the UK, many (perhaps most) goods will be excluded from the green lane (Briefings for Britain, 2023).
Will Northern Ireland remain subject to EU rules?
Aside from considerations of the implications for the costs of trading, much of the debate around the Windsor Framework has centred on the extent to which Northern Ireland will remain a rule-taker with respect to the EU.
The UK government has made much of the claim that it has reduced the number of EU laws applying to ‘less than 3%’ (gov.uk). One estimate is that up to 12% of the Northern Irish economy remains subject to EU regulations under the new agreement (Briefings for Britain, 2023).
The EU’s position throughout has been that if Northern Ireland remains in the single market, then it must be subject to EU law, which in turn implies the supreme jurisdiction of the European Court of Justice (ECJ). In the Windsor Framework, the EU has substantially ‘won’ on this point, although it has made some concessions of a practical nature.
Previously, the UK government was unable to extend a VAT reduction related to spending on energy saving investment to Northern Ireland. This was because under the terms of the Protocol, EU VAT rules would continue to apply.
Under the Windsor Framework, the EU has allowed Northern Ireland to apply the UK VAT reduction in this case. But the fine detail indicates that the concession only applies to spending on items of a fixed nature (‘installed in immovable property’). These are unlikely to be traded across the Irish border and as a result, in broad terms, EU VAT rules will still apply.
The new agreement also allows the UK to apply recent alcohol excise duty changes to Northern Ireland, but this applies only to drink for immediate consumption, in other words, in bars and restaurants. EU rules will still apply to supermarkets and off-licences.
Further, since 2021, Northern Ireland has been the only part of the UK not to have duty-free on flights to/from EU countries. The EU has stated that this exception will remain in place.
It is sometimes claimed that the standing of the ECJ in Northern Ireland is a matter solely of constitutional interest, and that it is of little interest in terms of the economy or to the business community. Yet it is highly likely that its continued jurisdiction will reduce the range of policy options available in Northern Ireland.
In addition to duty-free provision being denied, Westminster has stressed how freeports are a tool for levelling up in Scotland, Wales and the North of England. So far, there has been silence regarding any extension of this policy agenda to Northern Ireland.
To be effective, a freeport would require a strong incentive package, such as offering tax breaks or other subsidies. Under the Protocol and now under the Framework, Northern Ireland will require EU permission regarding the details of any such package (House of Commons Library, 2023).
The EU may feel that it has shown unusual generosity to Northern Ireland in allowing single market access. It is doubtful that it would permit any freeport package that would give the nation a highly competitive position within the single market. Indeed, there are some freeports within the EU, but membership does make it more difficult to exploit tax advantages to promote them (Full Fact, 2019).
Any attempt to develop a freeport – or indeed an investment zone following the 2023 budget – in Northern Ireland will shine a spotlight on the way in which the ECJ has retained jurisdiction with respect to any impacts from subsidy policy through to trading outcomes.
Tax devolution will almost certainly remain as it was before Brexit. There is no indication that the ECJ ruling stating that sub-regions that benefit from a sub-regional tax cut cannot be subsidised by their national government (the Azores Judgment) will cease to apply (UK Parliament).
The implication is that if any future Stormont executive chooses to reduce a tax rate within Northern Ireland, say corporation tax, the UK Treasury would then be obliged to withdraw an amount equivalent to the lost tax receipts from the Northern Ireland funding block grant. Of course, the Treasury may reduce that grant in any case, but the Windsor Framework removes any scope to be ‘generous’.
It is notable that in its recent interim report, the Fiscal Commission in Northern Ireland did promote the option of a corporation tax reduction. But the commission also suggested that any decrease mightbe accompanied by some sort of (temporary) support to the block grant (or loan arrangement). The question is whether the EU would rule against any such arrangements.
What are the wider implications for Northern Ireland, the UK and the EU?
It is very hard to separate economic from political considerations in Northern Ireland. Although the UK government will not admit this, it would almost certainly consider the Framework a partial failure if it does not lead to a restoration of Northern Ireland’s devolved government. It remains to be seen if such a restoration will happen. While commentators usually stress the potential economic benefits of any such restoration, caution is in order.
Looking at GDP per capita – possibly economists’ favourite (though imperfect) tool for summarising economic performance – suggests that any devolution dividend since 1999 has been very well disguised. In terms of the level of GDP per person compared with the UK average, the situation in 2020 was hardly changed from that in 1999 (Office for National Statistics).
It is clear that the public sector in Northern Ireland faces a very parlous budgetary situation (Northern Ireland Fiscal Council). Considerable executive over-spends in 2022/23 and 2023/24 to some degree reflect decisions made when devolved ministers were still in place. Any restoration by itself will not change the budgetary numbers.
A financial support package to accompany any political deal would help in the short run. But the frequency of such packages probably implies a longer-term cost in terms of moral hazard: the likelihood of such ‘bail-outs’ in itself encouraging less responsible decision-making and perhaps even breakdowns in the political system.
The most pessimistic scenario would be if the Framework further entrenches community vetoes. In this case, it could define the political contest for the next two to six years, maybe longer. As with the Protocol, the Windsor Framework requires an Assembly vote regarding its approval in 2024 and 2028.
In terms of UK-EU relations, the Framework represents some thawing. One irony is that while the Protocol was based on the premise that any land border between Northern Ireland and the Republic of Ireland must be avoided, the Framework refers to ‘market surveillance’ of trade between them.
What this will mean in practice remains unclear. But one wonders if such surveillance is now viewed as necessary, why more consideration was not given to the option of mutual enforcement whereby each jurisdiction would enforce export controls in its own laws (Verfassungsblog, 2019).
It is yet to be explained how, if at all, authorities in the Republic of Ireland are going to stop their own citizens from engaging in cross-border shopping and bringing sometimes ‘prohibited’ and usually much cheaper groceries from Northern Irish supermarkets into the single market (Belfast Telegraph, 2023).
The EU has said that posters will be required in Northern Ireland stating that some goods are not to be taken into the Republic of Ireland/EU (European Commission, 2023). Widespread non-compliance can be expected.
Overall, UK-EU diplomacy has shifted from mutual aggression (the UK’s Protocol Bill and the retaliatory legal action by the EU) towards mutual generosity (the UK dropped that Bill and then the EU ended its legal cases).
The president of the European Commission has indicated that the UK’s re-admission to the Horizon research programme would take place swiftly following the Framework’s ratification.
That the UK government agreed to the Windsor Framework may indicate a direction of travel, whereby there will be greater alignment with the EU in terms of regulation, especially in terms of food and agriculture.
But such alignment with the EU, especially in agriculture, may reduce the scope for the UK to make its own free trade agreements (FTAs). Questions remain around how far other countries, notably the United States, would be willing to allow Northern Ireland to participate fully within a UK FTA given that it remains subject to EU restrictions on food products entering from outside the EU or the UK.
While the Windsor Framework represents some progress beyond the Northern Ireland Protocol, it is clear that several issues still need to be ironed out. In particular, these relate to the extent to which the green lane will provide frictionless movement of GB goods into Northern Ireland, and how much EU law may restrict policy options in Northern Ireland.
Where can I find out more?
- The impact of the new Northern Ireland protocol: can Northern Ireland enjoy the best of both worlds? Paper by Geoffroy Duparc-Portier and Gioele Figus.
- What should the DUP do now? Graham Gudgin evaluates the Windsor Framework.
- The Windsor Framework: A bad deal for Northern Ireland and an even worse deal for the UK Harry Western evaluates the Windsor Framework.
- How is Brexit affecting Northern Ireland’s economy? Esmond Birnie and Graham Brownlow examine the effects of Brexit on the Northern Irish economy.
Who are experts on this question?
- Graham Brownlow, Management School, Queen’s University Belfast
- Geoffroy Duparc-Portier, University of Strathclyde
- Gioele Figus, University of Strathclyde
- Graham Gudgin, Honorary Research Associate Centre for Business Research at Cambridge Judge Business School
- Esmond Birnie, Senior Economist, Ulster University Business School
