Windsor Framework revealed as an unworkable con-trick

Introduction

While the Windsor Framework (WF) was widely welcomed by UK and EU politicians and also by the more credulous business lobby groups, we argued from the start that it was a very bad deal for Northern Ireland (NI) and for the UK as a whole. We made it clear that we thought the WF was a PR exercise that achieved little and would entrench the border created in the Irish Sea by the earlier Northern Ireland Protocol – as well as paving the way for increasing alignment by the whole UK with EU law and regulations.

As we approach the point where the WF has to be translated from a paper document to a functioning system, the evidence is mounting that our negative view of it was correct. Businesses on both sides of the Irish Sea are starting to see what it will actually involve in practice and are seriously worried. It is becoming clear that the UK government’s initial claim that the WF ‘removes any sense of an Irish Sea border’ is entirely false.

Mounting evidence of the inadequacy of the Windsor Framework

A recent report by the UK House of Lords highlights many of the practical problems that will flow from the WF, not the least of which is that many of the key details about how it is supposed to actually function are still lacking. Among other things, the report notes that:

1. The so-called ‘green lane’ which is supposed to allow a free flow of goods from GB to NI will only apply to a rather narrow set of goods – other goods will need to use the ‘red lane’ under which full ‘third country’ EU customs checking processes will operate.

We made this point ourselves back in March, but the evidence in the Lords’ report suggests the application of the green lane may be even narrower than we thought. We estimated that as much as 60% of GB goods might be excluded from the green lane, including most manufactured goods used by firms in NI. But even goods that in principle might use the green lane may be obliged to use the red lane due to the way they are transported. Goods that are grouped with other goods from different businesses with a variety of end-users may need to use the red lane as some of the other goods may not qualify for the green lane. Moreover, goods without a clear end-user, for example those destined for wholesalers, may also face the need to use the red lane.

These are not minor issues, as evidence in the Lord’s Report by NI and GB-based hauliers and business groups shows:

• Mark Tait of Target Transport states in the report that hauliers were ‘now concerned that we could end up red lane-ing every item of freight that we move’.
• Declan Gormley of Brookvent Ltd. argues that ‘the vast majority of businesses will just simply go with the red lane because the idea of trying to separate out or create channels to move goods, some staying in Northern Ireland and some staying on, will create another burden on the business’.
• Peter Summerton of McCulla Ireland states that the green lane system is ‘more cumbersome’ than the system previously in place.
• Lakeland Dairies noted that they were ‘working on the basis that everything they bring into Northern Ireland would be via the red lane’.
• The Ulster Farmers’ Union said that intermediate agricultural goods and inputs such as grain for animal feed would need to use the red lane. Meat and poultry for processing would face the same fate.

The House of Lords concludes that ‘stakeholders…argued that for many businesses the movement of goods is likely to be more burdensome than the Protocol as it has operated to date, with the various grace periods and easements in place’.

This a key point – despite the government’s claim that the WF would permanently fix the problems with the Protocol, the WF in reality means a big net increase in GB to NI trade costs and restrictions relative to the Protocol as currently implemented. The physical reality of a trade border will also be strengthened because the UK government is obliged by the WF to build border control posts in NI (despite the original Protocol containing the statement that the EU and UK had a ‘shared aim of avoiding controls at the ports and airports of Northern Ireland’).

2. Even goods using the green lane will be subject to checks and customs processes:

• Firms wishing to use the green lane will need to be part of a registered trusted trader scheme – this is supposed to be in place by next month, but details are still incomplete.
• Certification, identity, and physical checks on goods using the green lane will remain in place. Checks are supposed to be lightened over time, but only as new labelling requirements are put in place.
• The labelling requirements themselves are burdensome, especially for smaller firms, with information on their practical implementation again lacking. Some businesses are concerned that the lack of guidance in this area may interrupt supplies of goods to NI in the autumn.

Overall, it looks like the ‘green lane’ is a complete misnomer. It is rather, as Mark Tait of Target Transport argues, a ‘highly regulated express retail lane’ that mostly benefits large supermarkets. But even some supermarkets are unhappy. The impracticality of separately labelling supermarket goods heading for Northern Ireland has pushed the UK government to propose UK-wide labelling instead. This means imposing costs across UK businesses, even on those with no operations in Northern Ireland.

3. Parcel movements will be subject to new checks and restrictions. Again, while the WF provisions in this area are less burdensome than those in the original Protocol (which were never implemented), they imply a marked increase on the rules that have actually been applied to date. There will be customs processes for most movements other than consumer-to-consumer ones, including those from GB businesses to NI. The impact of this is likely to be substantial – parcel deliveries from GB to the Republic of Ireland have dropped almost 70% since restrictions came into place there. Personal customer data for every parcel must be collected and passed to the EU. This is the worrying background to the UK government’s recent extraordinarily heavy-handed action to force through a statutory instrument covering NI parcel movements.
4. The solution for Tariff Rate Quotas (TRQs) is incomplete. It covers only a subset of products with the process for other products described as ‘burdensome, inefficient and costly’ by the Northern Ireland Business Brexit Working Group.
5. Plant and seed movements will continue to be heavily restricted. The movement into NI of a wide range of GB trees, including ones important for ecosystems, will continue to be restricted. GB mail order firms are unlikely to be able to restart supplying NI consumers and online shopping for plants and trees in GB is likely to end.
6. Veterinary medicine supplies remain under threat. The WF has largely kicked the can down the road here, with grace periods extended. But failure to agree a permanent solution could see Northern Ireland lose access to over half of the veterinary medicines it currently receives.
7. VAT concessions are trivial. Broadly speaking, EU VAT rules will continue to apply in Northern Ireland as will a large quantity of excise rules. Bizarrely, NI will also now be the only part of the UK not to have duty-free sales on flights to and from EU countries. The WF emphatically does not restore the UK’s ability to set tax rates across the whole UK without EU permission, representing a clear and substantial breach of national sovereignty.
8. The ‘reach back’ problem relating to state aid has not been removed. The UK government claims that the danger that EU state aid rules applying in NI could affect GB firms if the latter have economic links to NI has been removed by the WF, via an ‘Interpretative Declaration’ agreed with the EU.

But Article 10 of the original Protocol which provides that the EC State aid rules will continue to apply to the UK in respect of measures which affect trade in goods between NI and the EU remains in place. Any UK-wide tax measure favouring a particular goods sector might require EU Commission clearance, at least before it can be implemented in NI.

James Webber of Shearman and Sterling argues that a battery factory in GB that received state aid might be caught by EU state aid rules if the cars using the batteries were sold in NI. He further notes that the EU could challenge such subsidies for up to ten years and that given this risk such a firm might feel the need to notify the EU Commission of these subsidies – leading on to a reference of the case to the European Court of Justice which is likely to make an expansive interpretation of the rules (with no account necessarily taken of the ’Interpretative Declaration’).

The House of Lords concludes that ‘the issue may ultimately be tested in the courts’ and that legal uncertainty could have a ‘chilling effect on investment’.

9. EU law continues to apply in Northern Ireland over large areas of economic life. The UK government in its ‘command paper’ claimed that the WF ‘removed 1,700 pages of EU law’ and has repeated this claim since. But when pressed it has been evasive and unable to produce a list of laws that have been disapplied. In fact, the great bulk of these laws remain in place in NI and have been ‘removed’ solely in relation to certain goods moving from GB to NI and then only in specific circumstances (if using the green lane). The House of Lords concludes that only ‘a small number of EU rules have been disapplied in NI in their entirety’ and (perhaps generously) says that government claims in this area have caused ‘confusion’.
10. The ‘Stormont brake’ is at best operable in very narrow circumstances. In the Lords’ report, James Webber of Shearman and Sterling notes that ‘the Stormont Brake does not apply to all EU laws across the whole of the Protocol…those excluded include VAT, the customs code, the single electricity market, state aid, trade and defence’ – a very wide range of exemptions. The Lords’ report also confirms that the Stormont brake does not apply to the large existing body of EU laws imposed in NI under Annex 2 of the Protocol.

Limitations on the brake’s use are severe. The Lord’s report concludes that ‘the conditions which must exist for the Stormont Brake to be pulled set a high bar for its use…it is the UK Government, not the Northern Ireland Assembly, which retains the power to exercise a veto, and…a notification from Members of the Legislative Assembly (MLAs) can be set aside by the Secretary of State for Northern Ireland in a number of circumstances. Furthermore, any exercise of a veto can result in ‘remedial action’ by the EU’.

11. The role of the ECJ is unchanged. The government initially claimed it was aiming to remove the ECJ’s role in NI entirely but after the WF framework was agreed, retreated to claiming that the ECJ’s role had been ‘strictly circumscribed’. In fact, witnesses in the Lords report largely agree that the role of the ECJ in NI is effectively unchanged by the WF. As so much EU law applies in NI under the WF, a large role for the ECJ is unavoidable.
12. The Windsor Framework increases pressure for regulatory alignment between the UK and EU. One of our main objections to the WF is that it looks designed to force regulatory alignment between the UK and the EU. A key reason for this is to prevent new trade barriers emerging between GB and NI.

Witnesses in the Lords’ report agree with this, suggesting the WF will produce a ’natural drag-along effect’ whereby the UK alters regulations in response to new EU laws imposed in NI. The WF even includes new joint UK-EU structures which seem designed to foster alignment.

The Lords’ report seems keen to prod the government in this direction too, concluding that ‘we urge the Government and the EU to undertake substantive assessments for all planned legislation of the impact of regulatory divergence on Northern Ireland’ – a sure-fire recipe for slowing or preventing regulatory change in GB. The report also worries about the negative impact on the competitiveness of NI firms of being forced to impose EU regulations while GB firms – including those selling into NI via the green line – do not. It urges the government to explain how it will ‘address’ this issue which looks like a veiled request for alignment too.

What is the Windsor Framework really for?

The evidence above from the Lords’ report supports our original view that the WF has been seriously mis-sold and represents an almost total capitulation by the UK government with regard to its original negotiating aims. The spin the government used to force the WF through is now coming badly unstuck as the practical realities of the WF become clear.

The recent news that a major NI haulier is closing its operations with hundreds of job losses an important indicator of the direction of travel. Many NI firms whose main business is with GB will face serious cost increases due to the WF that may simply render their businesses unviable. Similarly, GB firms may simply choose to stop supplying NI entirely rather than jump through various bureaucratic hoops and engage in costly compliance processes to supply what is a small market.

It is crucial to note here that imposing restrictions on GB to NI trade is very different to increased trade frictions between GB and, say, France. Trade between GB and NI is internal trade and as such involves a denser pattern of much smaller average transactions, traded by (on average) smaller firms, than trade across an international border does. As such, it is far more vulnerable to increased trade costs – and remember GB is by far the largest trading partner for NI, representing 65% of NI’s external purchases, five times more than purchases from the Republic of Ireland.

We have previously highlighted modelling work that suggested that if the original Northern Ireland Protocol had been imposed, it could have cut 3% off NI’s GDP, amounting to £1,600 per household. We think it likely that costs of the WF could be on this sort of scale, especially because of the intense and disaggregated nature of GB to NI trade.

If we are right, then the WF is going to rapidly prove unworkable as existing supply chains collapse. This would be a repeat of what happened when the original Protocol was agreed – leading to the UK government panicking and unilaterally introducing a range of grace periods that effectively suspended large parts of the Protocol from coming into effect.

Perhaps this is what the people behind the WF want. If the new framework does prove impractical, what then? The sensible thing would be to abandon this economically damaging and constitutionally improper approach and instead go for a pragmatic option like mutual enforcement. But the much more likely outcome would be that the EU, the UK bureaucracy and commentariat, and a large body of opinion in NI will argue that the ‘solution’ is for the whole UK to align closely with EU regulations and (eventually) rejoin the EU customs union in order to reduce the trade frictions between GB and NI. This would hardly be surprising as the EU made clear when the original Protocol was put forward that its purpose was to tie the whole UK into the EU trade and regulatory system. Any damage caused to NI in the meantime is apparently of little importance.