The Windsor Framework: Towards stability in UK-EU trade

9 min read

The proposed Windsor Framework revising the Protocol on Ireland/Northern Ireland will, if implemented, solve some of the problems inherent in the operation of the Protocol and introduce collaborative processes for resolving others. This represents an opportunity to improve the UK-EU trade relationship through the respective authorities working together, and with affected businesses, on pragmatic solutions to problems in the trading relationship. How it is implemented in practice will be key to its success.

On 27 February, Prime Minister Rishi Sunak and President Ursula von der Leyen announced the agreement of the Windsor Framework (the "Framework"), a partial revision of the Protocol on Ireland/Northern Ireland (the "Protocol") governing movements in goods involving Northern Ireland. This marks a milestone in the often-difficult negotiations concerning the Protocol, and could signal a reset of the broader UK-EU trade relationship (including as set out in the bilateral Trade and Cooperation Agreement). The proposed changes are substantial and wide-ranging. They address problems in the operation of the Protocol for the agri-food, logistics, e-commerce, pharmaceuticals, steel and alcoholic beverages sectors. The Framework also introduces new institutional mechanisms, including the "Stormont Brake", for managing the operation of the Protocol. That said, as indicated in our high-level overview of the key Framework features below, much will depend on how the Framework is implemented and whether the UK and the EU can use the processes of the Protocol as well as those of the wider trading relationship to continue to rebuild trust.

A legally complex way forward

The package of measures underlying the Framework is complex. It comprises 14 separate instruments, including: a political declaration, various instruments to be confirmed by the UK and the EU in the Withdrawal Agreement Joint Committee ("WAJC")1 and a draft decision of the Joint Consultative Working Group on the implementation of the Protocol.2 A draft WAJC decision sits at the heart of the package and, once adopted,3 will be legally binding. At this point, the Protocol will be renamed as the Windsor Framework.

Much of the detail of the Framework is to be worked out at the domestic level, including through further legislation and through detailed implementation decisions. The EU has already published proposals for Regulations on sanitary and phytosanitary ("SPS") measures, human medicines and tariff rate quotas, as well as position papers setting out a broader legislative agenda on SPS certification and customs implementation. Aside from the statutory instrument implementing the "Stormont Brake", the UK has announced implementing legislation relating to VAT and the UK internal market.

It will be some time before the Framework is implemented in full. However, some aspects, such as eliminating export declarations for most goods moving from Northern Ireland to the rest of the UK, can take effect almost immediately. Others, such as the reduction of SPS checks, new labelling regimes, and new arrangements forparcels, will be phased in over the next couple of years. This gives businesses time to plan to ensure that they can meet the new authorisation, labelling, certification and data requirements, and to consider how they can best work with the Framework's new flexibilities.

New rules for trade in goods and VAT/excise

The Framework aims for a more stable foundation for movement of goods between Northern Ireland, the rest of the UK and the EU, especially through the Republic of Ireland. Like the Protocol, the Framework seeks to strike a balance between maintaining the unity of the UK internal market and the integrity of the EU single market, while safeguarding the 1998 Belfast (Good Friday) Agreement. This time, however, the negotiations have been informed by a deeper understanding of the actual effects of the Protocol on trade between Northern Ireland, the rest of the UK and the EU. This has led to new rules on:

Customs and the movement of goods: The Framework aims to broaden eligibility for the UK's trusted trader scheme while tightening some of its registration, compliance and general data sharing requirements. The prize, for those meeting the requirements of the expanded scheme, will be simplified customs requirements and reduced checks on goods entering Northern Ireland from the rest of the UK via the "green lane". There will also be specific facilitations for agri-goods and parcels, with details of implementation to be worked out by the EU and the UK authorities. For "red lane" goods which are ultimately destined for the EU, standard EU third country import procedures will continue to apply, including the full range of customs and SPS checks. There will be a tariff reimbursement scheme in place for businesses that were unable to access the green lane but are able to show that their goods did not ultimately enter the EU.

For goods moving from Northern Ireland to the rest of the UK, export declarations will not be required for all but a narrow class of goods (e.g., endangered species and hazardous chemicals).

Steel safeguards: The EU has published a proposal for a Regulation to allow access to EU tariff rate quotas for specific categories of UK-origin steel moving from the rest of the UK to Northern Ireland. For in-quota steel, this would allow Northern Ireland steel importers to bypass the EU's 25% steel safeguards tariff. This feature relies on implementation from the EU side.

Human medicines/pharmaceuticals: Certain medicines for distribution in Northern Ireland will be able to be authorised by the UK Medicines and Healthcare products Regulatory Agency ("MHRA") rather than the European Medicines Agency ("EMA"). Packaging for these medicines must include a "UK only" label, and the UK is expected to guarantee "effective monitoring, enforcement and controls". The new arrangement applies only to human medicines, not veterinary medicines. Again, the implementation of this arrangement relies on a proposed EU Regulation, which also allows for a "snapback" under which its provisions would be suspended in the event of UK non-compliance.

State aid and subsidies: Article 10(1) of the Protocol established that EU State aid rules would continue to apply in respect of subsidies with a genuine and direct link to Northern Ireland and the capacity to represent a "real foreseeable impact" on trade between Northern Ireland and the EU. A draft joint declaration accompanying the Framework does not alter this position, but seeks to clarify its application. Hypothetical or presumed effects on trade will not suffice for the purposes of bringing a subsidy within EU State aid scrutiny. Rather, the reasons for any anticipated effect on trade must be established and "based on the real foreseeable effects of the measure".

VAT and excise: The Framework seeks to provide the UK with more flexibility in applying VAT and excise in Northern Ireland. It will expand the range of goods to which the UK can apply reduced VAT rates, including goods supplied and installed in immovable property located in Northern Ireland (such as solar panels). Northern Ireland will also be largely exempted from the EU VAT schemes for small enterprises and for distance sales as regards goods from other parts of the UK.

Excise on alcohol will be adjusted so the UK can apply a different duty structure than that required under EU rules as long as minimum EU excise rates are respected, and there is no discriminatory treatment of EU products under the UK rates and structures of excise applicable in Northern Ireland.

The Framework also establishes an enhanced coordination mechanism designed to review the functioning of the Protocol in respect of VAT and excise. The EU and the UK have committed to reviewing application of EU VAT rules with a view to removing restrictions on VAT rates for goods that will be consumed in Northern Ireland and would not raise risks of fiscal fraud or distortion of competition between EU suppliers and Northern Ireland suppliers. There is also a commitment to review VAT arrangements for cross-border refunds.

New opportunities for UK-EU and stakeholder engagement

The Windsor Framework seeks to breathe life back into the institutional mechanisms of the Withdrawal Agreement and the Protocol by emphasising a "shared desire for a positive bilateral relationship" centred on mutual commitment to the Withdrawal Agreement and the Trade and Cooperation Agreement.4

This renewed commitment includes new institutional mechanisms, new functions for existing mechanisms, and extensive commitments to information sharing and cooperation on specific issues. The UK and the EU have also committed to seeking to resolve disputes by first engaging in the WAJC before they turn to the Withdrawal Agreement's disputes mechanism.

Sitting behind these positive commitments are a series of safeguards that raise the stakes for any retreat from cooperation. For instance, both the EU and the UK have the capacity to suspend aspects of the trusted trader scheme in the event of non-compliance by the other party.5 Each party also has the right to initiate a consultation/suspension procedure where they suspect that there has been a significant diversion of trade or illegal activity.6

The most complex of the new safeguards built into the new Framework is the "Stormont Brake". This seeks to buttress Article 18 of the Protocol in addressing the matter of democratic, cross-community consent to the EU single market legislation applicable in Northern Ireland. Where the EU seeks to amend or replace single market legislation applicable in Northern Ireland under the Framework, and if the substantive and procedural conditions for applying the brake are met, the UK could take action to prevent the legislation as amended or replaced from applying in Northern Ireland. Although the Stormont Brake introduces the possibility of regulatory divergence from the EU laws to be applied in Northern Ireland, it is not designed to be used lightly and it remains to be seen how it will be used in practice. Where there is such divergence, the EU will be able to take "appropriate remedial measures".

The reinvigoration of the committees relating to the Withdrawal Agreement, the Protocol/Framework and the Trade and Cooperation Agreement could also provide more opportunities for businesses to engage on matters of UK and EU trade policy. Both the UK Government and the European Commission have agreed to establish regular engagement with Northern Ireland stakeholders, including people and businesses, through the structures of the Withdrawal Agreement. The Commission has raised the possibility of a specific Northern Ireland-related section on impact assessments for EU legislation within the scope of the Protocol, and regular engagement with Northern Ireland stakeholders as part of the Commission's Work Programme.

1 As established in Article 164 of the UK-EU Withdrawal Agreement.
2 As established in Article 15 of the existing Northern Ireland Protocol.
3 The Framework is set for consideration at the next WAJC meeting on 24 March 2023.
4 Windsor Political Declaration by the European Commission and the Government of the United Kingdom (27 February 2023), p. 1.
5 See Articles 15(2) and (3) of the draft WAJC decision.
6 See Article 15(4) of the draft WAJC decision.

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