Joël Reland explains regulatory divergence – where UK and EU rules depart from one another – and how it will be affected by the new Windsor Framework, which changes the Northern Ireland Protocol.
The UK and EU recently announced the Windsor Framework, which makes changes to the Northern Ireland Protocol.
Although it simplifies trade between Great Britain and Northern Ireland and disapplies some EU law in Northern Ireland, former Prime Minister Boris Johnson called it a “drag anchor on divergence” adding “there’s no point in Brexit unless you do things differently”.
The original Northern Ireland Protocol, negotiated by Johnson, requires Northern Ireland to continually follow EU single market regulations. This means UK government decisions to ‘diverge’ from EU regulations can create simultaneous divergence in regulations between Great Britain and Northern Ireland. This, in turn, can create new trade barriers between Great Britain and Northern Ireland.
The Windsor Framework does not end the application of EU law in Northern Ireland, but it does reduce the scope of it. This means fewer areas where UK divergence from EU rules will also lead to divergence with Northern Ireland. Thus, while the proverbial ‘drag anchor’ has not been removed, it has been lightened.
This explainer sets out what divergence is, and how it is affected by the Windsor Framework.
What is regulatory divergence?
Regulatory divergence occurs when the regulations of the UK (or some parts of it) and EU deviate from one another.
As an EU member state, the UK had to follow all applicable EU legislation, which shaped many aspects of life ranging from agricultural policy, to environmental and food standards, to workers’ rights.
Proponents of Brexit often argued that the level of regulation created by the EU – pejoratively referred to as ‘red tape’ – was excessive and overly-prescriptive, making it harder for businesses to operate. They also argued that the UK had to live with many laws it had little say in shaping and which were not in its best interests.
Outside the EU, the UK can remake its regulation to better suit its own particular interests. This is what we call ‘active’ divergence. Yet there can also be ‘passive’ divergence, where the EU updates or creates new legislation post-Brexit, which the UK does not implement and apply.
What is the UK government position on divergence?
Though successive Prime Ministers have talked up the opportunities of divergence, no strategy has ever been clearly defined, either in terms of principles for new regulation or areas to prioritise.
In some areas the government has pushed for looser regulation (such as on financial services) and in others to enhance state intervention (through new state aid and procurement regimes). Yet ultimately our research shows little substantive change has been delivered.
The government’s approach is now driven by the Retained EU Law Bill, which will see over 4,000 pieces of legislation which applied to the UK as a member state (and which the UK was involved in negotiating) expire at the end of 2023, except for those actively retained by ministers.
Its proponents see this as a way of forcing departments to decide what to do about retained EU law against a hard deadline and thus deliver Brexit ‘opportunities’; its opponents point to the scale of the task, the risk of errors and the lack of time for consultation or scrutiny, and the ability of ministers to allow laws to lapse with no parliamentary involvement.
There is no clear plan for how to decide which rules to scrap or what to replace them with, and the majority of businesses think the Bill creates more uncertainty and will not help economic growth.
Are there any limits to how much the UK can diverge from the EU?
Under the TCA, the UK cannot allow subsidies which distort the ‘level playing field’ (allowing fair competition) with the EU, and it cannot lower labour or environmental standards so as to affect trade and investment compared to when it left the EU.
There are also other international agreements which the UK must respect. For example, plans for a procurement regime which favoured British tenders would have fallen foul of World Trade Organisation rules and were thus scrapped. Similarly, many rules around road safety and vehicle standards are set at UN-level.
There are also practical limits. Because many British businesses export to the EU, they will continue to adhere to EU standards even if the government diverges, negating the point of divergence. Moreover, many international businesses may not bother to comply with UK regulations which diverge from the EU, because it means having to establish new processes (which can be cost- and time-intensive) to get goods re-approved for the UK market.
There are also differing limits on divergence within the UK. The Northern Ireland Protocol keeps Northern Ireland in the EU single market and thus requires it to continuously align with large amounts of EU regulation. This also means many new UK regulations do not apply in Northern Ireland, opening up a growing ‘internal divergence’ with the rest of the UK.
The Scottish and Welsh governments have, in contrast to the Westminster government, expressed a desire to actively align with the EU in policy areas over which they have power, yet so far have rarely done so.
What have been the impacts of divergence on UK-EU trade?
Because Great Britain is no longer in the EU single market or customs union, exporting goods from Britain to the EU now involves new paperwork, declarations and (in some cases) checks, to ensure they comply with the necessary EU laws.
These checks have led to a ‘clear increase in costs, paperwork and border delays’ for UK businesses trading with the EU, according to a parliamentary committee. Nonetheless, there has not been a notable reduction in the value of UK exports to the EU, relative to the rest of the world.
However, the number of ‘trade relationships’ (individual businesses trading with one another) has fallen by 30%, implying that, while big companies are able to shoulder the new costs, many smaller businesses are not and have thus stopped exporting to the EU.
The UK has not imposed reciprocal checks for goods arriving from the EU. Yet, despite this, imports from the EU are estimated to have fallen by about 25%, compared to imports from the rest of the world, since the TCA came into effect. This might be because EU businesses prefer to divert their exports to elsewhere in the EU rather than deal with the new trade bureaucracy.
What impact has divergence had on trade from Great Britain to Northern Ireland so far?
The original version of the Protocol requires Northern Ireland to remain aligned to many EU single market regulations, while the rest of the UK is not. Goods exported from Great Britain to Northern Ireland have thus been treated as if they could end up in the EU (by crossing the Irish border) and subject to customs declarations, paperwork and checks (with some ongoing grace periods for supermarkets and parcels). Requirements around plant and animal products are especially strenuous.
“The EU has now accepted that certain goods – mostly food-related – which meet the UK’s regulatory standards can be placed on the market in Northern Ireland”
And, because the EU continually updates regulations applicable in Northern Ireland, this ‘regulatory border’ in the Irish Sea has been growing thicker. For example, a planned update to the EU ‘ecodesign’ regulation would impose new monitoring and labelling requirements – potentially at significant cost – on British-based IT goods before they can be exported to Northern Ireland. And a new EU ban on the food colouring E171 means cakes containing it are no longer exportable to Northern Ireland.
This has not necessarily had a negative impact on Northern Ireland’s overall trade performance. Despite the regulatory border in the Irish Sea, it is the only part of the UK which has retained access to the EU single market, and modelling by the University of Sussex suggests this will leave the Northern Irish economy 2.2% larger than had Brexit not happened. 50% of people in Northern Ireland think the Protocol has been positive for the economy, whereas 39% say it has been negative.
Yet it has undoubtedly created some ‘trade diversion’ between Great Britain and Northern Ireland, with some longstanding supply chains curtailed. The UK government points out that supplies of certain commodities – such as chilled meats – have been especially affected.
This is a significant political issue, because it creates divisions within the UK’s ‘internal market’ (comprised of the four nations). For Unionists in particular, whose identity is rooted in being part of the United Kingdom, this creates a tangible disconnection. More widely, however, 52% of people in Northern Ireland agree that the Protocol has been, on balance, a good thing, while 41% disagree.
How will the Windsor Framework change the nature of GB-NI trade?
The Windsor Framework makes some changes to the Protocol which significantly reduce trade friction between Great Britain and Northern Ireland.
Under the Windsor Framework, traders who can prove their goods are ‘not at risk’ of entering the EU (through real-time data tracking goods movements) will be able to use a new ‘green lane’. The government says the green lane ‘removes any sense of a border in Irish Sea’, although in reality customs paperwork will be submitted, but on a monthly basis rather than on each consignment. There will no longer be checks on goods unless there is a suspicion of criminality, and no requirements to prove the ‘nationality’ of a good’s content.
“Pets can now travel from Great Britain to Northern Ireland (but not on into Ireland) with a lifetime-lasting document”
Agrifood (plant and animal) products still face some additional requirements, though these are significantly simplified. Supermarkets and many other businesses delivering food and drink for retail will now be able to complete a single, digital document per consignment confirming that goods are staying in Northern Ireland (instead of up to potentially 500 certificates per truck) and there will be no on-site checks or wider ‘attestation’ documents. ‘High-risk’ products (like fresh meat and dairy which could spread diseases into the EU) will be labelled as such from October 2023, reducing inspections of lorries from 100% at present to 10% in 2023, and 5% in 2025.
Moreover, under the green lane system, the EU has accepted that a range of products which meet UK standards can now be placed on the market in Northern Ireland, despite being banned in the rest of the EU.
What does the Windsor Framework mean for divergence within UK Internal Market?
The EU has now accepted that certain goods – mostly food-related – which meet the UK’s regulatory standards can be placed on the market in Northern Ireland, as long as they are labelled as not for EU. This reduces the regulatory gap with Great Britain, though if the good is manufactured in Northern Ireland it has to meet EU rules.
Agrifood is especially sensitive because 75% of food in Northern Ireland’s supermarkets comes from the UK. Under the Windsor Framework, all retail food and drink in Northern Ireland will be subject to UK rules on public health, safety, marketing, organics, labelling and genetic modification. This disapplies over 60 EU food and drink rules in Northern Ireland, and means many potential future EU rule changes won’t apply, maintaining much higher alignment with the rest of the UK. Plants moving from Great Britain to Northern Ireland will now move on UK, not EU, plant passport scheme and banned items (like seed potatoes) will once again be available.
Northern Ireland will, however, have to continually align with EU animal and plant health standards. And manufactured goods will still have to adhere to EU law wherever it applies in Northern Ireland (except for simplified customs rules under the green lane). The UK government notes there are only ‘minor differences’ between the UK and EU on 0.3% of goods standards. Nonetheless, there is likely to be some impact from divergence, especially as legislation evolves over time. As per the earlier example, a British-made computer would need to meet the EU’s planned update to its EU ecodesign, rules if exported to Northern Ireland.
New medicines are to be licensed for use in Northern Ireland via a UK-wide scheme, and medicines no longer have to meet EU labelling and anti-counterfeit requirements, reducing the risk of supply shortages through suppliers failing to complete the necessary documentation. No similar, permanent solution has been found for veterinary medicines
A few specific UK VAT and excise changes, like the removal of duties on solar panels and the reformed regime for alcohol duties, will now apply in Northern Ireland, and the UK has secured some greater flexibilities for future reform. However, in many cases goods moving from Great Britain to Northern Ireland are still subject to EU VAT rules.
“The Retained EU Law Bill implies sudden and significant UK divergence from EU law at the end of 2023. This would negate key effects of the Windsor Framework.”
On subsidies, EU state aid rules still apply to subsidies in Northern Ireland that might affect trade with the EU, but new tests will be established to prove a ‘genuine and material link’. This is intended to significantly limit the application of EU state aid rules, though the legal status of the declaration is uncertain.
Finally, pets can now travel from Great Britain to Northern Ireland (but not on into Ireland) with a lifetime-lasting document, rather than needing individual certifications for each journey.
How does ‘Stormont Brake’ affect regulatory divergence?
Another question is how much of a say Northern Ireland has over future EU regulations which might apply to it. Under the current Protocol, the UK has a say over whether or not new EU legislation should be applied in Northern Ireland, but not over updates to existing EU legislation which already applies.
The Windsor Framework introduces a ‘Stormont Brake’ which is triggered when 30+ Northern Irish Assembly members from 2+ parties register their objection to an updated EU regulation applicable in Northern Ireland. The UK government would then notify the EU, automatically suspending the updated rule, pending further discussions. If no solution is found, the regulation is permanently suspended in Northern Ireland.
This might sound like a strong veto allowing Northern Ireland to systematically disapply new EU regulations, but there are a number of factors which might limit its use.
First, it is explicitly a tool of last resort, to be triggered in ‘exceptional’ circumstances where the rule change has a ‘significant impact specific to everyday life in a way that is liable to persist’. Second, the EU would be entitled to take ‘appropriate remedial measures’ where the Brake is triggered. This might be new trade bureaucracy (checks or labelling on goods imported to Northern Ireland where EU rules have been disapplied) or even trade sanctions against the UK.
The European Court of Justice (ECJ) has no oversight of the Stormont Brake. However, in areas where EU law continues to apply in Northern Ireland, the ECJ remains the ultimate arbiter of disputes (which may not satisfy some parts of the Unionist community in particular), though there is a commitment to developing joint UK-EU committees which oversee the Protocol to ensure a greater say for Northern Irish groups where disputes do arise.
How does the Windsor Framework interact with the Retained EU Law Bill?
As described above, the Retained EU Law Bill implies sudden and significant UK divergence from EU law at the end of 2023. This would negate key effects of the Windsor Framework.
Because many of the regulations set to expire under the Bill would still apply in Northern Ireland, there would be significant new regulatory divergence with the rest of the UK. This is likely to entail new labelling, declarations or checks on goods exports to Northern Ireland, to ensure compliance with EU rules. That means additional trade friction – which the Windsor Framework has just sought to reduce.
Northern Irish goods will still retain unfettered access to the GB market, and the UK has committed to respect its obligations under international law, specifically under the Withdrawal Agreement, though it’s not clear yet how this will be delivered in the Bill.
The UK government has not committed to give Northern Irish MPs or MLAs any distinctive role in relation to changes the UK introduces under the Retained EU Law Bill.
By Joël Reland, Research Associate at UK in a Changing Europe.