By Eric Vandenbroeck and co-workers

Sunak Hopes To Mend Fences With Europe

Prime Minister of the United Kingdom Rishi Sunak’s bet has been to kiss and make up with the EU over Northern Ireland, hoping this reconciliation will open doors in the United States and the rest of the world. Still, there is no getting around the fact that a solid majority of people in the United Kingdom today are seriously wondering whether the Brexit gamble was worth all the trouble. Since the Brexit referendum in June 2016—when the United Kingdom voted to leave the European Union—British-EU relations have been bitterly fraught. The reigning theory among pro-Brexit Conservatives in London was that EU officials had behaved like wronged ex-lovers: they begrudgingly accepted the affair's end. Still, they were determined to make the United Kingdom pay for its decision to leave. EU officials, for their part, were tired of British antics; anytime they agreed anything behind closed doors with the United Kingdom about how their relationship would work, those agreements would be leaked or not fulfilled. Moreover, the EU loathed the fact that the British government never openly talked about the tradeoffs inherent in leaving the EU—greater sovereignty came at a considerable economic cost—while the United Kingdom felt vindicated in its long-held belief that the EU had a problem with democracy; Brussels seemed bent on making it hard for London to abide by the wishes of the British electorate.

For better or worse, the United Kingdom finally left the European Union’s single market and customs union in January 2021 after years of acrimonious negotiations and political theater. And although the impact of the COVID-19 pandemic initially obscured the full effects in the United Kingdom of the divorce, the real price of Brexit became clear by the end of 2022. The reintroduction of nontariff trade barriers, such as customs inspections and procedures, increased the costs of doing business with Europe. As a result, British growth lagged all other G-7 countries, and investment has yet to recover to the levels it enjoyed before the Brexit referendum.

The problems of doing business were particularly acute in Northern Ireland, which shares the island of Ireland with the Republic of Ireland, an EU member state. It experienced a unique disruption to its trade flows with Great Britain (comprising the three other constituent parts of the United Kingdom: England, Scotland, and Wales). The United Kingdom and the EU had been at pains to avoid creating a new hard border between Northern Ireland and the Republic of Ireland—the de facto disappearance of that physical border was a central tenet of the 1998 Good Friday Agreement. So Prime Minister Boris Johnson 2019 negotiated the Northern Ireland Protocol (NIP), which put a new customs border in the Irish Sea between Northern Ireland and Great Britain. This compromise solution kept Northern Ireland in the EU customs union and a single market for goods. But it complicated Northern Ireland’s relationship with the overarching United Kingdom, creating a political problem for unionist parties in Belfast, which now had to live with one foot in the EU and one in the United Kingdom.

In theory, Northern Ireland had the best of both worlds as it could enjoy full access to the EU’s and United Kingdom’s single market. But in practice, many laws passed in Westminster would not apply to Northern Ireland, while the people of Northern Ireland would have no say over new EU regulations that applied to them. Furthermore, many routine business and travel operations—from restocking supermarkets with products made in Great Britain to crossing borders with a pet—were now subject to increased scrutiny, involving significant paperwork and delays. EU personnel manned new physical customs facilities in Northern Irish ports, rankling unionists who insist that Northern Ireland is an integral part of the United Kingdom. Northern Ireland fits awkwardly in a post-Brexit world, raising questions about the feasibility of decoupling from Europe and how long the United Kingdom can remain united.

 

A New Dawn

In this broader context, Rishi Sunak became prime minister in October 2022 after the disastrous 49-day tenure of his predecessor, Liz Truss. Following the burial of Queen Elizabeth II in September, Truss’s government sent shockwaves through financial markets when her chancellor of the exchequer, Kwasi Kwarteng, announced a series of unfunded tax cuts and energy subsidies during his now infamous “mini-budget.” Sunak, who had lost the leadership race to Truss just a few weeks earlier, quickly took over the reins of 10 Downing Street after she resigned. Although he vowed to restore fiscal order, he started quietly working with the EU on a viable solution to the Northern Ireland Protocol. As a former chancellor for Johnson, he understood that private investment—both foreign and domestic—would start coming back to the British economy only when Brexit was truly settled. He immediately signaled to his EU counterpart, European Commission President Ursula von der Leyen, that he was serious about finding a solution and would be willing to stand up to the Brexit hard-liners in his party, the Democratic Unionists in Northern Ireland, to see it through.

Sunak bet that negotiations would have to be done secretly, with no leaks. He was willing to stake his premiership on the outcome. Von der Leyen, for her part, decided that the EU could afford to make more substantive concessions to Sunak than to Johnson, as unlike the latter, Sunak could be trusted to keep his word. On February 27, 2023, an elated Sunak unveiled the “Windsor Framework” on implementing the NIP next to a visibly relieved von der Leyen. Under the new framework, most goods exported from Great Britain to Northern Ireland will go through a “green lane” with minimal customs checks and paperwork.

In contrast, 90 percent of goods consumed in Northern Ireland will not have to follow EU single-market rules. The people of Northern Ireland will have the right to oppose new EU goods laws if enough members of their legislative assembly reject them (the “Stormont Break”). In return, Sunak promised to abandon a piece of proposed legislation that would have allowed the British government to scrap the protocol unilaterally; one EU official had referred to that possible provision as a loaded gun on the table.

The Windsor Framework is not perfect—trade frictions between Northern Ireland and Great Britain have been drastically reduced but are by no means gone since goods destined for the Republic of Ireland still must go through a “red line” with full customs checks—but the agreement goes much further than any analyst would have thought possible a few months ago. The EU let go of its often hard-line and purist negotiating stance when it came to protecting the integrity of its single market, allowing for more pragmatic solutions given the idiosyncratic position of Northern Ireland. Also, for the first time, the British government is admitting, belatedly, that Brexit had real tradeoffs, most visible in Northern Ireland. Although Belfast will be forced to adhere to new EU single-market rules without having a vote on them in Brussels, the revised protocol will also put Northern Ireland in the unique position of having de facto frictionless trade access to the British and EU single markets.

Sunak now hopes that his negotiated solution to a more pragmatic implementation of the protocol will open the way for the Democratic Unionist Party to give up its opposition to joining the regional government with pro-Irish Sinn Fein and get on with the business of governing. That should ease any immediate demands for Irish reunification by Republicans who claim the devolved government system set up as part of the Good Friday Agreement is no longer working. Furthermore, after the shock resignation of Nicola Sturgeon as leader of the Scottish National Party and first minister of Scotland, the movement for Scottish independence lost one of its most charismatic and compelling champions. Public enthusiasm for independence had already cooled significantly since the pandemic years of 2020 and 2021, when Sturgeon’s COVID-19 policy proved far more competent than Johnson’s, and more than 50 percent of Scots were in favor of leaving the United Kingdom. In the latest polls, only 40 to 45 percent are still convinced of independence for Scotland, with 45 to 50 percent against it. Indeed, the United Kingdom suddenly looks more united today than in ten years. Any risk of a gradual devolution into something like the “Former United Kingdom of England and Wales” seems to have waned for now.

 

The Fog Lifts

But the biggest prize for Sunak that will come out of the Windsor Framework, if he manages to get it through Parliament, is the beginning of the restoration of good relations with the European Union. The EU remains the United Kingdom’s most important trading partner, and the goodwill between the two sides generated by the new deal on Northern Ireland should facilitate many future agreements. In the short term, the European Union has promised to foster a British-EU association agreement, a precondition for enabling the United Kingdom to rejoin its “Horizon Europe” program. The EU’s flagship 100 billion euro fund that finances scientific research had all but excluded British researchers over the past two years, given the ongoing squabbles over Brexit. It was, therefore, no surprise that British scientists were quick to welcome the agreement.

Sunak also hopes that the Windsor Framework will pave the way for closer cooperation with France, especially on immigration into the United Kingdom, as many asylum seekers and economic migrants depart from the coast of northern France to make perilous journeys in small boats to British shores. Since becoming prime minister, Sunak has hugely invested in his relationship with French President Emmanuel Macron. Both men are from the same generation, and Macron hailed the Windsor Framework as an important decision. Eventually, the mutual trust that was restored through the recent deal should also make it easier to conclude cooperation agreements on trade in services, finance, culture, and entertainment, to name a few sectors troubled by trade frictions that were left out of the bare-bones British-EU free trade agreement signed in December 2020.

The Windsor Framework will also take any sting from the United Kingdom’s so-called special relationship with the United States. U.S. President Joe Biden, proud of his Irish roots, had repeatedly expressed his concerns over the growing tensions in Northern Ireland created by the protocol. Biden encouraged consecutive British governments to settle any outstanding issues with the European Union to preserve the fragile balance between mostly Catholic Irish Republican communities and mainly Protestant unionist communities in Northern Ireland. Indeed, as long as the issue is not settled, the United Kingdom has little hope of concluding a free trade agreement with the United States—a prize long coveted by many Brexiteers. Furthermore, the deal may unlock U.S. investment for Northern Ireland, given that it now has full access to British and EU single markets. Indeed, Northern Ireland Secretary Chris Heaton-Harris has spent considerable time and energy in the United States over the past six months drumming up U.S. business interest in Northern Ireland. Some of that promised money will materialize only after the new agreement is implemented.

 

All Alone

To be sure, Sunak still faces formidable political and economic challenges if he wants to defy the odds and get reelected as prime minister with his often unruly Conservative Party in late 2024 when the next general election is due. Brexit per se is and remains a colossal economic goal. The last few years of increased geopolitical turmoil and growing economic uncertainty have proved to be a huge boon for nations that are members of a larger economic and political bloc. Ask many Ukrainians what they are fighting for today, and EU membership will be high on their list. Going it alone as a small, modern, and prosperous country may have been appealing in a more placid world that was both economically open and politically democratic. Unfortunately, those days are long gone.

Sunak was right to judge that because Russia invaded Ukraine, the need for Western unity now trumps any simmering intra-Western fights over Brexit. But with China, the United States, and the European Union all betting big on industrial policy to facilitate their economic transitions toward renewable energy, the United Kingdom still needs to catch up. The industrial policy works only with scale, something the EU could offer with its 450 million consumers. The United Kingdom will have to navigate a world where trade liberalization, deregulation, and advancing democratization are a thing of the past. Sunak’s bet has been to kiss and make up with the EU over Northern Ireland, hoping this reconciliation will open doors in the United States and the rest of the world. Still, there is no getting around the fact that a solid majority of people in the United Kingdom today are seriously wondering whether the Brexit gamble was worth all the trouble.

 

 

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