Sunak looks to set new Brexit tone with Windsor Framework

There’s a new chapter trying to be written in the Brexit story that has enveloped the U.K. since an EU membership referendum in 2016. While tensions have lingered around the bloc that Britain once counted itself a part of, things have been further complicated by Northern Ireland Protocol, which has been in place since 2020. That agreement followed years of negotiations on how to govern trade following Brexit, and sought to prevent a hard border from being erected between the Republic of Ireland (part of the EU) and Northern Ireland (part of the UK).

Backdrop: At the time, the protocol was seen as essential to protect a 1998 peace deal that brought an end to the decades of sectarian violence – often referred to as “The Troubles” – but eventually exposed other divisions by creating a border in the Irish Sea between mainland Britain and Northern Ireland. Communities that strongly identified as British in the latter region despised the arrangement, saying it isolated them from the U.K., while some British companies severed ties with Northern Ireland businesses due to increased paperwork. A trade war also threatened to erupt after the U.K. repudiated and even threatened to override parts of the agreement that left Northern Ireland in the EU’s single markets for goods.

Looking to take a different direction, Rishi Sunak (the third U.K. prime minister within a year) is aiming to heal ties with the EU, while pushing euro-skeptic MPs in his party and the DUP in Northern Ireland to get on board. He just unveiled a new “Windsor Framework” with European Commission President Ursula von der Leyen that would set two classifications of goods that traverse the Irish Sea: a “green lane” for Northern Ireland with minimal checks, and a “red lane” that would be subject to higher scrutiny and documentation for things destined to move into Ireland and the EU. The framework also includes tax policy amendments, provisions for medicines and a sovereignty mechanism called the “Stormont brake.”

Go deeper: The developments come at a time when European unity is threatened by Vladimir Putin’s war in Ukraine. President Biden also applauded the Windsor Framework, calling it an “essential step to ensuring hard-earned peace is preserved and strengthened,” while Sunak further sees the deal as helping out the U.K. economy, which has recently seen fruit and vegetable shortages add another curveball to the inflationary environment. While there has been some signs of a business rebound, Britain remains the only G7 economy still smaller than before the coronavirus pandemic, and the Bank of England doesn’t expect a recovery to its pre-COVID peak until 2026.

ETFs: NYSEARCA:EWU, NYSEARCA:FXB, NYSE:IRL, NYSEARCA:EIRL, BATS:EWUS, NYSEARCA:FLGB, NASDAQ:FKU, NYSEARCA:HEWU