What Next for the UK-EU Trade Relationship?

On May 19 the UK and EU started a new phase in their turbulent history. By agreeing a future program of work including negotiating alignment on food and drink regulations (SPS) and emissions trading (ETS) they are aiming to build a deeper mutually beneficial relationship on top of the Trade and Cooperation Agreement, heading in the direction of a Swiss-style relationship of permanent talks and multiple deals.

Next stages will not be straightforward. In some ways it is a miracle that the UK and EU could find this successful summit outcome. For the process of the last few months showed that many old frustrations in the relationship remain.

Consider that a new UK government concerned that many of its voters supported leaving the EU never set out a vision of a future relationship. Their Brussels engagement in particular was hampered by fear of saying anything meaningful in public. The European Commission equally continues to be scarred by the UK’s very poor negotiating approach during the Brexit years, and also set out no particular long-term objectives.

Then there was the traditional behaviour disliked by the other side, of the UK focusing on improving trade without considering wider obligations, and the EU negotiating machinery trying to grind out as many wins as possible.

Thankfully experienced officials did what they specialise in, making the best of a political steer from the new UK Labour government to improve trade relations and a desire on the part of Commission President von der Leyen to stabilise UK relations. This rested on the crucial decision of her team by mid-2024 to focus the process with a summit. Trump’s election strengthened the geopolitical imperative that this be a success anchored by a defence and security deal.

Pulling together a broader outcome in which the two sides agree to negotiate various issues according to some broad principles is reasonable if not overwhelming substance to what is more of a symbolic moment. Most positive was the intensive work of the energy sector in persuading both sides that stronger ties were crucial to growth. Less so are the poorly considered SPS alignment proposals, continued UK resistance on youth mobility, and the French digging in to inflame UK public opinion by insisting on a very long status quo period for fish even though this is the de facto reality.

Moving on from here is going to be quite the challenge, for there will be disagreements on the substance. For example, in those areas in which the UK will align with EU regulations there will be questions concerning the exact scope, consultation process, legal mechanism, operational form, financial arrangements, dispute settlement, and possible exemptions. Then the EU will be concerned about the balance of a package, and the extent to which this will be considered a single undertaking.

EU Member States will presumably have their say through the process of setting mandates for the Commission negotiators on several issues, but it is not clear what the equivalent will be on the UK side. Reporting on progress will then be an issue, not least as timescales have not been set but promises of benefits have been made. Presumably the intention is agreement if not full implementation in this Parliament and Commission term.

UK stakeholders have already expressed concern about detail, and there is a chance that the SPS deal will breach at least the UK-New Zealand FTA and even UK CPTPP membership, requiring some renegotiation. Given the likely high profile of negotiations particularly in the UK, the government would be strongly advised to considerable strengthen their currently obviously inadequate communication and consultation mechanisms.

Annual summits have been agreed, but hopes the summit texts would mention broader political structures were not met. These look inadequate to the challenges ahead, and may even have been dropped in the last-minute haggle over content. Given what often happens after such a set-piece event is that as the political attention goes elsewhere the detailed negotiations get stuck, this may prove costly. Commission negotiators point out that the common understanding agreed with Switzerland led to a deal in a year, but this came from very different starting point.

Swiss alignment with the EU was an extensive process over many years, and subject matter experts have suggested from inception to implementation may take similar for the UK. In particular for food to pass seamlessly from UK import to shops across the EU will take a level of trust far in excess of that currently in place. Whether either side are fully aware of what they have signed up for is unclear, and even if the UK eventually accepts most EU proposals, implementation timescales will still be an issue. On ETS linkage, a reasonable question is whether CBAM charges will be waived if negotiations are not concluded in time.

Notwithstanding the use of the phrase strategic partnership there didn’t seem to be much sign of either side really thinking in this way, indeed both have general difficulties thinking like this. The EU wins negotiations, the UK doesn’t want to be tied down but make pragmatic deals. Such medium-term dynamics aren’t helpful.

Then there is another disappointing element of the summit, subjects simply ignored. While it is reasonable to focus immediate negotiations on a few areas, this UK-EU relationship will always have a huge scope that should be recognised. Professional qualifications and touring artists were at least mentioned in passing, but the pan-euro-med convention on rules of origin, mutual recognition of conformity assessment, broader mobility, and health could have been as areas to be kept under review. Then there is the question of whether next year’s review of the Trade and Cooperation Agreement is to be substantive, not to mention ongoing talks about Gibraltar.

EU sources suggest this would have taken the relationship too far into single market territory, and there isn’t enough political support for that. While MEPs and some Member States are keen on stronger UK relations, they are not particularly vocal. UK public support also starts from a weak basis, stuck between a pro-EU camp with an unrealistic Customs Union obsession and those in the Reform and Conservative Parties for whom any conversation with an EU official is a betrayal.

Business groups will be supportive, but probably not vocally based on previous evidence. Over the last eleven months we have seen an EU sometimes moving away from a sceptical tone towards the UK when a good case is made but then returning to it as a default particularly when UK government messaging falls short. The UK government and business organisations wanting to build momentum must therefore be prepared to persistently make their case publicly in Brussels.

Given the extensive range of shared interests between the UK and EU, and as the world’s second largest trade relationship, this has to be an extensive relationship owing more to that with Switzerland than with any other EU partner. Both sides need the growth but as yet this situation is insufficiently accepted in both London or Brussels.

For the time being then the main thrusts of our September paper still hold. “Too big for either side to ignore, this will always be an important, time-consuming, and slightly chaotic relationship”. The summit is a step forward, a foundation for the future, but the essentials that point towards ongoing difficulties remain unchanged going into detailed negotiations.