Luisa Santos / Nov 2024
Image: Shutterstock
Following the 2016 referendum, EU-UK relations entered a turbulent period. Although the signing of the Trade and Cooperation Agreement (TCA) put an end to years of arduous negotiations, persistent points of contention, notably regarding the status of Northern Ireland, continued to strain relations between the two sides.
With new governments in both the EU and UK, and a geopolitical environment that begs for stronger cooperation, there is hope for a ‘reset’ in relations. For the business community, the importance of seizing this opportunity for a comprehensive improvement in the relationship is evident.
The trade and investment relationship between the EU and UK remains indispensable for businesses on both sides. The EU remains the UK’s biggest trading partner, accounting for more than 40% of its foreign trade in goods, while the UK is the EU’s third largest after the US and China. The stock of mutual investments remains among the highest in the world, with EU outward stocks at €1.7 trillion and inward stocks at €1.4 trillion in 2022.
While the TCA has allowed businesses to avoid an abrupt transition resulting from the UK’s exit from the single market and the customs union, there remain many unnecessary barriers to trade and investment.
With the TCA committing the parties to zero tariffs on goods that comply with the appropriate rules of origin, non-tariff barriers form the main obstacle to open trade. Limiting the extent of regulatory divergence between the two jurisdictions whenever possible and promoting regulatory cooperation in various sectors is extremely important. This enhanced cooperation should be steered at a high political level through an annual summit with a strong economic component. EU and UK businesses should be actively involved and discuss practical problem solving. Along with a veterinary agreement that would significantly reduce barriers to agri-food trade, a long-term framework for cross-border data flows, and increased coordination on the regulation of AI, cyber-security, IP and standardisation would all be welcome.
In addition, new customs formalities since the UK’s exit have resulted in significant delays and higher costs for businesses. Simplifications concerning the transit procedure and more direct linkage with each national customs clearance system in Europe is an area that could be improved substantially. Active engagement between UK and EU member states’ customs authorities is a necessity to further reduce supply chain disruptions, especially as the EU’s Entry-Exit System and the UK’s Border Target Operating Model are deployed. Moreover, customs checks could be greatly reduced if the EU and UK agreed on the mutual recognition of conformity assessment for products in the appropriate sectors, allowing EU products destined for the UK market to be certified by bodies located in the EU.
Along with disruptions to trade in goods, EU and UK firms have suffered from labour shortages since the UK’s exit. Without crossing the red line on freedom of movement, agreements to enhance the mobility of professionals would be instrumental in addressing these shortages. Here, agreements on the mutual recognition of professional qualifications are key to facilitating EU and UK based professionals in operating in each other’s markets. Furthermore, employing skilled workers from the EU has become challenging for UK employers due to the costs associated with the current visa sponsorship system for skilled worker visa applications. Streamlined visa processes, with reduced fees, should be applied to restore a more level playing field between EU and UK professionals. Businesses would also benefit from agreements to facilitate short-term work mobility, given that the current TCA provisions put strict limits on permitted activities and lack clarity regarding the conditions for temporary business travellers. In particular, the chapter on contractual service suppliers excludes creative or artistic services, imposing unnecessary difficulties on touring artists and their support staff.
Finally, as like-minded partners, the cooperation between the EU and UK is vital in tackling shared challenges. In line with the structured dialogue the EU has with Japan and the US, the EU and UK should have a platform for bilateral discussion on the development of their economic security strategies; this would help to effectively mitigate risks while avoiding unnecessary obstacles in our economic relationship. Similarly, the two should work closely together on efforts made in the green and digital transitions, including through linking our emission trading systems. With increasing conflicts and a more volatile and insecure world, further EU-UK cooperation through a broad security and defence pact would be a positive development. This pact should emphasise cooperation on energy security and the integration of supply chains, contributing to the reduction of the EU and UK’s strategic dependencies on certain countries – particularly for critical raw materials.
In a world that is becoming more divided, more protectionist and less rules-based, the EU and the UK have even more incentives to do more together. It is imperative that we build a stronger and more stable political and economic partnership for the benefit of our citizens and our companies.
