30 January 2023

UK and EU: What could a closer EU relationship realistically look like?

Joël Reland sets out what a closer relationship between the UK and the EU might realistically look like should the two sides decide to pursue one, suggesting that it is most likely to take the form of deepening the existing trading agreement rather than a full renegotiation.

One of the many curiosities of Brexit is that there is growing evidence that the British public is unhappy with the state of the UK-EU trade agreement, yet neither main party wants to do much about it.

56% of voters would now choose to re-join the EU in a hypothetical referendum, and there is also popular support for a closer relationship, for example via alignment on EU food and goods standards to improve trade, and a return to freedom of movement.

Yet such a ‘Swiss-style’ relationship with the EU remains politically almost infeasible.

The Conservatives won the 2019 election by uniting Brexit voters, the vast majority of whom still want to be outside the EU and have little appetite for closer relations. Labour, similarly, is keenly aware that its path to electoral victory rests on winning back red wall seats which by definition voted at least 55% for Leave. That means, for both sides, that any talk of a fundamental change to EU relations is strictly off-limits.

Moreover – and this point is often overlooked in the UK – it is far from clear that the EU wants to change the status quo. After all, the UK-EU trade and cooperation agreement (TCA) provides for tariff-free trade in goods (where the EU has a surplus with the UK) but is more restrictive on trade in services (where the EU has a deficit).

The EU is also very hostile to any semblance of ‘cherry picking’, where the UK seeks the best bits of EU membership without the countervailing responsibilities. Indeed, the EU dislikes its relationship with Switzerland, based on a ‘patchwork’ of individual agreements, and is actively trying to reform it. There is no chance of the UK getting a similarly customised offer.

The upshot of all this is that the TCA, withdrawal agreement and Northern Ireland Protocol are likely to govern UK-EU relations for the medium term at least.

Our new report examines how relations might evolve, for better or worse, within that scope. It shows that any change will be incremental – not radical – and any government which is serious about improving relations will need to focus on quick fixes before longer-term evolution.

In the short term, there are various deadlines and decisions which need to be managed in conjunction with the EU. There is not very much to be gained here, but there are potentially major costs if issues are poorly handled.

For example, the EU ‘adequacy’ decision which allows a free exchange of personal data between the UK and EU expires in 2025. Should the EU not opt to renew it, it could cost UK businesses billions in additional administration, and the simple way for the UK to ensure renewal is not to diverge from the EU’s GDPR regulation.

From 2024, an increased proportion of electric vehicle parts must originate from the UK or EU to continue qualifying for tariff-free trade under the TCA, yet manufacturers on both sides fear they lack the resources to meet this demand. The UK and EU could do their industries a big favour by extending the present grace period, but this will require mutual agreement.

Meanwhile, in 2026 the agreement on how much fish EU fishers can catch in UK waters will have to be renegotiated. The UK might try to increase its catch share, but this could lead to trade retaliation by the EU. The TCA provisions on energy cooperation expire at the same time, with the EU implying it may curtail energy supplies if the UK seeks to increase its fishing rights, which would be extremely painful for both sides....

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