After a period of calm, debate over the shape of the UK’s post-Brexit trade arrangements has suddenly flared up again after senior government officials in Rishi Sunak’s government raised concerns about seeking a closer relationship with the EU.
Downing Street quickly denied reports that the government expected a “Swiss-style” relationship to emerge in the next decade following a backlash from Brexiters on the party’s right wing.
But in an interview on BBC Radio 4’s Today program on Monday, Robert Jenrick, the immigration minister, said the government wants to “improve our trade relationship with the EU”, while sticking to the “fundamental terms” of the trade deal the UK agreed with Brussels in 2020.
How could the trade and cooperation agreement (TCA) between the EU and the UK be improved, within the red lines of the current government, but also what could be possible if a future government took a different approach?
How does the TCA work?
The EU-UK trade deal is a fundamental “Canada-style” free trade agreement that leaves the UK outside the EU’s customs union and internal market. It’s a “zero rate, zero quota” deal.
This means that goods that are sufficiently “made in the UK” to qualify can enter the EU duty-free. But they must prove that they are eligible for this access and also comply with numerous EU rules and regulations, for example in the area of food safety rules or industrial standards. This creates extra costs and delays in trade between the EU and the UK.
The TCA also ends the “free movement of people”, which has challenged some UK businesses, such as the hospitality industry and construction, which depended on access to flexible labor from the EU.
Finally, the agreement removes any jurisdiction for the European Court of Justice in the UK, except for Northern Ireland, which remained within the EU single market for goods to avoid the return of a trade border on the island of Ireland.
How can the TCA be improved?
If the UK government sticks to its red lines on EU legislation, budget contributions and regulatory alignment, trade and economic experts say not much can be improved.
Tony Danker, the director-general of the CBI, urged the government to “get around the table; do the deal; unlock the TCA” at the industry association’s annual conference, but there are limits to what can be achieved within the parameters espoused by Jenrick.
Resolving the long-running row over the implementation of post-Brexit trade arrangements for Northern Ireland would certainly lift the mood. It could also unlock some currently blocked areas – such as the UK’s participation in the €95 billion Horizon science program – but it would not change the fundamentals of the TCA.
UK traders would still be outside the EU regulatory framework, would still have to prove their goods are eligible for entry into the single market without a tariff and would still have to complete forms proving they meet EU standards.
The UK Treasury and the Office for Budget Responsibility, the fiscal watchdog, estimate that this friction will inflict a 4% blow to UK GDP in the medium term. But minor tweaks to the TCA wouldn’t fundamentally change that assessment, according to Anand Menon, UK head at a changing Europe think tank.
“You can tinker with the margins all you want, it makes the relationship easier and it can improve security, but in economic terms it won’t make much difference,” he said.
What can the UK do to mitigate the negative impact of Brexit?
Any moves to mitigate the negative effects of the TCA would involve blurring the current government’s red lines, particularly in terms of accepting oversight from the European Court of Justice in key areas – for example car regulation, chemicals or food standards – which the UK declined in 2020 trade talks.
The UK Chambers of Commerce have identified five key areas they would like to see improved. They include a veterinary agreement to reduce paperwork costs for the export of animal and plant products; an umbrella agreement to simplify VAT schemes so that they do not differ from one EU country to another; an agreement to recognize the EU’s CE marking on industrial and electrical goods; and bilateral agreements with individual EU member states to allow better access for UK professional services.
According to Anton Spisak, trade and EU specialist at the Tony Blair Institute for Global Change, the challenge is that achieving meaningful benefits in these areas will require a much higher degree of regulatory alignment than the current government can accept.
Such a move would run counter to the government’s stated desire to seek “benefits from Brexit” by actively deviating from EU regulations through the preserved EU law, currently in parliament.
“Ministers could take unilateral decisions to adapt to EU rules when consistency of rules clearly benefits business. This would alleviate some operating costs, but it would not mean frictionless trade unless the UK can formalize this in a bilateral agreement with the EU – and for this it would be inevitable to agree to the jurisdiction of the Court of Justice,” said Spisak. .
What about a ‘Swiss’ deal?
A Swiss deal, which is based on a network of 120 bilateral deals with Brussels, is in an entirely different regulatory and political sphere than the UK’s standard Canada-style deal. It’s also completely off the table in the current circumstances, as Sunak acknowledged today at the CBI.
As a member of the European Free Trade Association, Switzerland is selectively but deeply integrated into the EU’s internal market and must “dynamically align” its laws with EU law in relevant areas to maintain that access. It also benefits the block’s treasury.
This alignment principle was emphatically rejected by former Brexit negotiator Lord David Frost and, as evidenced by the response to media reports that the government favored a Swiss-style trade settlement over time, it still touches on a raw political nerve among Brexiters.