Five areas of improvement for UK-EU trade seven years after Brexit referendum

Fri 23 Jun 2023
Posted by: William Barns-Graham, Phillip Adnett
Trade News

Chess pieces facing each other on board, with UK and EU flags

Today (23 June) marks the seven-year anniversary of the UK’s referendum vote on membership of the EU, and almost three and a half years since the departure was completed. Since Brexit, the conditions for businesses trading between the UK and EU have undeniably changed.

The EU-UK Trade and Cooperation Agreement (TCA), which came into effect on 1 January 2021, continues to be the basis on which much of UK-EU trade, at least for goods, is now conducted.

The TCA has been criticised in some quarters for adding too many new costs and requirements for traders, but the EU’s vice-president Maroš Šefčovič, who leads the bloc’s negotiations with the UK, has been clear that the deal will not be re-opened until 2026. Both major political parties in the UK have also ruled out the UK re-joining the EU single market or customs union.

So how can UK-EU trade conditions be improved in the meantime? Are there agreements outside of the TCA or elements of the TCA that can be renegotiated or improved?

The IOE&IT Daily Update below looks at some of the areas where rules could, and in some cases will, change.

Competitive disadvantage

While the EU introduced full customs controls on 1 January 2021, the UK delayed certain controls – including sanitary and phytosanitary (SPS) checks for plants and agrifood products – on EU goods entering Great Britain.

These controls are still to be introduced, though the UK government published a draft of its plan for bringing them in – the Border Target Operating Model – earlier this year. The current plan is for the new rules to come into effect from the autumn.

Institute of Export & International Trade (IOE&IT) director general, Marco Forgione, has previously called on the government not to delay these controls any further, telling Politico that UK exporters are currently at a “significant competitive disadvantage” because they currently face more controls than their EU counterparts.

Members of the Institute of Directors (IoD) have echoed these concerns, saying a “lack of level playing field” was a “primary concern”.

Origin rules for EVs

An aspect of the TCA that has caused consternation in the automotive industry recently is a change to origin rules for components of electric vehicles that is due to come in at the start of next year.

Currently, up to 70% of battery components can come from outside the UK or EU before tariffs are applied, but this figure will drop to 40% at the start of 2024.

Stellantis – the parent company of Vauxhall, Fiat, Peugeot and other well-known car brands – recently told a parliamentary inquiry that this change could make it difficult for UK manufacturers to source parts from abroad while retaining tariff-free trade.

Mike Hawes, the chief executive for the Society for Motor Manufacturers and Traders, recently said:

“At a time when every country is accelerating their transition to zero emission transport, and global competitors are offering billions to attract investment in their industries, a pragmatic solution must be found quickly.”

The IOE&IT Daily Update has previously reported that officials in London and Brussels have been in conversation about how to avoid this potential “cliff-edge”.

Creative sector

The UK’s creative industries have also criticised the TCA’s mobility rules for limiting artists and performers’ ability to tour or exhibit on the continent, with criticism coming from well-known celebrities such as Elton John and members of Radiohead.

As well as this, the UK has reportedly begun to lag the EU in terms of funding for the creative sector. The UK Trade and Business Commission recently estimated that the sector would have received an additional £163m in funding if it had remained a part of the EU’s flagship cultural programme, which recently had its budget increased by 66%.

Deborah Annetts, chief executive of the Independent Society of Musicians, told the Independent that the burden of new requirements was still causing “great harm to one of our flagship industries”.

One maker of specialist equipment said last year that he was still facing problems with shipping specialist equipment to locations of concerts, saying that his products would often be held up at the border and arrive the day after the event had ended.

Many smaller groups tend to book events as they tour which creates problems when they attempt to secure visas without a definitive set of venues in mind. Supporting members also face mobility issues across borders, possibly resulting in their replacement for the European legs of tours with local equivalents.

Services

Despite the UK’s purported status as a ‘services superpower’, many parts of the services sector are still negotiating their way in the post-Brexit landscape.

The TCA didn’t include comprehensive provisions or rules for the financial services sector, but market access across the UK and EU was to some extent maintained by the UK’s decision to grant temporary passporting rights to firms based in the European Economic Area.

This temporary access expires on 31 December 2023, with the EU’s decision to grant ‘equivalent’ status, which allows UK-based clearing houses to service EU firms, expiring on 30 June 2025, according to UK in a Changing Europe.

The UK will need to decide, in the first instance, whether to extend this temporary situation ahead of the end of this year, while the EU will need to similarly decide on an extension in mid-2025.

Other services areas face a lack of mutual recognition of qualifications and other access issues.

The Law Society, which represents solicitors practicing in England & Wales, has noted that the TCA limits the ability of UK lawyers to practice in the EU after Brexit. Now, a UK solicitor is likely to need to comply with local laws in each European country.

Ahead of the UK’s recent trade negotiations with Switzerland, trade and business secretary Kemi Badenoch has promised to focus on getting a ‘service-based’ agreement for multiple sectors, including finance, accountancy and legal.

The government has also secured a mutual recognition agreement between UK and US architect regulation bodies, with the hope that this will unlock opportunities for British architects to expand their business to various US states.

The Law Society says that the TCA “could have achieved preferential treatment for UK lawyers in the EU, compared to other third-country lawyers,” but members of the country’s legal profession now face different requirements in each EU member state.

Business support

The British government is supporting businesses to trade with the EU through the support it provides to exporters. This remains a key short-term requirement, particularly given Šefčovič’s claim that the TCA won’t be reopened until 2026.

The IoD has previously made three recommendations for how the Department for Business and Trade can enhance this support:

  • Create a database of international trade advisors
  • Offer clear advice to SMEs on how to better benefit from the TCA
  • Establish an SME special committee to monitor implementation of the TCA’s SME chapters

The Mayor of London, Sadiq Khan, has pushed for more powers for the capital to support businesses, calling for devolved immigration powers from Westminster to City Hall. This, he argues, would allow London to create a ‘regional shortage occupation list’ to allow it to attract the right talent for businesses.

Regulatory divergence between the UK and the EU is an issue for industry, with many businesses wanting to avoid having to comply with two, or more, sets of rules.

Areas as diverse as the Russian sanctions regime to food safety to financial regulations are all subject to possible divergence as the UK looks to redefine its place in the world.

The Institute of Export & International Trade regularly provides support and training to businesses looking to trade with the EU, including an upcoming Lunchtime Learning session on the Windsor Framework/Northern Ireland Protocol (members only) and training sessions on trading with Europe.