Unraveling UK-EU Trade Relations: Barriers to Trade May Deepen Despite Resolution Over Northern Ireland
Negotiators predict that trade barriers are likely to deepen between the European Union and the UK, despite the resolution of a diplomatic deadlock over Northern Ireland. Maroš Šefčovič, Vice-President of the European Commission, warned that a new spirit in the relationship will not resolve the issues of increased costs to businesses and greater divergence, which may lead to further trade barriers. The EU is treating the UK like any non-member state, insisting that the UK’s proposal to set its own regulations in areas such as AI and financial services will require more scrutiny and import control, just like other non-member states who face more stringent trade protocols. Negotiations for associate member status in the €95.5 billion EU Horizon research program for the UK remain deadlocked on cost talks.
Brussels’ Post-Brexit Treatment of UK
Brussels views the UK’s position as a tough one since it’s now a ‘third country’ outside the EU. The ongoing friction surrounding EU regulations, e-passport gates, the Horizon, euro clearing, and rules of origin clearly demonstrates Brussels’ reluctance to offer concessions. In several areas, Brussels has made it clear that the UK will be treated much like a non-member state regarding collaboration with the EU on scientific programs, electric vehicle tariffs, repatriation of euro clearing in the EU, and cooperation in the financial service sector.
The UK’s Commitments under the Windsor Agreement and beyond
UK ministers hoped that the recent Windsor framework agreement between the UK and the EU would lay the groundwork for a closer relationship with Brussels. James Cleverly, the UK’s foreign secretary, wanted to work more closely with the EU on a range of areas, including migration, security, energy, climate change, and international development. The EU negotiator, however, insisted that the review of the Trade and Cooperation Agreement in 2026 would not lead to substantive change or renegotiation of the supplementary agreements.
The Rights of EU Citizens in the UK
The EU negotiator also expressed concern regarding the rights of EU citizens in the UK and the protection of a ‘level playing field,’ as UK companies must not undercut their rivals in EU countries by lowering standards or supporting business, a treaty commitment.
The EU and UK’s Stand on the Single Market and Customs Union
Both major political parties in the UK have ruled out re-entering the EU single market or forming a customs union with the EU. However, the UK cannot set its own regulations in these areas as it would require more scrutiny and import controls.
EU Parliament’s Concerns on UK’s Law on Genetically Modified Foods
An influential European Parliament committee expressed concern over recent UK legislation that loosens rules on genetically modified foods. The committee warns that regulatory divergence could result in GM products entering the EU with disparate safety controls or without proper labelling.
Challenges Facing the Financial Service Industry
In areas where there has been progress, such as the activation of a long-delayed EU-UK memorandum of understanding on financial services, commission officials are clear that there will be no special arrangements. Stefan Fuehring, the top EU official overseeing the TCA, insisted that the rules were clear and all the UK had to do was settle in the EU to avoid many problems.
The UK Is Already Setting Its Standards: How Are UK Industries Adapting to these Trade Barriers?
The increased costs of trade barriers between the EU and the UK have been making it challenging for many business sectors, including the financial, motor, and steel sectors, which have struggled to make progress in the face of these obstacles. Despite this, various industries have been focusing on the opportunities presented by post-Brexit trade regulations. The food production and retail sector is one such industry that has taken the initiative, with its local sourcing strategy and improved master data management infrastructure.
Summary:
The resolution of the diplomatic deadlock over Northern Ireland does not mean that trade barriers between the UK and EU are ending any time soon. Barriers to trade are likely to deepen, which may lead to additional costs for businesses on both sides, according to Maroš Šefčovič, Vice-President of the European Commission. Brussels views the UK as a non-member state and insists that the country’s proposal to set its own regulations in areas such as AI and financial services will require more scrutiny and import controls, similar to other non-member states. Furthermore, negotiations for associate member status in the €95.5 billion EU Horizon research program for the UK remain deadlocked on cost talks.
Additional Piece:
How UK Industries Are Adapting to Trade Barriers
Despite these trade barriers, UK industries have been focusing on the opportunities presented by post-Brexit trade regulations. The food production and retail sector is one such industry that has taken the initiative, with its local sourcing strategy and improved master data management infrastructure.
The Financial Industry Challenges
Several UK-based global banks, such as Barclays, HSBC, Lloyds, and Nutmeg, have opened branches or acquired brokerage firms in EU countries to maintain access to the EU market. However, the banking sector continues to face several challenges, including being cut off from EU passporting and access to the Single Euro Payments Area (SEPA).
Furthermore, the UK government’s position on the equivalence regime has also put the UK into direct competition with the EU. Consequently, banks must adapt to differing rules and regulations for their UK and EU operations and are investing heavily in complex systems to support multiple regulatory frameworks.
The Motor Industry Challenges
Tariffs and obstacles have caused problems for the UK motor industry, leading to the shrinkage of its production volume to the lowest level in decades. The government has granted £1 billion to the automotive sector over the next four years to help mitigate the impact of Brexit and support electric vehicles’ production.
The Steel Industry Challenges
The UK steel industry is facing a problem of indirect costs since reduced shipments to the EU have forced the firms to pay high tariffs on every tonne transported to the bloc and imported raw material. Since the trade deal left the UK steel sector exposed to global tariffs, which could run up to 25%, the UK and Europe have been trying to work out a temporary arrangement until the end of June 2021, paving the way for a permanent solution at a later stage.
Conclusion
Trade barriers between the UK and EU may deepen despite the resolution of a diplomatic deadlock over Northern Ireland. Therefore, UK industries must find innovative ways to thrive in a post-Brexit world of trade barriers and obstacles. The food production and retail sectors have taken the initiative through their local sourcing strategies, improved information management, and infrastructure. However, the financial, motor and steel sectors still face multiple obstacles, leading the banks and automobile industry down the road of adapting and investing heavily in complex systems to support different regulatory frameworks. The government has granted billions to the automotive sector to help mitigate the impact of Brexit whilst the UK & Europe work on a solution to the Steel Industry’s challenge.
Through collaboration, adapting, and implementing coherent solutions, UK industries can survive despite the challenges imposed by Brexit and trade barriers.
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Trade barriers between the UK and the EU are likely to deepen despite the resolution of a diplomatic deadlock over Northern Ireland creating a “new spirit” in the relationship, the EU’s Brexit negotiator warned on Monday.
“Trade can no longer be as fluid and dynamic as before. This inevitably leads to additional costs for businesses on both sides,” said Maroš Šefčovič, Vice-President of the European Commission.
“Over time, greater divergence could lead to even greater costs and further deepen barriers to trade [the] EU and UK,” said al EU-UK Forum annual conference.
The UK has repeatedly said it wants to set its own regulations in areas such as artificial intelligence and financial services, which Brussels says would require more scrutiny and import controls.
UK ministers had hoped that the recent Windsor framework An agreement to resolve a post-Brexit dispute over trade deals in Northern Ireland would lay the groundwork for a closer relationship with Brussels.
James Cleverly, the UK’s foreign secretary, told the conference that he wanted to work more closely with Brussels on migration, security, energy, climate change and international development.
“I want us to move forward in the same spirit of mutual trust and ambition for our relationship and work closely with you on other areas of mutual interest,” he said.
But in several areas, Brussels has made it clear that the UK will be treated much like any non-member state. These include collaboration with the EU on scientific programmes, electric vehicle tariffs, repatriation of euro clearing in the EU and cooperation in the financial services sector.
Mujtaba Rahman, managing director for Europe at the consultancy Eurasia Group, said the commission did not share the UK’s view that since Prime Minister Rishi Sunak handed over the Windsor framework, the EU should show goodwill elsewhere.
“Brussels sees little reason to reward the UK simply for meeting its treaty commitments. The fact is that life as a ‘third country’ outside the EU is tough, as the ongoing friction over e-passport gates, the Horizon, euro clearing and rules of origin clearly demonstrates,” he said.
Negotiations for the UK’s “associate membership” of the €95.5 billion EU Horizon research programmeagreed under its post-Brexit trade and cooperation deal, remain deadlocked on cost talks.
The UK will join the 2021-27 flagship research program in two years’ time. While Brussels has offered to cut Britain’s stake to account for the two years lost, London has pushed for a bigger discount.
“We bring a lot to the table. The benefits of cooperation are obvious,” said Cleverly. However, Šefčovič insisted that the EU’s offer was “very good”.
Šefčovič also dampened hopes that a review of the TCA in 2026, which the Labor party often cites as an opportunity to improve economic relations, would bring about substantive change. The review “does not constitute a commitment to reopen the TCA or renegotiate the supplementary agreements,” he said.
Both major political parties in the UK have ruled out re-entering the EU single market or forming a customs union with the EU.
Šefčovič also expressed concern about the rights of EU citizens in the UK and the protection of a ‘level playing field’, a treaty commitment that UK companies will not undercut their rivals in EU countries by lowering standards or supporting business.
The EU negotiator added that there are still concerns about the EU law maintained bill, which would remove EU regulations from the UK statute book. Sunak suspended the bill’s progress but did not cancel it.
Passing the legislation would mean key parts of the Withdrawal Agreement and the TCA “would be thrown into the shredder,” Šefčovič said – a reference to a campaign video made by Sunak in which he vowed to destroy US-era laws ‘EU.
Meanwhile, an influential European Parliament committee will warn on Thursday that it is “very concerned” about a recent UK law loosening rules on genetically modified foods.
“Regulatory divergence . . . could result in GM products entering the EU with disparate safety controls or without proper labelling,” says a draft report.
Also in other areas where there has been progress, such as activation last month of a long-delayed EU-UK memorandum of understanding on financial services, commission officials are clear there will be no special arrangements.
Asked how the UK could improve access to professional and financial services, Stefan Fuehring, the top EU official overseeing the TCA, said the rules were clear.
“All you have to do is settle in the EU and then you’ll avoid a lot of the problems,” he said.
https://www.ft.com/content/f2434a77-8fa7-4b7c-a86b-d7bf277137d4
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