How UK-EU trade cooperation can survive Brexit

Unless the United Kingdom and the European Union reach some form of an agreement prior to the end of the Brexit transition period, they will experience much greater friction in trade with each other. And this will have a knock-on effect in other potential areas of cooperation, such as security.

Bilateral UK and EU cooperation with countries further afield would likely mitigate some of the resulting disruption. Yet the lack of even a basic free trade agreement (FTA) would cause undue suffering to the UK and the EU, straining their relationship for some time.

Regardless of whether there is a deal or not, it is important to think beyond this to consider their trading relationship in the medium and long term. The relationship will help determine the prospects for the development of broader, deeper UK-EU cooperation in the years to come.

Trade between the UK and EU member states

Member states’ approaches to trade and the single market are inseparable from the EU’s overarching position on these central policy issues. For the EU, the name of the game has been preserving market integrity and signalling to its member states that there is no way to benefit from the single market’s rules without following them. And member states have largely followed this approach.

In the UK Special of the European Council on Foreign Relation’s EU Coalition Explorer, which surveyed EU27 and UK policy experts on a wide range of issues, British respondents stated that the big economies of France and Germany were instrumental to the future of UK trade policy vis-à-visthe EU. They also regarded Ireland and the Netherlands as important, partly due to their geographical proximity and their significant role in various trade sectors.

Thus, the UK and the EU need to establish a coherent approach to their future relationship based on shared interests in strategically important sectors. This should concern, for instance, automobiles and pharmaceuticals in the case of Germany, and services in the case of Ireland. Ultimately, the overall state of the UK’s trade relations with the EU will determine the strength of its ties with specific member states, both economically and politically.

British experts believe that France, Germany, and Ireland are not only potential partners for the UK in future trade relations but also – in some important instances – likely competitors. Indeed, although companies within all three countries are wary of barriers to trade in key sectors, many will remain fundamentally supportive of their governments’ preference for preserving the integrity of the single market. Rival domestic interest groups will likely come to the fore, seeking to shape the future UK-EU relationship, with firms based in the UK intensifying their lobbying in Europe, and vice versa. The net effect of this pressure is difficult to foresee, but it will cause civil society, private sector, and domestic political actors to form a new constellation.

Trade deals beyond Europe

Leaving the EU means that the UK no longer has to compromise with member states when it strikes new trade deals with countries outside the bloc. However, its bargaining power and position have diminished significantly.

With its economy less dominated by the EU market, the UK may indeed shift its focus towards mutually beneficial trade deals with countries beyond Europe – as it recently has with Chile, Japan, and Singapore. However, such FTAs are unlikely to be enough to offset the decline in trade with the EU. And UK-EU relations are not entirely separate from such trade agreements. London’s recent deal with Tokyo is illustrative of this: the UK failed to secure new tariff rate quotas, meaning that it can now only pick up quotas unfulfilled by the EU in ten of 25 products covered by the bloc’s FTA with Japan. Therefore, the UK must be mindful that the influence of the EU will live on, and be prepared to adjust its trade expectations – and agreements – accordingly.

The UK’s most high-profile trade agreement beyond Europe will likely be that with the United States. Following the US presidential election in November, there is the issue of the role that the incoming Biden administration will play come the new year. Again, the EU will have an influence on such a deal. And it is no secret that Biden will move the US closer to Europe. Indeed, Biden will likely focus on reviving the Transatlantic Trade and Investment Partnership before dealing with the UK. The US will probably use an FTA with the UK as leverage in trade negotiations with the EU but, under Biden, will not shy away from making clear its irritation with the British government’s intention to renege on its commitments to Northern Ireland in the withdrawal agreement. Furthermore, if the UK accepts American regulatory standards as part of an FTA with the US, this could derail British trade negotiations with the EU. Public perception is also relevant here: although most British voters support a more internationalist role for the UK after Brexit, they are also highly sensitive to the concessions that the US could seek on issues such as food standards and pharmaceuticals. The UK would, therefore, benefit from listening to the public on such issues more often, considering their long-term implications for international political developments.

Indeed, the state of international politics will play a large role in determining the extent of UK trade deals beyond Europe. The UK should not view FTAs as a panacea for its uncertainties about its international role. One promising avenue for UK-EU cooperation, therefore, is in greater efforts to promote the reform and reinforcement of the WTO and rules-based global governance more broadly. This would help mitigate increasing protectionism in global economic policy, as well as the intensifying geopolitical competition between the US and China.

If their future cooperation on trade and the single market is to fulfil its potential, the UK and the EU will need to gradually establish trade practices and political and economic commitments that are flexible and based on strong foundations of mutual trust. Although Brexit is certainly an exceptional event, the UK would do well to avoid indulging in its own sense of exceptionalism. The government in Westminster should look beyond London, taking account of economic realities at the local and regional levels, as well as those of the UK’s constituent nations. In a policy sense, this means that the country’s strategy should be to take a more considered, sectoral approach to trade. Such an approach would strengthen the UK’s own internal market and its future relationship with key EU member states.

Ultimately, the EU will remain the UK’s closest and most important trading partner, and will influence British trade relations beyond Europe. Both parties should be mindful of this interdependence as they seek to establish a mutually beneficial future relationship.

This essay is part of a series of commentaries on the EU Coalition Explorer UK Special. Two other commentaries discuss the potential for UK-EU cooperation on climate and defence policy.