The UK-EU Reset: What can be done on trade?

The roundtable was convened jointly by the Centre for Inclusive Trade Policy and the Global Trade Policy Forum, Chatham House on 2 December 2024.

Background

Trade relations between the European Union (EU) and the United Kingdom (UK) have been governed by the Trade and Cooperation Agreement (TCA) since Brexit. However, nearly four years after Brexit, there remains an urgent need to reassess and recalibrate this relationship to address emerging challenges and evolving geopolitical dynamics. The new UK government has expressed its desire to reset its relationship with the EU, recognising the long-term implications of Brexit on trade, security, and broader diplomatic ties. This reset presents an opportunity to address longstanding issues, reduce friction, and build a more stable and strategic relationship. However, it also requires navigating complex political, economic, and technical challenges. Ignacio Garcia Bercero’s policy paper provides a foundation for this discussion highlighting three key areas that must be addressed as discussions proceed on what the reset might involve. It stresses the importance of rebuilding trust through practical, legally binding agreements, alongside addressing broader geopolitical concerns and enhanced regulatory cooperation. The policy brief suggests three key areas for legally binding agreements in the UK-EU reset: a veterinary standards agreement to facilitate trade in animal products, alignment of emissions trading systems (ETS) to reduce trade barriers related to carbon pricing, and agreements on mobility to enhance professional exchanges youth mobility and cultural exchanges. Negotiations on these agreements should also be coordinated with negotiations on energy and fisheries, where the TCA has established 2026 deadlines.

This roundtable examined key proposals for resetting UK-EU relations, gathering insights from a diverse range of stakeholders. The discussion assessed how these proposals could shape future trade relations and whether they can be realistically achieved given the current political and geopolitical context. By bringing together various perspectives, the roundtable aimed to shape a more informed approach to the future of UK-EU cooperation.

Regulatory alignment and trade policy

One of the most pressing challenges discussed was the divergence in regulatory frameworks between the UK and the EU since Brexit.  Participants noted that this divergence often arises not from intentional differences but from "passive regulatory divergence," where the UK fails to update its rules in line with EU changes. This gap creates substantial confusion for businesses, which are left to endure the costs of adhering to duplicated compliance requirements. For sectors like manufacturing, chemicals, and food, the lack of regulatory alignment results in increased costs, delays, and challenges in maintaining access to both UK and EU markets. For example, even when UK and EU rules remain substantively identical, the absence of formal agreements on mutual recognition forces businesses to undergo redundant conformity assessments, further adding to administrative burdens.

The discussions noted the importance of a veterinary or a sanitary and phytosanitary (SPS) agreement with the EU for the UK. An agreement on the lines of the EU-Switzerland veterinary agreement was mooted as an ideal model for the UK in discussions with the EU. However, participants highlighted the domestic political considerations of such an agreement. A “Swiss style” agreement would require the UK to actively follow EU regulations and the challenging nature of such a requirement. Participants also discussed whether the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could pose a challenge to a potential “Swiss style” veterinary agreement between the UK and the EU. Discussions noted the significant level of compatibility already existing between the UK and the EU in this area and stated that the specific details of any such agreement needed to be discussed in detail by the UK and the EU.  It was underscored that a high level of ambition like the “Swiss style” veterinary agreement is likely to be necessary for any UK-EU agreement to be persuasive for the EU.

Beyond an SPS agreement, speakers proposed a framework for incremental alignment, whereby the UK should prioritise aligning its regulations with the EU in areas subject to technical updates or where it has historically followed EU standards. For entirely new regulatory regimes—such as those addressing emerging technologies or climate policies—early and structured dialogue between the UK and EU could be critical to reducing friction and finding mutually beneficial pathways. It was emphasised that regulatory alignment would not only simplify trade but also build trust between the UK and EU, paving the way for future agreements. While politically challenging, this incremental approach was seen as the most realistic and achievable path forward, offering a foundation for deeper cooperation without requiring immediate, legally binding commitments.

Geopolitical imperatives

Geopolitical considerations formed a central theme of the discussion, underscoring the urgency for the UK and the EU to realign amidst growing global challenges. Speakers stressed that the increasingly complex and volatile international environment—marked by tensions in transatlantic relations, competition with China, and the fallout from the war in Ukraine—makes closer UK-EU cooperation a strategic and economic necessity. However, this presents an opportunity for a UK-EU alignment not based only on trade but on shared values and goals in a multipolar world. A united approach to these challenges could strengthen the global positions of both the UK and the EU and ensure both parties remain competitive in an increasingly multipolar world.

One of the key arguments was that geopolitical pressures create opportunities for the UK-EU reset by reframing the relationship as a partnership in addressing shared challenges. For instance, coordinating on economic security, supply chain resilience, and defence industrial policy would benefit both sides, particularly as the UK becomes more involved in EU-led defence and energy initiatives. While this alignment could offer significant strategic advantages, participants acknowledged that progress would require high-level political engagement and sustained effort to overcome the lingering mistrust from past negotiations.

Discussants noted that it is essential to avoid collateral damage to either side when addressing geoeconomic tensions or sanctions. To mitigate such risks, coordinated policy discussions between the EU and the UK should be encouraged to minimise bilateral impacts. These efforts could build a political case for greater alignment, and a clear signal from the UK in this regard would likely be positively received by the EU.

Sector-specific challenges and opportunities

Several specific sectors were identified as critical focal points for advancing the UK-EU relationship.

a)     Climate policy was seen as an important area for collaboration, with particular emphasis on linking the emissions trading systems (ETS) of both parties and ensuring alignment in carbon border adjustment mechanisms (CBAM). It was emphasised that if alignment is not achieved by the end of 2025, CBAM could disrupt UK-EU trade flows and increase costs for businesses, especially for small and medium-sized enterprises (SMEs). The effect of CBAM notification requirements and levy would pose a significant cost and barrier to trade for SMEs. The discussants highlighted the importance of cooperation and the economic argument for extending energy cooperation under the TCA beyond 2026. However, it was noted that discussions on energy under the TCA are likely to be linked to discussions on fisheries. The participants noted that the significant potential for mutual benefit on cooperation in energy could be utilised. Such measures are essential to avoid trade disruptions, particularly for energy-intensive sectors that depend on clear, consistent policies. Beyond ETS and CBAM, there were calls to explore broader climate and energy agreements that could encompass renewable energy trading, electricity interconnectors, and joint efforts to decarbonise critical industries. The possibility of coupling climate and energy issues into a broader package or agreement was discussed. Failure to address these areas could lead to fragmented policies that disrupt trade and undermine efforts to achieve climate goals.

b)     Digital trade was also highlighted as a key area for innovation and modernisation. The UK’s leadership in this field, exemplified by its adoption of the Electronic Trade Documents Act, positions it as a frontrunner in trade digitisation. Participants discussed the potential for the UK and the EU to collaborate on creating interoperable systems for digital trade processes, which would enhance supply chain efficiency and reduce bureaucratic hurdles. Such collaboration could help address the delays and costs associated with physical border checks, benefiting businesses on both sides.

c)     Mobility—particularly for business professionals and young people—emerged as another priority. While there is strong demand for frameworks to facilitate cross-border movement, progress in this area is hampered by political sensitivities, particularly in the UK, where mobility discussions risk being conflated with migration debates. This has created a perception that mobility agreements may be politically infeasible, despite their potential economic and cultural benefits. Participants suggested that framing mobility agreements as tools for fostering economic growth and business competitiveness could help depoliticise the issue and open avenues for negotiation.

Business challenges and needs

The session underscored the significant challenges businesses face in adapting to the post-Brexit trade landscape. SMEs were identified as particularly vulnerable, as they lack the resources and infrastructure to navigate the complexities of customs processes, rules of origin, and regulatory divergence. Many SMEs have been forced to cease trading with the EU entirely, as the costs of compliance and delays outweigh the benefits. This retreat from EU markets represents a major loss for the UK economy and underscores the need for targeted support.

Larger companies, while better equipped to handle these challenges, have also experienced setbacks. For instance, firms in the chemical, food, and manufacturing sectors must comply with overlapping regulatory regimes, as the lack of mutual recognition agreements forces them to duplicate efforts to meet both UK and EU standards. This has led to delays, higher costs, and disruptions in supply chains. Participants stressed that creating a predictable and stable regulatory environment is essential for businesses to plan long-term investments and maintain competitiveness. Further, some participants underscored that regulatory alignment with the EU is meaningful only if it provides market access. Any alignment without market access would be unwelcome by some businesses as they would not see sufficient economic benefits.

Institutional framework and timing

The discussion highlighted the importance of using existing institutional mechanisms to advance the UK-EU reset. While the UK-EU TCA offers a strong foundation for cooperation, its potential has been underutilised. Many of the specialised committees established under the TCA have been slow to convene, and their work has been limited in scope. Speakers called for a more proactive approach to activating these committees and using them as platforms to address specific issues like regulatory alignment, customs facilitation, and professional mobility.

Timing emerged as a critical concern. With a political summit scheduled for Spring 2025, both sides face pressure to prepare substantive proposals and align their priorities. However, participants noted that the UK government’s lack of a clear, cohesive strategy could hinder progress. Without a focused and realistic set of objectives, there is a risk that the summit could fail to produce meaningful outcomes. The EU’s internal challenges, including elections and shifts in leadership, add another layer of complexity, underscoring the need for careful preparation and effective coordination. Participants highlighted that the UK should consider key areas of importance for it and engage proactively focusing on those key areas with the EU.