Sun, 14 April 2024

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By Jill Rutter
By Baroness Hoey
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Done deal? Why, on Brexit, Europe may want to maintain the status quo

11 min read

Some like to pretend the Brexit deal can be improved with a formal review due next year but, as Anand Menon explains, the EU has little incentive to rock the boat

Whisper it softly, but United Kingdom and European Union relations may have achieved an equilibrium. The Windsor Framework is being implemented (and Northern Ireland now has an Executive again). The Trade and Cooperation Agreement (TCA) is doing what it was intended to do. What is more, the two sides are interacting on perfectly amicable terms. 

There are those – many within the Labour Party – who are desperate to move beyond the status quo, to build on or even renegotiate the TCA and to address the economic impact that Brexit has undoubtedly had. The current status quo, however, might well prove more stable than they expect. 

Since the announcement of the Windsor Framework in February last year, the UK-EU relationship has finally settled on an even keel. The agreement ended an acrimonious stand-off that had threatened to escalate to legal action. The shift in tone was rapid and remarkable – remember ‘Dear Rishi’? Not only have diplomatic relations warmed noticeably, but the two sides have gone on to agree the UK’s participation in the Horizon research programme. 

The EU is relatively happy with the TCA, which permits tariff-free trade in goods while providing for little in the way of help for trade in services

The improved atmosphere was all too apparent at a recent event at which the UK’s ambassador to the EU and his EU equivalent in the UK basically agreed on almost everything. This is not to say that neither saw any scope for adaptation. In areas ranging from security to mobility, both spoke of possible improvements that could be made to the status quo. But what was striking was the degree to which the TCA as-is formed the basis of their thinking. 

Politics plays a large role in this. A Conservative government – and one resting on a majority secured via the creation of a pro-Brexit coalition – is hardly about to question the wisdom of leaving the EU or call for significant changes to the deal Boris Johnson negotiated. 

Credit: Firefly/Adobe Stock
Credit: Firefly/Adobe Stock

Yet there has been evolution. Consider the Prime Minister’s retreat from his bombastic rhetoric on regulatory divergence. During the Conservative leadership contest of 2022, the would-be party leader released a campaign video underlining his intention to review or repeal all post-Brexit EU laws in his first 100 days as prime minister. In September 2022, Jacob Rees-Mogg introduced the Retained EU Law Bill, which rowed back somewhat on this timetable but still promised to sunset secondary retained EU law by 31 December 2023. The following May, the sunset clause itself was ditched, with a promise instead that some retained law would be reviewed. In reality, as my colleague Joël Reland has argued, regulatory divergence with the EU has become a matter of style rather than substance – a far cry from the radically deregulatory rhetoric of the past. 

Relative stability, then, with both sides willing to contemplate refinements to the current relationship as and when appropriate. Thus, a deal has been finalised facilitating school trips from France, and there are swirling rumours about attempts to negotiate broader mobility packages with member states. 

Yet this ignores the elephant in the room. While political relations have thawed, Brexit has begun to impact on UK trade and on the economy more broadly. A recent survey found that, while services trade has held up pretty well, the UK’s trade intensity (trade as a proportion of GDP) has fallen, not least because of the negative impact of Brexit on UK goods exports. There is strong evidence to suggest that Brexit is partly responsible for markedly low levels of business investment since 2016. While there remains some debate as to the precise level of impact, there can be little doubt that, as most economists predicted, Brexit has had a negative impact on UK economic performance. 

Politics dictates that such impacts are not referred to, let alone addressed, under the current government. This, however, may change were the Labour Party to win the next election. Keir Starmer has stated that the current deal with the EU is “too thin” and that he would attempt to secure improvements. Senior Labour figures have hinted at the kinds of amendments they would like to see, including the negotiating of a veterinary agreement to reduce checks on animals and food, and an agreement on the recognition of professional qualifications. Shadow defence secretary John Healey declared that Labour would, straight after an election, work to put in place “systematic co-operation and a defence and security pact with the European Union”.  

It is remarkable that, in a period of such turmoil, the UK Foreign Secretary has only once attended a meeting of the EU’s Foreign Affairs committee post-Brexit

Of these, the lattermost seems the most practicable. Partly, because much foreign and security co-operation within the EU is intergovernmental, and hence easier to negotiate than economic co-operation – a realm governed by all the nuances and complexities of EU law. Partly, too, because the UK has much to offer its partners in these areas, not least in the context of a second Trump presidency during which Europeans might be called upon to do far more to ensure their own security. 

There is little in the way of detail as to what Labour might seek from such a deal or what benefits it might provide. UK-EU co-operation has functioned well during the war in Ukraine – despite the absence of any formalised foreign and security policy relationship. And many of the constraints that plague, say, defence industrial co-operation stem not from British political intransigeance but from the protectionist European emphasis on ‘strategic autonomy’ which makes it hard, for instance, for UK firms to participate in the European Defence Fund. 

That being said, more formalised links could, at a minimum, increase contacts at official and political level between the UK and the EU. It is remarkable that, in a period of such turmoil, the UK Foreign Secretary has only once attended a meeting of the EU’s Foreign Affairs committee post-Brexit. Equally, the TCA makes no provision for regular heads of state and government meetings which the EU has in place, for instance, with China. 

When it comes to the economics, however, it is less obvious that the EU has an incentive to act. Brexit has, predictably, impacted far more severely on the UK than on the Union. In fact, the EU is relatively happy with the TCA, which permits tariff-free trade in goods (where the EU enjoys a trade surplus with the UK) while providing for little in the way of help for trade in services (where the inverse holds). While a veterinary agreement may facilitate cross-border trade, it would be more important for the UK than the EU. 

Similarly, at Davos last year, Rachel Reeves suggested that a Labour government would like to negotiate a deal on mutual recognition of professional qualifications. This would have obvious benefits for a UK economy based very much on services (though it is less clear how big a difference it would make for service providers absent the broader benefits offered by freedom of movement). Again, however, this would be less of a priority for the EU. And were the EU to undertake negotiations, securing agreement could well be a lengthy process – negotiations between the EU and Canada on the mutual recognition of qualifications for architects went for nine rounds. 

There have been some suggestions that the scheduled review of the implementation of the TCA might provide an opportunity to revisit certain aspects of the trading relationship. However, there is little to suggest that the European Union sees the review in this way. 
The fact is that the UK is no longer a priority for the Union or its member states, preoccupied as they are by a range of other issues ranging from migration and inflation to the rule of law and the conflicts in Ukraine and Gaza. 

Finally, while the measures being suggested by Labour will help smooth some of the trade frictions created by the TCA, and while a veterinary agreement would help mitigate problems on the GB-NI trade border, none will have a major macroeconomic impact. The majority of the costs associated with Brexit stem from being outside the single market, membership of which Labour has ruled out. Whether lengthy negotiations for relatively little gain appear as appealing when the party is confronted with the task of governing is an open question. 

Keir Starmer as shadow brexit secretary (Credit: PA Images / Alamy Stock Photo)
Keir Starmer as shadow brexit secretary (Credit: PA Images / Alamy Stock Photo) 

There was much – albeit misleading – talk of a ‘cliff edge’ when the UK was leaving the EU. Equally, we face a pretty stark choice now. Short of single market membership, any deals we might strike, while easing trade and perhaps reducing the impact of the trade border between GB and NI, would have only a limited macroeconomic impact. Single market membership, however, implies difficult trade-offs around freedom of movement, the UK being a rule-taker and contributions (with no rebate) to the EU budget. 

Ultimately, where we end up will depend on the politics. Brexit crystallised a new division in UK politics, and one that helped Boris Johnson create a winning coalition in 2019. Facing criticism for stating that he did not want to diverge from EU rules, Starmer declared that the “rules and laws of this country will be made in Parliament according to the national interest”. A referendum campaign dominated by the slogan ‘take back control’ continues to resonate and limit political freedom of manoeuvre. 

Should Labour win the next election, sensitivity to such pressures will partly be a function of the majority they secure. The larger the victory, the more space Starmer will have to ignore Conservative attacks on attempts to deepen the UK-EU relationship. That such attacks will be forthcoming seems a given. The Conservatives will double down on their pro-Brexit stance, given the need for any putative successor to Rishi Sunak to appeal to the party membership. One need only think back to Sunak’s shredder video to understand the incentives (albeit subsequent developments have revealed that such Brexit fundamentalism is more performative than real). 

A re-radicalised Conservative Party in opposition would doubtless attempt to weaponise the Brexit issue and profit from any perceived ‘betrayal’. This in itself might constrain a Labour government. Perhaps as importantly, the EU might look askance at attempts by a Labour government to negotiate deals which a future Conservative administration is committed to tearing up. 

What is all too apparent from the foregoing discussion is that, for all Boris Johnson’s claim to have got Brexit ‘done’, Brexit is far from over and this will continue to be the case for several reasons. First, the TCA is a dynamic agreement which is not fully implemented. There are important agreements that will need to be revisited (on fisheries and energy in 2026) and the TCA itself is up for review every five years. 

The deal we have signed ensures that Brexit will never really go away. The experience of countries like Switzerland teaches us that being a third country with an institutionalised relationship implies an almost permanent negotiation.  

Secondly, Brexit will continue to impact within the UK. Quite aside from the inevitable ongoing debate about its economic consequences, the Brexit divide will haunt politics. Leave and Remain identities show little signs of dissipating, and it is at least conceivable that the salience of this cleavage will increase again once the current cost of living crisis is behind us. As if this were not enough, a key legacy of Boris Johnson is the so-called consent vote which will take place every four years, ensuring that, in Northern Ireland at least, the Brexit issue cannot simply fade into the past. 

Finally, there is simple geography. We neighbour a continental-sized economy. Just as Canadians spend a lot of time wondering what the United States is up to, we are condemned to pay attention to the EU. Even without institutional and other links, what the EU does will continue to impact upon us, as we are seeing with its plans to impose taxes on imports from countries with lower environmental standards. 

And so we will endure simmering discontent, ongoing cost, but little prospect for major substantive improvement. We may not have achieved a happy equilibrium, but perhaps it is a more stable one than many now assume. 

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