Just under three years since the United Kingdom left the European Union – and over six since it voted to do so – the bilateral relationship remains a subject of often bitter debate between the two sides and within the UK itself. This is hardly surprising. The 2016 referendum was deeply divisive: leave and remain identities persist to this day. Moreover, the two sides are still at loggerheads over the Northern Ireland protocol. Yet there is a structural element to this too, which implies that, come what may, a stable equilibrium in UK-EU relations will remain elusive.
This is clearly the case should no solution be found to the standoff over the protocol. In that event, it is possible the trade and cooperation agreement (TCA), which underpins the bilateral relationship, will itself not be fully implemented – and that a running dispute and conceivably even a trade war may ensue.
Yet even should a mutually satisfactory deal be found, bilateral relations will remain unstable, as our new report implies. For one thing, several issues are scheduled to be revisited in the coming years. Fishing quotas will have to be renegotiated in 2026. On financial services, the UK has to decide whether to extend the temporary scheme that allows European Economic Area-based financial services to continue to enjoy their pre-Brexit passport rights and that is currently due to end at the end of 2023, while the EU must decide whether to renew its equivalence decision on UK clearing houses in June 2025. Changes in the rules of origin applied to trade in electric vehicles will come in in 2024 and 2027; and given the lack of domestic battery-making capacity on both sides, this might lead to an end to tariff-free trade in EVs. And, of course, the TCA itself is due to be reviewed from 2025.
Any of these discussions could prove explosive given the political and economic stakes. And even if bilateral negotiations go well, purely domestic action by either side might serve to rock the boat. The “level playing field” conditions included in the TCA were intended to ensure that workers’ rights and social and environmental protection are not reduced. Consequently, adoption of the retained EU law (revocation and reform) bill, currently making its way through parliament, might trigger trade sanctions from the EU were the removal of EU legislation to imply an impact on trade and investment.
Equally, what the EU chooses to do will have implications over the Channel. Its carbon border adjustment mechanism – essentially a way of imposing a fee on carbon-intensive goods from countries with less stringent climate policies – implies that, should the UK fail to align with what the EU is proposing, UK exporters might be subject to levies – with the steel sector particularly vulnerable. And, lest we forget, divergence between UK and EU regulatory systems will impact on the Great Britain-Northern Ireland border, hindering the flow of goods.
And then there is the impact of the consequences of Brexit. Last year saw the debate about the economic impact of Brexit kick off in earnest as we began to get real-world empirical data to compare to the economic forecasts. A growing proportion of the electorate are coming to believe that Brexit is having a harmful effect on the UK economy. There is no shortage of voices calling for amendments to the current status quo.
For some, this is taking the form of demands to mitigate some of the deleterious impacts of the current deal. Researchers in both the UK and EU have voiced their concerns about EU foot-dragging on UK participation in the Horizon research programme. It is conceivable, too, that the UK may reconsider its decision to leave the EU’s “list of travellers” scheme, thereby making it easier for school trips from EU states to visit.
At the same time, polling indicates growing support for rejoining the EU. The Brexit debate will remain live within the UK and the signs are that pressure will not abate for a relationship with the EU going beyond the TCA – and potentially implying single market membership or even a future membership application.
In short, we are not – and with apologies to David Cameron – about to stop banging on about Europe. Discussing his country’s relationship with the US, former Canadian prime minister Pierre Trudeau reflected that “Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt”.
The EU is clearly not the US. Yet its economic influence is significant and it remains the UK’s largest trading partner. Whether it be the bilateral relationship itself, or the implications of what the two sides decide to do at home for that relationship, Europe will loom large in our political debate for the foreseeable future. The elephant’s twitches and grunts will continue to disturb us.