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The Trade and Cooperation Agreement negotiated by Boris Johnson came into force on 1 January 2021, changing permanently the terms of trade and broader relationship between the UK and EU.
Johnson hailed this agreement as a “comprehensive Canada-style free trade deal between the UK and the EU, a deal that will protect jobs across this country. A deal that will allow UK goods and components to be sold without tariffs and without quotas in the EU market. A deal which will if anything should allow our companies and our exporters to do even more business with our European friends”.
It was obvious to anyone acquainted with the basic legal and practical realities of trade that his assessment was overstated or merely inaccurate.
The damage caused is no less consequential because of its familiarity. Jobs have been lost as exports are made harder, and key imports needed for supply chains more expensive and difficult to source. Rules of origin requirements, particularly difficult for SMEs to administer, mean tariffs are reality for many of our exports to the EU despite the “zero tariff” headline.
As a result of those tariffs and the extensive regulatory checks to which many UK goods exports are now subject, the UK is doing less business with our European friends than it would have done had the UK continued to take part in the Single Market or Customs Union. This cuts GDP, makes businesses and industries less profitable, or in some cases (including many SMEs) unprofitable and hence untenable.
Johnson’s promise that the opportunity to “set our own standards, to innovate in the way that we want, to originate new frameworks for the sectors in which this country leads the world” would compensate for lost EU trade has, as many expected, proved false.
One reason is that, for exporting businesses to what is – and for the foreseeable future will remain – our largest and most secure overseas market, it makes no sense to manufacture goods or components to anything other than EU standards.
In addition, the fact that in order to preserve the open border with Ireland, Northern Ireland under the Windsor Framework remains (in essence) subject to EU regulation in the area of goods, combined with the need to avoid creating barriers to NI/GB trade, militates against divergence between standards applicable in Great Britain and the EU standards applicable in Northern Ireland.
These direct results of Johnson’s chosen form of departure from the EU are by now well rehearsed. The political choices of 2016-2020 were made and cannot be unmade. Lost trade cannot be recouped, closed SMEs or larger businesses cannot be brought back to life.
But the contention of our paper is that the Governments of the UK and EU can, should they wish, agree changes to the TCA which, if implemented, would greatly ease trade between the two to the benefit of business and industry on both sides.
Doing this means admitting that the Johnson dream of major regulatory divergence in product standards is dead. Reality has not provided export markets wishing to import goods made to UK-specific standards. Exporting businesses have, in almost all cases, been adamantly opposed to divergence, keenly aware of the increased costs and complexity they would impose, and of the additional threats they could impose to their ability to export to our largest trading partner.
Instead, alignment to EU standards would provide a surer foundation for businesses to plan, produce, export and grow – but only if partnered with the introduction of legal structures of enforcement and interpretation that would allow the EU to be confident that, when importing goods from Great Britain (whether those goods arrive in Calais or in Belfast), there is no need to verify their compliance with those standards.
Alignment would therefore open the door to agreeing with the EU modifications of the TCA that remove or at least substantially reduce regulatory barriers thrown up by the Johnson deal, and reduce the remaining impact of the Windsor Framework on GB/NI trade.
The report sets out a number of tangible steps towards achieving this goal: on trade in food products, easing customs, and VAT barriers.
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Outside the Customs Union, rules of origin are an inevitable barrier – which particularly hits small business. Nonetheless, modest changes can make a significant difference to specific businesses and industries and, more broadly, to UK GDP.
Rules of origin will remain an issue but one that can be dealt with bilaterally between the UK and EU to both sides’ benefit. The current argument over rules of origin requirements on electric vehicles, for example, should be resolved to avoid a dramatic cut in production. Failure to do so could increase the price of UK electric vehicles by 10% or more, with parts crossing borders as part of complex supply chains. That would mean £6,000 on the price of the UK’s most popular electric vehicle, the Tesla Model Y. The EU has said it will apply rules loosely in 2024, but this falls short of the three years’ grace period asked for by the sector.
In the absence of a wider agreement, such arguments will recur. In addition to the changes set out in our paper, the UK and EU should conclude a wider agreement on rules of origin to enable greater collaboration and trade, particularly when it is so clearly linked to wider priorities such as the essential shift to net zero.
There are no guarantees that the changes we suggest are negotiable with the EU, not least because the EU (as well as UK) may be under new political leadership by the end of 2024. If negotiations do begin, many other issues will be on the table; progress will depend on the geopolitical context, which as recent events highlight is all too impossible to predict.
But, given the importance of economic growth to all parties’ plans for the UK, the fact that progress may be difficult and that success cannot be guaranteed is no excuse for not attempting it.
Mike Buckley is the director of the Independent Commission on UK-EU Relations. He is standing to be Labour’s parliamentary candidate in Mid Cheshire