EU-UK trade, and the ongoing situation in Northern Ireland

Panel discussion with Denzil Davidson, Adviser, Tom White, Director, Daniel Capparelli, Trade and Manufacturing Practice Lead and Ana Martínez, Practice Lead, EU Policy. They discussed the developing state of UK/EU relations, the situation in Northern Ireland and what it means for the economic relationship under the new arrangement.

It was an informative dialogue, with some key takeaways: 

• The state of play: EU-UK tensions have increased. This has been partly due to irritants, such as the failure to grant ambassadorial status to the EU delegation in London, trade barriers and rows over vaccines. It is also in part due to a fundamentally different view between the UK and the EU over the implementation of the Northern Ireland protocol. The EU believes that the UK is not acting in good faith and is in breach of legal obligations. The UK thinks the EU has no regard for the realities on the ground or the importance of political stability in Northern Ireland (NI).
• Legal proceedings in Northern Ireland: two legal actions are underway in response to the UK’s unilateral extension of grace period for border checks and controls on goods moving from GB to NI. First is an infraction proceeding which could lead to a European Court of Justice judgement, a fine and an order to comply. The second is a dispute resolution mechanism which could lead to a fine and the EU imposing proportionate retaliatory tariffs. There is no obvious way out of the dispute.
• Changes in personnel: Maroš Šefčovič is running the relationship from the EU. David Frost is in charge in the UK, replacing Michael Gove. There is now a perception problem from the EU: Frost is seen as confrontational, Gove was seen as more of a constructive partner.
• Areas that need deepening: a “need” for deepening is broad and subjective. But there is a desire to deepen areas of the relationship, including cooperation on food standards, sanitary and phytosanitary (SPS) regulation and broadening mutual recognition in the pharmaceutical sector to include batch testing. These form part of a potential positive agenda for EU-UK trade.
• Barriers to progress: this positive agenda is yet to advance due to the lack of political mandate. There is also a sequencing problem – while NI tensions persist and the Trade and Cooperation Agreement (TCA) remains provisionally applied, leaders are unable to move on to a positive agenda. TCA ratification has been delayed while legal proceedings unravel over the NI protocol, meaning that the provisional application may need to be extended. This would further delay efforts to deepen the TCA, but is unlikely to form an existential threat to the relationship.
• The politics behind the process: the EU has proven itself capable of navigating periods of high tensions with trading partners. Even without resolving the broader questions behind the implementation of the NI protocol, there is scope to deepen the EU-UK relationship if three conditions are met. First, there is a strong European commercial interest. Second, there is a member state pioneering the move. Third, there is a self-confidence interlocuter championing cooperation e.g. the ECB or a sectoral regulator.
• Data adequacy: last month’s decision for the EU to grant the UK data adequacy shows the ability of both sides to engage constructively on a technical issue and find a solution. Future UK divergence may prompt challenges from the commission, which we have seen happen in previous agreements, but at least for now some certainty has been provided for businesses.