10.4 The future of the UK-EU relationship post-Brexit

Brexit reshaped the UK-EU relationship, creating new trade dynamics and constitutional challenges. The Trade and Cooperation Agreement governs post-Brexit relations, but introduces barriers and limits services trade, impacting businesses and the economy.

Brexit's ripple effects extend beyond trade, influencing devolution debates, the UK's global position, and internal governance. The 'Global Britain' strategy aims to redefine the UK's international role, balancing independence with the need for continued European cooperation.

UK-EU Trade Agreement

Key Aspects of the Trade and Cooperation Agreement

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• UK-EU Trade and Cooperation Agreement (TCA) governs economic and social partnership post-Brexit
• Establishes zero tariffs and zero quotas on trade in goods complying with rules of origin
• Covers cooperation in law enforcement, judicial matters, and thematic areas
• Introduces new non-tariff barriers (customs procedures, regulatory checks)
• Limited coverage of services compared to goods
  • Excludes financial services and professional qualifications recognition
• Creates governance structure with Partnership Council and specialized committees
• Includes five-year review clause for potential revisions

Implementation and Challenges

• New customs procedures require businesses to adapt operations
  • Increased paperwork and compliance costs
  • Longer processing times at borders (Dover, Calais)
• Regulatory divergence potential between UK and EU standards
  • May lead to additional compliance requirements for exporters
• Services trade faces more restrictions
  • UK financial firms lose EU passporting rights
  • Professional qualifications not automatically recognized
• Dispute resolution mechanisms differ from EU membership
  • Independent arbitration panels replace European Court of Justice jurisdiction
• Northern Ireland's unique position under the Protocol
  • Remains aligned with EU single market rules for goods
  • Creates trade friction between Northern Ireland and Great Britain

Brexit's Economic Impact

Trade and Investment Shifts

• Restructuring of UK's trading relationships necessitates new trade deals
  • Negotiations with major economies (USA, Australia, New Zealand)
  • Renegotiation of existing EU trade agreements with third countries
• Supply chain disruptions in sectors integrated with EU markets
  • Automotive industry facing parts shortages and delays
  • Just-in-time manufacturing systems under pressure
• Foreign direct investment patterns changing
  • Some companies relocating operations to EU (Panasonic, Sony)
  • Others investing in UK to maintain market access (Nissan)
• Financial services sector adapting to loss of EU market access
  • Some operations moved to EU financial centers (Frankfurt, Paris)
  • UK exploring regulatory reforms to maintain competitiveness

Economic Opportunities and Challenges

• Independent trade policy allows for tailored agreements
  • Potential for faster negotiations without EU consensus requirement
  • Opportunity to focus on UK-specific economic interests
• Short-term economic disruption and adjustment costs
  • Initial GDP impact estimates range from -2% to -8% over long term
  • Sectors like agriculture and fishing facing significant changes
• Potential for regulatory divergence to create competitive advantages
  • Financial services regulations could be tailored to UK market
  • Opportunity to support emerging industries (fintech, green technology)
• Changes in labor market and immigration policies
  • End of free movement with EU impacts sectors reliant on EU workers (healthcare, hospitality)
  • New points-based immigration system aims to attract global talent

Brexit and Devolution

Impact on Devolved Nations

• Scottish independence debate intensified
  • SNP pushing for second referendum based on Scotland's pro-EU vote
  • Tensions over repatriation of EU powers to Westminster vs. Holyrood
• Northern Ireland's unique position under the Protocol
  • Creates economic barriers between Northern Ireland and rest of UK
  • Raises questions about long-term constitutional implications
• Wales facing loss of EU structural funds
  • Concerns over replacement funding mechanisms (Shared Prosperity Fund)
  • Debates over agricultural policy and support post-Common Agricultural Policy
• Divergent Brexit impacts across UK highlighting regional inequalities
  • London and Southeast potentially more resilient due to service-based economy
  • Manufacturing regions in Midlands and North more vulnerable to trade disruptions

Governance and Constitutional Implications

• Repatriation of EU powers sparks debates over devolution boundaries
  • UK Internal Market Act 2020 controversial among devolved administrations
  • Tensions over areas like environmental standards and food safety
• Calls for reform of intergovernmental relations within UK
  • Need for more structured engagement between UK and devolved governments
  • Discussions on joint decision-making in areas of shared competence
• Representation of devolved interests in international negotiations questioned
  • Devolved administrations seek greater involvement in trade talks
  • Debates over implementation of international agreements in devolved areas
• Brexit process exposing limitations of current devolution settlements
  • Discussions on potential federal structure for UK
  • Calls for constitutional convention to address governance issues

UK's Global Repositioning

'Global Britain' Strategy

• UK pursuing independent foreign policy and trade agenda
  • Focus on strengthening ties with Commonwealth countries (India, Australia)
  • Seeking closer relationships with fast-growing economies (CPTPP membership)
• Balancing regulatory autonomy with need for EU cooperation
  • Negotiations on data adequacy, financial services equivalence
  • Continued collaboration on security and defense (Europol, defense projects)
• Challenges in maintaining influence in global forums
  • No longer part of EU bloc in international negotiations
  • Seeking to leverage diplomatic networks and soft power assets (BBC World Service, British Council)

Opportunities and Challenges in International Engagement

• Potential for more agile diplomacy and targeted interventions
  • UK hosting COP26 climate conference showcasing leadership on global issues
  • Opportunity to shape global standards in emerging technologies (AI ethics, digital regulation)
• Maintaining attractiveness for international talent and investment
  • Reforms to visa system to attract high-skilled workers and entrepreneurs
  • Challenges in sectors previously reliant on EU workforce (agriculture, healthcare)
• Repositioning in global research and innovation landscape
  • Negotiating association to Horizon Europe program
  • Developing alternative international research collaborations (ARIA)
• Balancing economic interests with values-based foreign policy
  • Human rights considerations in trade negotiations (China, Saudi Arabia)
  • Navigating geopolitical tensions (US-China relations, Russia sanctions)