EU Affairs The UK-EU reset

This week’s announcements will provide British businesses with relief that some barriers to trading with our closest and largest trading partner will come down.

But we are still a way from job done. Whilst both the UK and the EU have committed to closer collaboration, much of what has been agreed is an agreement to agree on things further down the line. Let’s break it down.

The UK had three primary asks of the EU reset:

• A veterinary agreement which harmonises regulatory requirements on ‘high-risk’ food and plant products.
• Easier access for touring artists in the EU
• An agreement for the mutual recognition of professional qualifications

The EU really only had one special ask:

• A Youth Mobility Scheme to allow 18-30 year olds to travel and work between the UK and EU.

The showpiece of the summit was the defence and security pact. This was the primary reason the date was set in the first place. The pact will qualify UK companies for access to €150 billion worth of EU-backed loans to fund weapons purchases under the bloc’s Security Action for Europe (SAFE) programme. The agreement also comes with the commitment for regular meetings, such as a six-monthly policy dialogue on foreign affairs and an annual dialogue under the EU’s Common Security and Defence Policy.

There was a strong sense of unity against international conflict amongst Starmer and President of the European Commission, Ursula von der Leyen, particularly in the context of standing behind Ukraine in the face of Russian aggression. But also unity in the face of rising protectionism and fragmented multilateralism sweeping across the globe.

With the veterinary agreement, the UK scored a relative win here. The two sides have committed to work towards an agreement that vastly reduces the checks on agrifood exports. The EU is the UK’s largest export market for agrifoods, but as a result of extensive health checks, certificates and inspections at the border, exports have dropped 21%. The government says the removal of this red-tape will save businesses hundreds of pounds with each consignment that crosses over to the EU.

The caveat is that the EU has stipulated the UK automatically follows EU rules on plant and animal products. This is what is known as dynamic alignment, and once the UK agrees, it is locked in. The only way it would be able to unilaterally regulate would be if it were to walk away from the deal. Plus, the final arbitration mechanism will come down to the European Court of Justice (ECJ).

This is a big bone of contention for the Conservative Party, Reform UK and those hard Brexit supporters who feel that the Prime Minister has sacrificed the UK’s sovereignty. And it is a worry if this will set a precedent for future agreements to come. However, Starmer would argue that sovereignty means the UK’s right to choose, and he has chosen to break down the barriers to trade that are costing businesses money, time and resource.

So that’s one manifesto promise that Starmer has delivered. On the easier access for touring artists and mutual recognition of professional qualifications, he wasn’t so successful. The EU has said it will “continue efforts to support travel and cultural exchange”. They will also establish dedicated dialogues on short term business mobility and the recognition of professional qualifications to create a forum to address mobility barriers faced by UK services providers in the EU.

However, whilst regular dialogue is important for consistent understanding of the issues and for effective collaboration, it is even more important that these regular dialogues do produce actions and solutions that will ensure the progress of the reset.

But one area of mobility where we are seeing progress is that of youths. This is something the IoD has been banging the drum on – a Youth Mobility Scheme. UK media has been reporting a yo-yo of messages about youth mobility over the last few months. The government has been cautious of this one – the word mobility has hit a bit too close to one of the Prime Minister’s three key Brexit red-lines, the one that says the UK will not return to freedom of movement with the EU.

So you’ll notice that the agreement on this is called a Youth Experience Scheme, which is designed to remove some of that political rhetoric. It’s important to note, though, that Youth Mobility Schemes do not fall under the free movement umbrella. These schemes require a visa, a cost and a time limit. In fact, the UK actually has numerous such schemes with other trading partners, including Australia, New Zealand, Canada, Japan and more.

The other point of controversy is that the UK wants to put a cap on the number of citizens that can travel between the two jurisdictions. The formal text specifies that “the overall number of participants much be acceptable to both sides”. But it is very normal for UK Youth Mobility Schemes to include a cap:

Other areas of agreed cooperation include linking the UK and EU Emissions Trading Schemes, which will mean the UK will be exempt from the EU’s carbon border tax, protecting tariff free exports of steel from the UK to the EU and improved data sharing to tackle illegal migration.

The economic impact of the announcements it so far a little hard to gauge. Starmer has said the deal would boost the economy by £9 billion a year by 2040. But some analysts have suggested that this isn’t nearly as much as the UK economy was hit due to Brexit. The Office for Budget Responsibility hasn’t changed its forecast that the economic impact of Brexit will hit UK GDP by 4% in the long run.

One of the only significant quantifiable impacts so far would be the veterinary deal, which could see agrifood exports to the EU boosted by more than 20% if there were to be high-alignment of regulation. However, it could be that we only see delivery of this agreement in at least a year’s time.

So if the economic impact isn’t yet clearly significant and much of the detail isn’t yet clearly set forth, what is the benefit of all of this?

Well, UK-EU relations have been coloured by political pressure since the referendum all the way back in 2016. Even an assurance of cooperation is a positive starting step. It is a prominent signal that there is more to come, and that both sides of the Channel are committing to reset the relations. With the global trading environment an uncertain place at the moment, and the end of the 90-day pause to Trump’s tariff agenda looming over the world at the start of July, returning to a mutually beneficial relationship with the UK’s largest and closest trading partner is something to be optimistic about. Though, detail dependent, perhaps we’d describe that optimism as somewhat cautious.

IoD Webinar – Digesting the 19 May Summit

For those of you interested in the implications of the UK-EU reset, the IoD is hosting a webinar with some experts on this area of policy next week. It will be an interactive panel style discussion to break down the implications of the reset and what it means for business. Please do sign up, it promises to be a really interesting session. Find details of how to sign up here.

The IoD’s initial reaction

Find our initial press release on the EU reset here