BCC: What’s Next For Brexit Trade Relations?
In his latest blog, William Bain, Head of Trade Policy at the BCC, sets out the issues and potential solutions that the UK Government and EU institutions must agree on to improve trade:
UK businesses have shown great resilience, agility and creativity in responding to the biggest challenges in our international trading relationship with our nearest neighbours in 50 years.
Firms have changed distribution, customs, VAT and warehousing arrangements to supply customers in the EU. In services, increasing use of remote and electronic delivery, has led to growth of 9 percent in these exports.
However, goods trade has been a different matter; some products have faced drops of between 20 and 42 percent in cross-border trade, as the red tape burden faced by SMEs has proven too much to bear.
Dealing with ongoing regulatory changes is now a key part of life in the world of cross-border trade with the EU. Examples of this include the new EU product safety legislation, introduced late last year, and the continued phasing in of the EU Carbon Border Adjustment Mechanism until January 2026. This is also an issue within the UK, given the ongoing effects of the Windsor Framework on movements of goods between Northern Ireland and Great Britian.
Despite the best efforts of firms to adapt, structural barriers to both goods and services trade with the EU persist. Almost half (46%) of responders to the BCC’s Trade Survey last summer said red tape relating to customs and rules of origin were major issues holding back growth.
Businesses in both the UK and EU seek similar ambition from UK Ministers and EU institutions to tackle these problems, using the Trade and Co-operation Agreement as the foundation.
Existing obligations must be met in full by both sides, but we can build upon the current fundamentals to ensure the full potential of the TCA is realised. We should also seek to make additional agreements and reforms to ease the costs and administrative burdens, while deepening our economic relationships in energy and supply chains.
Business welcomes this improving relationship and wants both sides to expand this quickly through scoping a pragmatic, growth-driven package of improvements to our trading relationship.
Next week (Feb 3), the Prime Minister will attend the European Council summit in Brussels to discuss defence and security co-operation with heads of government and the European Commission. This will be the first time a UK Prime Minister has attended since Brexit.
Early priorities should be linking our two Emissions Trading Schemes to eliminate the prospect of fiscal barriers to trade in affected sectors such as steel, aluminium, hydrogen, cement, and fertilisers. This could otherwise impact UK exports as early as next January, or from 2028 in the case of EU exports. The EU scheme also applies to carbon emissions from electricity production and trade.
Linkage is possible by an agreement within the current framework of the TCA. This would remove cost impacts to traded goods in these sectors from the full phasing-in of the separate EU and UK Carbon Border Adjustment Mechanisms. We also need to provide long-term certainty, market access and security for the energy industry and investors, with the existing provisions on reciprocal market access due to sunset in mid-2026.
A package of reforms is also desired to reduce compliance costs and red tape on trade in goods faced by businesses on either side of the English Channel, and the North and Irish Seas.
These would include:
- Removing the requirement for safety and security declarations on goods moving between Great Britain and the EU in both directions.
- Abolishing the additional paperwork requirements around cross-border GB-EU trade in agri-food and plant products and the checks involved with these.
- Removing the requirement for goods exporters in Great Britain to have a fiscal representative in the EU for import VAT purposes.
- Changing the rules of origin system underpinning UK-EU goods trade.
On this last issue, survey evidence from members shows support for the UK to rejoin the Pan-Euro-Mediterranean (PEM) Convention. This would provide additional options on supply chains across the wider European, North African and Middle East region for UK manufacturers, while retaining zero-tariff trade with the EU.
Trade in services with the EU has taken a different trajectory compared to goods trade since 2021. But the lack of business mobility for short-stay commercial purposes is a major concern for businesses both in the UK and EU.
This is compounded by a lack of mutual recognition of professional qualifications being prioritised by respective regulators. The BCC urges both sides to provide regulators with a renewed impetus on this issue, while recognising more than two-thirds of our services exports to the EU are delivered remotely or digitally.
On business mobility, both sides should explore practical benefits from expanding the range of permissible business activities, such as in-person marketing of products, as a win-win for firms on both sides of the Channel.
We also see benefits in regulatory alignment in some sectors of traded goods, while acknowledging, that in services and the tech sector, autonomy on rules could yield benefits for both sides.
Overall, co-operation needs to substantially improve so businesses are not blind-sided by new regulations introduced in markets, or with last-minute market access and compliance concerns.
There is no doubt that 2025 is a key time to improve and deepen the UK’s most important trading relationship. Business is ambitious for change with realistic plans to grow trade and make it less costly and burdensome.
We hope policymakers in London and across the EU are ready to seize the opportunities and benefits from a new phase of economic co-operation.
Source: British Chambers of Commerce