What should we expect from the UK/EU summit?

Why are the UK and EU talking of a reset of their relationship?

The UK government was elected on a Manifesto which said they would improve relations with the EU, but they ruled out joining the EU’s single market or Customs Union. The EU is very protective of its single market and its legal structure governing trade.

The EU would like the UK to be more involved in European defence. It wants to promote a Youth Mobility scheme to cover the UK as well as the EU. It wants to continue its access to large quantities of fish from UK waters which was secured up to 2026 in a Transition Agreement after Brexit. It wants to extend its legislative control over UK products, especially in agriculture before allowing easier trade in these regulated areas.

The UK would like it to be simpler for UK musicians to visit and perform on the continent. It would like some easing of controls over the export of UK food products. It would like UK defence companies to be able to bid for work from the EU’s planned Euro 150 bn weapons purchasing fund. Its main aim is to have warmer and closer relations with the EU and its leading members.

The structure of the EU

The EU is a complex legal structure laid down in the Treaty. The EU stresses that to have the benefits of EU membership a country needs to accept all the costs and obligations of membership. An outside country either has to accept its trade and visitor access is determined by World Trade rules and international law, or has to negotiate a special Agreement to become an Associate member or to be an applicant for full membership. The EU has required Norway and Switzerland as neighbours not in the EU to accept many EU rules and laws to secure better access to the EU. The EU is not willing to give the UK easier access to the single market and Customs Union without the UK accepting more EU regulation and control. The Trade and Co-operation Agreement after Brexit already secures tariff free trade.

The single market is a vast structure of laws to regulate many aspects of life and work. The single market has employment law, tax law, planning law, movement of people law, product standards law, safety law and many other features. The Customs Union means the EU takes over a country’s trade policy and represents all members of the EU in the World Trade Organisation. The EU decides the external tariff and concludes trade negotiations with third countries. In the UK referendum debates Remain said the UK needed full access to the single market and customs union as a source of exports and imports to help its economic performance, whilst Leave said the price of access was too high and the UK needed to take back control of its own laws, taxes and trade policy.

The issues to be settled – Foreign and Security Policy

The UK left the Common Foreign and Security Policy of the EU, removing one of the main militaries from the EU system and keeping the UK’s independent nuclear deterrent which has remained under the sole control of the UK Prime Minister and government. Most EU states and the UK are members of NATO, which the UK has always seen as the main alliance to defend Europe. The two sides seem to be discussing the UK being able to participate in EU led military interventions, which has always been possible by mutual agreement. Recently the UK has sought to create a coalition of the willing largely with the help of individual EU states. The EU could pledge itself to such a venture, or the UK can always join an EU led task force by invitation. The two parties are likely to agree general positive language about future collaborations. They will also need to add the override that such tasks should not damage NATO, given the importance of US involvement in the NATO defence of Europe.

The EU is raising money to buy arms for EU member states militaries. The UK will not draw money from such a fund as it is no longer a paying member. The issue in dispute appears to be if UK companies can bid for the work of re arming continental countries. It would seem strange to bar them given the involvement of UK companies in a range of shared programmes with EU companies, but of course the EU can decide who to buy from with its own borrowed money. The UK is one of four partners in the Typhoon fighter programme, and was one of three in the Tornado programme. The EU is involving itself in defence in three main ways. There is the European Defence Fund. There is PESCO, Permanent Structured Co-operation, and there is an annual defence review.

Food imports and exports

The EU single market and customs union is a well organised system of protection for EU farmers. High tariffs are often imposed on imports. EU standards are laid down for growing and rearing the food which often ban imports from outside. Sometimes these are matters of animal welfare, sometimes of technology and sometimes of chemical inputs. The defence of EU production systems has led to the arguments of the EU against chlorine washed chicken and hormone-based beef from the US.

The UK would like easier terms to sell its farm products into the single market. The EU counters by saying in that case it must accept EU laws. The EU says the UK will need to adopt dynamic alignment, meaning it will need to adopt all relevant current EU laws and change them whenever the EU does. Some in the UK think that will for example prevent the UK developing GM products and keeping up with technology advances elsewhere, and will make it more difficult to negotiate trade deals with countries with other standards. The EU also requires the European Court of Justice to have a role in determining disputes over the standards and trade, which offends Brexit supporters who voted to remove the jurisdiction of the European Court. The UK runs a large deficit in food and drink products with the EU, and has exports skewed towards drinks with whisky as a main component.

Youth Mobility and freedom of movement

The UK opted out of freedom of movement with the continent on Brexit and numbers of EU migrants into the UK have dropped away as a result. A Youth Mobility scheme for anyone under the age of 30 would probably lead to more young people coming to the UK. Some would welcome this, but the government has stated its intention to cut the numbers of people coming into the UK so such a scheme makes that more difficult to achieve. There is an issue over payments for EU students in UK Universities, where the EU would like to have charges lowered to the same reduced level paid by UK students. On exit from the EU the UK ceased paying into the Erasmus scheme for students and switched to its own Turing scheme. The Erasmus scheme monies paid for more EU students to come to UK universities than it did UK students going to continental ones. Turing pays all its money to UK students and gives than a choice of a large number of universities worldwide. Many UK students prefer the US, Australia, Canada to EU universities. There is some discussion of the UK going back into Erasmus which would require payments.

Trade in pharmaceuticals

Whilst President Trump is demanding big changes to relative prices of drugs in the US and other markets, the UK/EU negotiators can consider the barriers to trade between the EU and UK that arises from regulatory divergence. The UK is changing some of its rules to facilitate clinical trials and the development of more drugs. The UK and EU were in dispute over the early development of a covid vaccine in the UK. The issues are similar to food, where the EU will want more UK compliance with EU regulations in return for easing non-tariff barriers to trade across borders.

Fish

EU vessels have large shares of the quota for various important fish species caught in UK waters. Settling a post Brexit regime was left to a later date by designing a Transition system up to 2026. The UK can from that date simply negotiate annually with interested fishing states that want to come into UK waters over what level of catch they would be permitted. France and others objects and wishes to set out in an EU Agreement substantial quotas to maintain the current continental fleet. There has been a recent arbitration case over the UK decision to shut the sand eel fishery in UK waters to recover the stocks and avoid environmental damage.

What to look out for in the conclusions to the summit

There is likely to be warm words over more future collaboration on defence. This is unlikely to take a binding Treaty based form. There remain tensions over access to the defence orders coming from the EU fund where the EU will want something in return. Setting up UK membership of the Youth Mobility Scheme will require legal text and resolution of issues over access to work and benefits, and university charges. Easing trade in sensitive and highly regulated areas like food and pharmaceuticals requires careful drafting over regulatory convergence or equivalence. There is a lot more politics than economics in these matters. The possible upside if all went well for the UK would be modest in terms of extra exports and overall given the large trade deficit the net impact could even be a bigger deficit if imports accelerate. There are going to be plenty of defence orders for UK companies whatever the Agreement, as the UK is involved in joint programmes and is stepping up its own domestic orders. Resolving fishing remains a difficult subject for both sides.