The Labour party has promised to improve the UK’s trading arrangements with Europe if elected on July 4, but within strict limits. These include not agreeing measures that would increase migration, or rejoining the EU single market or customs union.
Trade experts have warned that Labour’s manifesto commitments on undoing Brexit will bring “minimal” economic benefits. However, some say that improvements are possible within the party’s red lines, and that these could deliver real advantages to the UK.
A veterinary deal to boost exports
Labour has pledged to sign a veterinary agreement with the EU. A deal could reduce the amount of red tape at the border for plant and animal products, but the scale of any benefits would depend on how ambitious the UK wanted to be.
A “New Zealand-style” deal would only partly reduce checks and paperwork on goods entering the EU. Meanwhile, a high-alignment “Swiss-style” deal could remove almost all cumbersome red tape but would require the UK to accept it would automatically follow EU law and the jurisdiction of the European court of justice.
A study this year by Aston University found that a high-alignment agreement could increase UK food and plant exports to the EU by 22 per cent, or around £2bn a year based on current exports of £8.6bn in 2023.
John Springford, a trade economist at the Centre for European Reform think-tank, said a £2bn uplift would be “a nice to have” but still relatively meagre when set against total UK exports to the EU of more than £150bn a year.
Regulatory alignment on industrial goods
Shadow chancellor Rachel Reeves has indicated that the UK under Labour could look to align with EU industrial regulations in areas like the chemical industry in order to reduce border frictions for UK exporters.
Experts warn that unilateral alignment will have limited benefits since UK companies would still need to demonstrate compliance at the border. Greater market access would require submitting to the jurisdiction of EU courts and regulatory agencies.
However, trade groups like the British Chambers of Commerce have urged unilateral alignment even with primary EU regulations on traded goods, arguing it will still mitigate costs for businesses forced to comply with two different regulatory regimes.
Anton Spisak, a former UK government official and associate fellow at the Centre for European Reform, said that while unilateral alignment would not provide automatic market access, it would give clarity over the future regulatory environment. He noted this would be of “significant value” to many businesses but mean trade-offs for others.
A new customs agreement
Labour has ruled out joining a customs union with the EU, but EU officials say deals are possible to reduce the frequency of checks outside one.
UK trade groups have also suggested a halfway house, the Pan-Euro-Mediterranean convention. This is a customs union agreement between the EU and 20 countries, including several in the Middle East and the Balkans.
Joining PEM would be advantageous for UK companies with supply chains that span two or more PEM countries, according to Anna Jerzewska of the consultancy Trade & Borders, helping them send goods tariff-free into the EU.
She added that joining PEM would also allow UK businesses to make better use of “roll over” trade deals, which the UK struck after Brexit, when existing EU trade deals were turned into bilateral ones.
The economic benefits of joining PEM are difficult to estimate because of a lack of data, but an analysis by the Centre for Inclusive Trade Policy this month found limited impacts based on the small contribution of member countries in adding value to UK exports.
While some individual sectors might benefit, the paper found “joining PEM would not be a game-changer for UK exports to the EU”.
Improving people-to-people ties
Labour has so far promised only to negotiate a “cultural touring agreement” with the EU to make it easier for bands and orchestras, which have been hit badly by post-Brexit visa and permit requirements, to tour in Europe.
The impact of a deal would be important to the UK music sector, which has global exports of £4bn a year according to trade body UK Music, but offer limited benefit to the wider economy. Touring in the EU only makes up a fraction of total music exports, which also includes overseas streams and copyright fees.
Labour ruled out a broader “youth mobility scheme” to make it easier for 18 to 30-year-olds from the UK and EU to live and work abroad — or any steps that would increase migration. But economists say such a deal, or other deals to improve professional mobility, would be beneficial for business given recent UK government moves to restrict legal migration.
Jonathan Portes, professor of economics at King’s College London, said a comprehensive youth mobility deal would go “a considerable way to restoring some of the labour market flexibility that free movement offered, especially in sectors like hospitality”.
A deal on professional qualifications
Reeves has promised to negotiate a deal for the “mutual recognition” of qualifications, to allow EU and UK professionals, such as engineers, architects and accountants, to be able to use their credentials in each others’ countries.
David Henig, UK director at the European Centre for International Political Economy think-tank, said that while it might be possible to strike deals over some professions, the lack of free movement of people would limit the ability of professionals to take advantage of these.
The current EU-UK trade agreement contains a clause allowing such deals, however, these can take a long time to negotiate. Canada has a similar agreement with Brussels but it took nine rounds of negotiations spanning nearly a year to clinch a deal for architects.
“There are a couple of professions — like engineering and auditors — where there is some optimism a deal can be struck, but that will be a very long way from the EU-wide freedoms we enjoyed as members,” he added.
Cooperation on carbon taxes
Both the EU and the UK are due to introduce complex new carbon border taxes — or CBAMs — in 2026 and 2027 that are designed to incentivise global industry to reduce carbon emissions.
Industries like steelmakers and electricity generators, have warned that having two separate CBAMs will cause large amounts of border bureaucracy and bills running into hundreds of millions of pounds as a result of having to calculate and declare the carbon content of imported products.
Labour officials say the party is looking closely at how it can reduce the friction by either fully relinking the EU and UK carbon pricing regimes that were separated after Brexit, or at least aligning more closely with the EU regime to reduce red tape.
George Riddell, director of trade strategy at consultancy EY, said: “Relinking the UK and EU regimes might be a second-term project for the next government, but in the meantime there are many points the UK could seek to agree with the EU alongside other countries, like Canada, Australia and New Zealand involving technical co-operation that will lead to simplified paperwork,” he added.
