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Europe: EU report identifies ‘greater mutual recognition’ as way to boost medicine trade with UK

2023/08/30  European Parliment

The Trade and Cooperation Agreement (TCA) between the European Union (EU) and the United Kingdom (UK) of Great Britain and Northern Ireland was signed on 30 December 2020. It took provisional effect on 1 January 2021. Following the completion of the ratification processes in the EU and the UK, it formally entered into force on 1 May 2021.

The EU-UK TCA resets the EU-UK relationship following the UK’s departure from the EU. It provides for tariff and quota-free trade in all goods, as well as for comprehensive market access, while also setting out rules for services and investment. Preferential arrangements have been agreed in areas including, but not limited to, trade in goods and services, public procurement, aviation, road transport, energy and fisheries. These new cooperation arrangements are underpinned by mutual commitments to ensure a level playing field for open and fair competition and to contribute to sustainable development.

While considering the fact that the TCA has only been in application for two years, this EPRS study seeks to analyse and evaluatewhat the early outcomes, benefits, risks and challenges linked to the TCA’s implementation are for the EU and its Member States. Due to time constraints, the study focuses on three specific areas of TCA implementation. For this purpose, it:

  • examines the reports of the EU institutions and provides data collected from the regions of the EU Member States focusing on the initial consequences and (potential) impact of the EU-UK TCA on environmental and social/labour rights protection in the EU Member States;
  • provides a visual and longitudinal analysis of EU-UK trade flows (as of 2016), while also taking into consideration internal and external disruptive factors, therefore contextualising the data provided by the European Commission;
  • analyses the European Parliament’s position on the EU-UK TCA, delving into its relevant resolutions, oral and written questions and its activities exploring avenues for further EU-UK cooperation and improved TCA monitoring.

Overall, there is little data on the impact of TCA implementation on the EUin particular. Academic and policy research has produced several contributions on its (potential) impact on the UK in several policy areas, more specifically in relation to business. The EU perspective, whether at aggregate or Member State level, has received less attention. This may be explained by the fact that, as argued by researchers and practitioners alike, there has been structural and market asymmetry between the EU and the UK from the outset. Moreover, on average, the TCA has had a stronger impact on the UK than on the EU in all areas, and its impact on the EU will be felt in the medium and long term rather than in the short term.

To sum up, this study has found that, despite the TCA, trade and cooperation between the EU and the UK have become more complex and challenging compared to when the UK was an EU Member State. The EU’s goal of establishing a stable and positive relationship with the UK is a work in progress, but there have been advances in setting up the structures for cooperation envisaged under the TCA, and the bodies tasked with monitoring its implementation are now in place. These bodies are meeting regularly and are engaging in substantive dialogue on diverse issues ranging from regulatory divergence and difficulties in trading to issues purposely left outside the TCA, such as foreign and security policy. Some challenges remain, though. For instance, the EU continues to face difficulties in its broader relationship with the UK, particularly regarding the implementation of the Ireland/Northern Ireland Protocol and the application of the Windsor Framework, and due to the lack of clarity regarding the potentially disruptive effect of the ‘Retained EU Law’ Act.

As expected, trade provisions in the TCA have caused disruption. For instance, while the TCA permits tariff- and quota-free movement for goods, non-tariff measures and rules-of-origin requirements render trade more cumbersome and costly. A number of external factors – such asthe coronavirus pandemic and the restrictions it entailed, Russia’s war against Ukraine, the energy transition and inflationary pressures – have also affected EU-UK trade. Other hindrances, whether internal or bilateral (EU-UK), have been the difficult adaptation to and lack of knowledge of the procedures, the significant bureaucracy and red tape caused by the UK’s withdrawal from the EU single market, and the new costs (transport, packaging, mobility of workers, etc.)that have hit small and medium-sized businesses harder than others. In addition, the – at times – tense EU-UK political relations have lent an air of unpredictability and insecurity to the business climate.

In the shorter term, bilateral trade in goods and services for both EU exports and imports recovered in 2022, exceeding 2019 pre-pandemic levels. Nevertheless, what also emerges from the analysis is that the UK’s goal of rendering its market more autonomous from the EU single market finds reflection, to some extent, in a decreasing share of UK trade in goods with the EU-27 in the past five years. EU-UK trade in services has become more complex, and a longitudinal analysis of data shows that it remainedrather stagnant in 2016-2022. This contrasts sharply with the EU’strade with its partnersfrom the rest of the world.

Moving forward, five lines of action have been put forward to enhance the implementation of the EU-UK TCA and address potential mid-term impacts:

  1. Addressing unforeseen circumstances and deficiencies that have emerged in the Ireland/Northern Ireland Protocol and ensuring that the Windsor Framework is implemented. A number of palpable potential challenges include: reactions to the introduction of new border control posts; costs linked to the labelling and packaging of products that will only be sold in Northern Ireland; differing applications of VAT; and different interpretations by the EU and the UK of the EU State aid rules. By extension, tensions in the application of the Windsor Framework are likely to affect the implementation of the EU-UK TCA.
  2. Strengthening EU-UK political relations could also improve goodwill to implement the EU-UK TCA consistently. Discussions are already taking place at political and diplomatic levels even on policy areas outside the TCA, notably security and defence, and on the response to Russia’s war of aggression against Ukraine. These issues are also addressed in the context of the Partnership Council and the EU-UK Parliamentary Partnership Assembly. This demonstrates that, while the UK remains committed to ascertaining its autonomy and decoupling from the EU, both sides continue to share many global interests, be it on multilateralism, global health or European security.
  3. To counter the unpredictability that business is facing in the context of EU-UK trade relations, EU stakeholders are asking for a UK economic policy that is clear, reliable, sustainable and well communicated. To this end, EU research has made proposals for actions in three key policy areas. Actions include: i)facilitating trade in goods through greater mutual recognition of product rules and conformity assessments, especially for the automated and financial sectors, and for agricultural and medical products; ii) facilitating trade in services through simpler and more transparent regulations prescribed by a single source; and iii) facilitating labour mobility through a uniform work visa.
  4. Experts have called on the EU to focus more on the subnational level and promote relations between EU and UK sub-state players, among them devolved administrations, regions and cities, civil society, academia and think tanks. When bottlenecks appear at the national or supranational level and EU-UK relations become conflictual, it is at the subnational level where building of trust can take place. Ideas put forward in support of this option include decentralising student exchange initiatives, strengthening twinning projects, and twining cities. As regards climate action in particular, subnational players can have an increasingly important role in exerting pressure and building transnational networks to achieve critical mass and exchange best practices.
  5. The EU and the UK should work together on the climate agenda, which is a global agenda. This could be done by capitalising on the two sides’ close cooperation developed in response to the energy security challenges posed by Russia’s invasion of Ukraine. At a time when the extent of UK regulatory divergence is not clear, studies have demonstrated that the potential lowering of UK levels of environmental protection could have a direct impact on the EU biosphere and would directly undermine the EU transnational agenda.

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