The rapid recent escalation of the security and economic threats presented to both the EU and UK through Russia’s invasion of Ukraine and the current Trump administration’s pursuit of an increasingly radical economic doctrine has brought into fresh focus both the importance of EU-UK relations, and the fragility of British and European prosperity. Ahead of next year’s scheduled review of the EU-UK Trade and Cooperation Agreement (TCA), we analyse some of the most pertinent priorities and potential policy bottlenecks from both an EU and UK perspective.

Reset in EU-UK Relations

EU-UK relations can at best be described as tumultuous over the now nine years since the original 2016 Brexit referendum, in which the UK voted narrowly in favour of leaving the EU. Much of the discord that surrounded the frequently tense Brexit negotiations that followed has been attributed to the confrontational stylings of successive Conservative led UK governments. After this lengthy period of discontent, the more balanced approach adopted by current UK Prime Minister Sir Keir Starmer following the British Labour Party’s comprehensive victory in the UK’s July 2024 general election has been broadly welcomed by EU officials and interested observers alike, amid a concentrated campaign to deliver a meaningful “reset” in the EU-UK relations.

A revised Framework for EU-UK Trade and Cooperation

The Brexit withdrawal agreement that eventually oversaw the UK’s departure from the EU on January 31, 2020, has since been replaced by the more comprehensive and forward-looking EU-UK TCA, which entered into force on May 1, 2021. The legislative structure guiding EU-UK trade relations was updated further by the subsequent agreement of the Windsor Framework, which introduced a two-lane system aimed at simplifying the customs and regulatory procedures aligning to the transfer of goods between the UK mainland and Northern Ireland, coming into full effect on March 24, 2023.

The UK’s continued economic reliance on the EU

Prior to the UK’s withdrawal from the EU, pro Brexit advocates had long trumpeted the substantial economic gains the UK would stand to make by negotiating a plethora of fresh bilateral trade agreements with non-EU member states.

Freed from the economic constraints imposed by the UK’s membership in the EU single market, the UK government would be optimally placed to secure a series of profitable new trading arrangements with key trade partners such as the United States and Australia. While the UK’s decision to leave has indeed enabled the UK government to secure several new high profile free trade agreements with other non-EU member states, the imagined increase in trade volume has failed to materialise. Despite the UK’s best efforts to reduce its economic reliance on Europe, the EU remains the UK’s largest trading partner, and by a considerable distance.

Within this primary context, any gains the UK has succeeded in making through its new non-EU trade agreements have been thoroughly outweighed by the increased administrative and economic burden imposed on UK private and public sector enterprises alike in their trade dealings with the EU single market. This issue has been particularly keenly felt in Northern Ireland, which continues to share a land border with the Republic of Ireland, an EU member state.

Although these regulatory challenges have been partially offset by the agreement of the Windsor Framework, the absence of a comprehensive veterinary agreement continues to create difficulties for UK agri-food producers and importers. Easing trade restrictions and securing a more viable and expansive veterinary agreement are likely to be key priorities for the UK in their upcoming trade negotiations with the EU. The EU, for its part, is likely to use this interest as leverage to help secure closer and more favourable terms of collaboration in other key policy areas.

The risks of Policy Bundling

One of the most obvious potential flashpoints with respect to the upcoming 2026 EU-UK TCA review are the burgeoning attempts by both sides to bundle certain policy issues together in a form of package deal. This situation is perhaps best exemplified by the “implicit link” that has been created between the Fisheries and Energy sectors. Under the current TCA, the terms governing EU-UK cooperation in both of these areas are set to expire on 30 June 2026, after which point annual negotiations will be required to determine what future cooperation in these areas will look like.

The legislative coupling of two ostensibly unrelated policy areas has been interpreted largely unfavourably in the UK. This implied policy bundling has led some UK stakeholders to speculate over the EU’s intention to effectively leverage the UK’s access to European energy imports as a means of securing continued admittance for EU member states to the UK’s highly prized fishing waters. Recent suggestions over the prospective inclusion of a renewed fishing rights agreement as part of an updated EU-UK security pact have been met with similarly short shrift on the part of the UK government.

While some policy bundling will undoubtedly be required to ensure the successful renewal of the EU-UK political and trade relationship next year, careful consideration will have to be given to the domains selected. Ideally, both sides should be seeking to move forward together in a spirit of collective harmony and mutual gain, one that establishes a more stable foundation for closer longer-term cooperation, rather than augmenting another series of short-term fixes that require revisiting on an annual basis.

Carbon Emissions and Regulatory Convergence

One of the less talked about, but arguably most influential elements of the upcoming 2026 EU-UK TCA review will be the EU and UK’s respective positions on the regulation of Emissions Trading Systems (ETS). With other, more eye catching political developments having occupied much of the recent media glare, the upcoming introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM) has, thus far, slipped largely under the radar. The EU CBAM is set to come into full effect on January 1, 2026, meaning that the resulting economic fallout should be more clearly known by the time the anticipated renewal of the EU-UK TCA rolls around in mid-2026.

Broadly speaking, the UK must decide whether it intends to follow a path of regulatory convergence or divergence with respect to the EU’s regulatory codex. Given the almost universal application that a formal tax on carbon emissions is set to have on the pricing of goods, with specific reference to those originating from outside the EU single market, the prospective cost of a growing regulatory divide between the EU and UK could be exponential.

Although the UK government has also signalled its intention to implement its own CBAM, it is not currently scheduled to come into effect until January 1, 2027. Given that a significant gap already exists between the EU and UK’s respective carbon price valuations, there is a clear onus on both sides to resolve this issue pre-emptively, before it becomes a major impediment to closer trade and political relations on the whole.

Defence Cooperation

Perhaps ironically, one of the strongest causes for optimism with respect to the ongoing “reset” of EU-UK relations is the increased urgency that has been generated with respect to EU-UK security and defence cooperation. The strength of the UK’s defence sector, and the relative undercapacity of the EU member-state bloc in this respect, provides a powerful incentive for closer trade and security collaboration. As with any political negotiation, however, this need has the potential to form a double-edged sword.

There is an obvious temptation on the part of the UK to use the carrot of increased security and defence cooperation as a means of achieving much-needed gains in other key policy areas. Obvious examples might include the securing of concessions regarding the additional carbon levy that is set to apply to UK-EU exports from next year onwards, and the need for a more comprehensive veterinary agreement that could significantly reduce the administrative burden faced by UK importers and exporters in the agri-food sector.

On the part of the EU, there is a clear desire to secure a more comprehensive, watertight EU-UK security pact, ideally while tying up some other loose ends that continue to prevail under the current TCA. Ensuring continued access to UK fishing waters for qualifying EU member states and the receipt of more concrete guarantees over the safeguarding of EU Citizens rights in the UK are clear priorities in this regard.

A Time for Cautious Optimism

With discussions already taking place between EU and UK representatives ahead of the more structured TCA negotiations that are set for next year, for the first time in almost a decade, there are legitimate grounds for optimism regarding the future of EU-UK trade and political relations.

Recent, well-documented events have left Europe as a whole feeling more economically and defensively vulnerable than it has in generations. Given this wider context, amid rising global uncertainty, the importance of the UK-EU trade and political relationship should now be clearer than ever. Fortunately, ahead of next year’s review, there is more than ample room for the negotiation of a revised EU-UK TCA, one that can provide much-needed security and prosperity for both parties.

Both the EU and UK are stronger and better positioned to defend their economies, governing structures and way of life working together in solidarity. Now, it is simply a question of identifying what the optimal intersection of both parties’ interests will be and putting this theory into practice