EU and UK deepen trade relations in Europe amid bilateral trade agreement review; Summer 2026 summit offers opportunity to deepen ties

UK-Papier 2026_final en-GB

Strengthening EU-UK trade relations | May 2026 |

Strengthening EU-UK trade relations DIHK Position May 2026

Strengthening EU-UK trade relations | May 2026 |

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German Chamber of Commerce and Industry Breite Straße 29 D-10178 Berlin Telephone +49 30 20308 0 Email info@dihk.de

Editor: Klemens Kober

Graphics: Sebastian Titze

As of: May 2026

Strengthening EU-UK trade relations | May 2026 |

Strengthening EU-UK trade relations

Escalating geopolitical crises – most recently the tensions surrounding Greenland and the war in Iran – underscore the need for close European cooperation based on shared interests and values. This is not only a matter of Europe’s ability to act in the field of security policy, but also of our continent’s long-term prosperity. Ten years after the Brexit referendum, it is therefore time for the European Union and the United Kingdom to consistently develop their relations further and deepen their cooperation in all relevant political and economic areas. Institutional relations as close as possible would yield greater welfare gains on both sides than any other trade initiative currently being pursued. Against this backdrop, the German Government should also strongly advocate for such a deepening of relations, in the spirit of the German-British Friendship Treaty of 17 July 2025.

Brexit remains an economic disaster for both sides of the Channel. The United Kingdom’s (UK) withdrawal from the EU has also strained its close trade ties with Germany: whereas the UK was Germany’s fifth-largest trading partner before the referendum, it has now slipped to ninth place. Trade barriers, regulatory divergence and the end of the free movement of people are hampering economic exchange. The adoption of the Windsor Framework in 2023 and the EU- UK summit in May 2025, which secured an agreement on closer economic cooperation, were crucial for stabilising economic relations. As long as a return to the EU is not foreseeable, the EU and the UK should, as part of the review of the bilateral trade agreement, agree to deepen institutional cooperation in the field of foreign trade, swiftly conclude negotiations on the Sanitary and Phytosanitary (SPS) and Emissions Trading System (ETS) agreements, and advance dynamic regulatory alignment in relevant areas of the Single Market. The next EU-UK summit in summer 2026 offers a good opportunity for this.

Current trade relations

Four treaties govern relations between the EU and the UK: The Withdrawal Agreement between the EU and the UK, which entered into force on 1 February 2020, ensured an orderly withdrawal of the United Kingdom from the EU. The Trade and Cooperation Agreement (TCA) has been in force since 1 January 2021 and contains preferential arrangements in areas such as trade in goods and services, digital trade, intellectual property, public procurement, air and road transport, energy, fisheries and participation in Union programmes. It is based on provisions that ensure a level playing field and is underpinned by dispute settlement mechanisms and safeguard measures in the event of non- compliance with obligations. Whilst the Trade and Cooperation Agreement cannot by any means match the level of economic integration that existed during the UK’s EU membership, it does go beyond traditional free trade agreements. Foreign policy, external security and defence cooperation are not covered by the agreement. The EU had sought this option. Since January 2021, therefore, apart from ad hoc solutions between the UK and the EU, there is no longer any institutional framework for development and coordination in areas such as sanctions policy, export controls or economic security. Furthermore, the Trade and Cooperation Agreement does not include decision-making mechanisms regarding the equivalence of financial services, the adequacy of the UK’s data protection system, or the assessment of the UK’s health and plant health systems for the purpose of inclusion on the list of third countries authorised to export food to the EU. Furthermore, an agreement on the security of information and an agreement on the use of nuclear energy have been in force since 1 January 2021. Mutual access to fisheries is also regulated until 30 June 2038.

Trade barriers

Although the trade agreement with the UK is the only EU agreement to guarantee completely duty-free trade, non- tariff trade barriers remain. As a result of Brexit, SMEs in particular are facing increased administrative burdens relating to customs declarations, conformity assessments and regulatory requirements. This leads to higher operating costs and significant delays at the borders, which particularly affects exports and the availability of perishable goods on both sides. Inadequate infrastructure and a shortage of trained customs officers have placed an additional strain on the system and led to disruptions in the timely movement of goods. The implementation of the UK’s new import regime (“Border Target Operating Model”) has caused difficulties by resulting in frequent changes to risk categorisation without proper notification, inconsistent interpretations of import regulations, long waiting times during checks, and the failure to recognise the EU as a single sanitary and phytosanitary unit.

Strengthening EU-UK trade relations | May 2026 |

The EU classifies the following UK regulation as a barrier to trade: since 2022, third-country nationals must be ‘sponsored’ by a UK-based organisation in order to work temporarily in the UK. The UK-based organisation must first undergo a procedure to become a ‘sponsor’.1 This creates additional burdens that could favour UK service providers.

For the years 2021 to 2024, the European Commission has noted in its implementation reports that, despite some implementation issues, the trade arrangements for goods and services set out in the Agreement have generally functioned well. It is positive to note that in 2024, only two relevant official complaints regarding the implementation of the agreement were received via the Commission’s online tool. The European Commission should continue to remain in close contact with business representatives on this matter.

In the wake of its withdrawal from the EU, the UK has driven regulatory divergence, particularly in the financial and AI sectors, which is having a negative impact on economic exchange. Added to this is regulatory divergence resulting from new EU legislation and EU case law, which the UK has not adopted.

On 8 May 2025, the UK and the US agreed on an economic deal that may affect the level playing field conditions agreed in the EU-UK Agreement and lead to a further divergence from EU standards. In particular, the US is pressing the UK to recognise US accreditation bodies, thereby granting them the authority to accredit certification, testing and verification bodies in the UK. This would mean that the UK accreditation body UKAS would no longer meet the basic requirements for membership of the European Cooperation for Accreditation, under which national accreditation bodies mutually recognise one another. The UK should refrain from such deviations. The EU, for its part, should take action against such special arrangements where necessary in order to maintain a level playing field and the integrity of the EU single market. In this regard, the European Commission should continue to closely monitor regulatory divergences in the UK that could pose a risk in the form of non-compliance with the Trade and Cooperation Agreement, particularly in areas relevant to a level playing field.

Deliverables for the 2026 EU-UK Summit

Building on the cooperation agenda agreed in 2025, the EU and the UK should reaffirm their commitment to the full, timely and faithful implementation of the Withdrawal Agreement, including the Windsor Framework and the Trade and Cooperation Agreement. In addition, negotiations on the UK’s accession to the EU’s internal electricity market, on a common area for sanitary and phytosanitary (SPS) standards, and on the linking of the two emissions trading systems (ETS) should be concluded. Furthermore, negotiations should be launched on a foreign policy chapter in the trade agreement, focusing on economic security issues, as well as on the UK’s re-entry into the Pan-Euro-Med Free Trade Area (PEM). Similarly, dynamic regulatory alignment in relevant internal market areas, as well as simplifications for business travel and the recognition of professional qualifications, should be pursued.

Institutional cooperation

As long as a return to the EU is not foreseeable, the EU and the UK should deepen their cooperation through the closest possible institutional ties in all relevant areas. German industry would support British efforts towards a customs union or accession to the European Economic Area.2 With regard to future EU-UK cooperation, it is clear that replicating the special arrangements for Switzerland – which are based on over a hundred complicated treaties and are subject to endless renegotiation – should not be the aim. As the UK rejects the free movement of persons – one of the four cornerstones of the EU Treaties – market access cannot be structured as extensively as with Switzerland or Norway. Dynamic regulatory alignment in the automotive, mechanical engineering, chemical, cosmetics and medical devices sectors, on the other hand, could be beneficial for both sides. The UK is significantly affected by the EU’s steel measures, the localisation requirements set out in the proposed Industrial Accelerator Act (IAA), the EU customs reform including the abolition of the de minimis rules, and regulations such as CBAM, the Deforestation Regulation, the European Supply Chain Directive and the EU Forced Labour Regulation. The closest possible cooperation in these respective areas would facilitate trade and investment.

1 https://trade.ec.europa.eu/access-to-markets/en/barriers/details?isSps=false&barrier_id=18342 2 Some sections of the business community are calling for the EU to make an active effort to encourage the UK to rejoin.

Strengthening EU-UK trade relations | May 2026 |

Energy cooperation

Brexit has led to less efficient electricity trade between the UK and the EU, which is accompanied by higher energy costs. The institutional link between the UK ETS and the EU ETS is of particular importance so that both sides can exempt themselves from their respective carbon border adjustment mechanisms in trade in goods. These negotiations should be concluded as soon as possible. The EU CBAM is already in force and the UK CBAM is set to take effect on 1 January 2027. Without a swift agreement, EU exporters would therefore be affected by the UK CBAM.

Regulatory cooperation

The indefinite recognition of the CE marking should be extended to all product regulations in the UK in order to simplify compliance requirements. Furthermore, the EU and the UK should agree on negotiations to align conformity assessments for products, particularly in highly integrated sectors. Redundant testing, especially for SMEs, should be avoided.

Regulatory differences between the EU and the UK in the field of public health have increased since Brexit, affecting marketing authorisation procedures for medicines, cross-border supply chains and access to essential treatments. These differences have already led to medicine shortages and increased import costs. As the agreement provides only limited mechanisms for cooperation in the health secto