What does the UK-EU "re-set" mean for business?

The UK and the EU have agreed a "common understanding" on closer cooperation across a number of key areas. Following a period of difficult relations after Brexit, the mere fact that that both sides have committed to closer cooperation has obvious political significance. But what does the deal mean for business? And could it open the door to a closer relationship in future, particularly on trade and economic matters?

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What's been agreed?

From a business perspective, the key commitments likely to be of interest are as follows:

Food and drink sector: a commitment to work towards establishing a common sanitary and phytosanitary (SPS) area. This would remove the need for much of the paperwork and controls currently required for UK-EU agri-food trade. See section 5 below.

Youth mobility, business travel and professional qualifications: commitments to work towards (i) establishing a "youth experience scheme" to allow young people from EU nationals to work in the UK (and vice versa); and (ii) setting up "dedicated dialogues" on short term business visits and recognition of professional qualifications. See section 6 below.

Emissions trading and electricity market participation: commitments to (i) work towards establishing a link between EU and UK carbon markets (including carbon border adjustment mechanisms); and (ii) explore UK participation in the EU's single market for electricity. See section 7 below.

Defence sector: a commitment to "explore…mutual involvement in respective defence initiatives". This could enable UK firms involved in the defence sector to benefit from EU procurement initiatives (and vice versa). See further paragraph 25 of the EU-UK Security and Defence Partnership.

Does it matter that the deal is effectively a non-binding "heads of terms"?

As the deal is a joint political declaration, rather than a formal international Treaty, it is not legally binding. However, in our view, it would be wrong to dismiss the statement as having no real substance or as an attempt to disguise a lack of genuine progress. In particular, it indicates that:

the EU and UK have (at least for now) concluded the initial process of high-level "horse-trading" about which issues should be "on the table" as regards any final, binding agreements; and
in some areas, agreement has already been reached on some potentially difficult and contentious issues – such as whether the UK should align with EU law (see section 4 below).

Given the difficult economic and security environment, both the EU and the UK will also have strong political incentives to demonstrate that they are delivering on their commitments. For further discussion of the significance of the "reset", see section 8.

What's the timeline and when can business expect to see concrete changes "on the ground"?

As explained above, the deal is essentially a non-binding "heads of terms" – and its full benefits will only be realised once it has actually been converted into binding agreements which have been implemented. The timeline for all this remains very unclear. The joint statement merely says that the parties will "proceed swiftly on the undertakings set out in this document". Our view is that on most issues, any meaningful progress is likely to require at least 6-12 months (if not considerably longer in some cases) – and a further implementation period is likely to be required in most areas before business will actually feel the benefits of any changes.

Short term benefits

In the short term though, the joint statement, coupled with the recent trade deals with the US and India, may well help to boost business confidence in the UK as a place to invest for the future. In that respect it could deliver more immediate benefits to some businesses.

Does the deal require the UK to align with EU law and how will disputes be dealt with?

The UK appears to have accepted that if it wishes to participate in the EU electricity market, link its emissions trading system to that of the EU and benefit from a less burdensome SPS regime for agri-food products, then it will have to align with relevant EU law in those areas. It appears, however, to have secured agreement in principle that it should have "decision-shaping" rights i.e. a right to be consulted on changes to those laws before they are made by the EU. These rights would seem to be similar to those enjoyed by the EEA states (Norway, Liechtenstein and Iceland). Whilst they do not include any voting rights or ability to veto, they at least hold out the prospect of formal consultation on changes.

Dealing with disputes

Disputes would normally be dealt with by an international panel of arbitrators, the same mechanism used in the EU-UK Trade and Cooperation Agreement (see section 4 of our guide to the TCA). However, if the dispute involved the interpretation of EU law, then the Court of Justice of the European Union would be the final arbiter on that point (although the arbitrators would still deal with any other). This limited role for the CJEU is similar to its involvement in Association Agreements between the EU and neighbouring states, such as Ukraine, which also typically envisage alignment with EU law (often as a prelude to potential membership).

Changes to trading arrangements for agri-food products

Since the end of the Brexit transitional period on 31 December 2020, all UK businesses exporting goods to the EU have faced additional requirements – but those involved in the agri-food sector have been particularly hard hit. This is because agri-food products are subject to further requirements going beyond the "standard" customs clearance formalities. These typically include a requirement that the goods are accompanied by a health certificate (which adds significantly to the expense, particularly for small consignments). Agri-food products must normally also enter via a Border Inspection Post (where they may be physically inspected, potentially giving rise to delays – and generally requiring more time to be allowed for transportation, increasing costs and reducing the shelf-life of products when they eventually reach retailers). For more detail on post-Brexit changes to goods trade, see this briefing.

Did the UK's phasing in of UK agri-food controls in 2024 play a role?

Although the UK repeatedly delayed the imposition of similar controls on exporters from the EU, they were largely brought into effect in 2024 – see this briefing. It is possible that these changes may have been a factor in encouraging the EU to enter into discussions with the UK on how to improve trading arrangements for agri-food products (because until 2024, EU businesses had not experienced the same level of difficulty as their UK counterparts).

What has been agreed?

The joint statement commits the EU and the UK to work towards establishing a common sanitary and phytosanitary (SPS) area, set out in an SPS Agreement. It goes on to state that "[t]his would result in the vast majority of movements of animals, animal products, plants and plant products between Great Britain and Northern Ireland being undertaken without certificates or controls that are currently required by the rules within the scope of the SPS Agreement". As noted in section 4 above, this will require the UK to align with EU laws on agri-food products, including future changes to those laws. The exact scope of the SPS Agreement is unclear, but it appears to be fairly broad (see paragraph 26 of the joint statement; this UK Government "explainer" provides some further detail on what seems to be envisaged).

Are there precedents for this type of agreement?

The EU already has SPS Agreements with a number of other countries (including Switzerland, New Zealand and Canada), which could be used as models for the agreement with the UK and should help to speed up negotiations on the detail (to an extent). Based on the joint statement, it seems most likely that the UK and the EU are aiming at something akin to the Swiss agreement – which goes further than most of the others in removing regulatory barriers.

How significant is the proposed SPS Agreement?

An SPS Agreement will not restore largely frictionless trade for agri-food products between the EU and the UK – for example, goods will still have to comply with other border formalities such as declarations relating to customs and safety and security. However, it will make life significantly easier for both UK and EU businesses looking to export agri-food products to each other's markets.

It is also envisaged that the SPS Agreement will not be time-limited – so whilst it will probably contain provisions allowing it to be terminated in certain circumstances (including on notice), UK and EU agri-food businesses should not face the additional uncertainty created by an agreement that is scheduled to expire in say, 5 or 7 years' time (unless the parties agree to renew it). Finally, it is expected that an SPS Agreement would also greatly facilitate movement of agri-food products between Great Britain and Northern Ireland, thus easing the pressure on the Windsor Framework (although the latter will remain in place).

Youth mobility and business travel

The end of free movement rules following Brexit have meant EU nationals now require visas in order to work in the UK, including taking up an internship or employment in the UK. Visa-free travel is still available for holidays, business trips and specified permitted activities.

Is this a return to freedom of movement for young people?

Whilst there is not yet an agreement in place, the proposed 'youth experience scheme' would be aimed at facilitating increased youth mobility on mutually agreed terms. The proposals will not amount to a return to free movement in the way that it currently functions as between EU/EEA Member States:

• Visa required: Firstly, it is clear that the UK's position is that will be for this will be a visa route, meaning an application would need to be submitted, supported by documentation and with the payment of application fees. This has been one of the points of contention from the EU side given the relatively high visa fees in the UK – for example, an Australian national applying for a youth mobility scheme visa would need to pay over £1,700 and must also show they hold at least £2,503 in funds to support themselves while in the UK.

• Scope may well be narrow: The UK is also keen not to refer to this as a 'youth mobility scheme' which suggests the terms will be different from and probably more limited than the existing youth mobility visa schemes already in place with specific countries (including Australia, Canada, Hong Kong, New Zealand, Japan etc) which allow young people aged 18 to 30 (or in some cases 35) to apply for visas to come to the UK to work in any role. Whilst there is very little in the way of detail of how a UK/EU youth experience scheme would work in practice, the indications from the UK suggest this scheme will be very limited.

What limits might apply to the youth experience scheme?

Length of stay: The UK has also been quite clear the duration should be short. Now, whilst existing youth mobility schemes allow for periods of between two years and three years duration, the suggestions for the youth experience scheme seem to be for significantly shorter periods than this. Based on indications from the UK government - and given its stated aim of reducing net migration - we are likely to see a duration capped at 6-12 months.
Cap on numbers: Linked to this, the UK government's position has been that there should be an overall cap on numbers applied. Some of the existing youth mobility schemes do operate with a cap on numbers, with places allocated via a ballot system. Given the youth experience scheme would be open to all EU members states and could mean significant numbers of young EU nationals applying, a cap does seem sensible. There is precedent for including a cap on numbers – the more recently introduced but similar scheme in place for Indian young people does have an annual cap of 3,000 visas, which are allocated via three ballots over the course of each year. A similar cap could be applied to the youth experience scheme.
Age range: We may also see a lower age range being covered under this scheme than we have in existing schemes, which go up to 35 years for certain nationalities (e.g. Australia) but are limited to 30 years for other nationalities (e.g. Japan).

Are we likely to see changes to business travel rules?

The post-Brexit position on business travel was agreed in the TCA. However, the UK and the EU have agreed to continue "dedicated dialogues" and it is likely that the EU would like changes made to the routes available to EU service suppliers, who currently need to apply for visas under the UK sponsorship regime. For more detail on the current position for business travel, see our Interactive Map and our guide to post-Brexit travel rules.

The bigger picture on immigration

All this is taking place against the background of the UK government's Immigration White paper, which indicates a significant tightening up of current immigration rules. In particular, the Government is keen to reduce reliance on non-UK staff and push employers towards recruiting more UK nationals, especially those not currently in work. Some employers, however, may find it difficult to fill vacancies by recruiting UK nationals – in which case the youth experience scheme may offer a valuable alternative recruitment path. That said, for the reasons explained above, the probable limitations on the scope of the youth experience scheme make it unlikely that it could ever fully substitute for the loss of other visa routes envisaged by the White Paper.

Emissions trading system, carbon border adjustment and participation in the EU electricity market

After Brexit, the UK left the EU Emissions Trading Systems (ETS) and set up its own ETS from 1 January 2021. 4 years on from that, the EU and the UK have now agreed to link their respective ETS. This is particularly noteworthy given that the only other ETS linked to the EU ETS, the Swiss system, went through a 12 year process before full trading took place. By contrast, there was minimal political will to achieve a UK-EU link until last year – despite a commitment from both parties in the EU-UK Trade and Cooperation Agreement (TCA) to give such linkage "serious consideration" (see section 19 of our guide to the TCA).

Why is ETS linkage helpful?

If the UK arrangement is implemented in the same way as the Swiss arrangement, UK ETS participants will be able to purchase emissions allowances in EU auctions, and all may cover their emissions using allowances purchased and transferred from the EU registry.

In view of the Swiss precedent, it may well be a few more years before full linkage occurs. This is significant because of the related announcement that the linked ETS should permit each party to benefit from an exemption from the other's carbon border adjustment mechanism ("CBAM"). The EU's CBAM is in its transitional phase, but the definitive phase when declarants need to purchase certificates begins on 1 January 2026. The financial burden under EU CBAM is relatively minimal in the first few years, but ramps up quickly as CBAM phases in (covering progressively higher proportions of embedded emissions) at the same time as ETS free allocations phase out. The hope will be that mutually beneficial arrangements can be put in place before the expected rises in the carbon price in the next decade. Unless the UK carbon price tracks that of the EU (at the time of writing it was significantly lower but rose 8% on the linkage announcement), importers of products such as steel will face higher costs when importing to the EU in the short term (see our recent briefing on proposed changes to the EU's CBAM Regulation).

Other issues: climate change ambition and UK participation in EU electricity market

The joint statement makes clear the EU's expectation that the UK's climate ambition in terms of its cap and carbon reduction pathway will be at least as ambitious as the EU's. The two jurisdictions align in terms of their 2050 net zero commitment (legally binding in the UK via the Climate Change Act, and in the EU Climate Law), but the UK's nationally determined contribution under the Paris Agreement is currently more ambitious than that of the EU, which has not yet announced its 2035 target. The climate and environmental ambition of the EU and UK may also need closer alignment in view of the agreement to investigate the UK's renewed participation in the EU's internal electricity market (though details on this aspect are sparse).

What else does the deal tell us about the EU-UK relationship and how it might develop in future?

Both the EU and the UK appear to have shifted their ground somewhat, as compared with positions taken up during the Brexit negotiations. For example:

Having insisted that the UK should not be allowed to "cherry-pick" participation in EU frameworks, the EU has not shown itself averse to cherry picking in areas where it had particular interests, such as youth mobility and (possibly) agri-food products; what is proposed in both these areas allows somewhat freer movement of people and goods, but falls short of full free movement or full single market participation (which the EU had previously insisted was an "all or nothing" proposition).
The EU had also emphasised that it didn't want to have a "Swiss-style" relationship with the UK, based on a complex patchwork of agreements. However, that seems to be where we are heading, as the UK-EU Trade and Cooperation Agreement (TCA) was "broad but shallow" - and both parties now appear to have reached the view that it needs to be supplemented by side-arrangements allowing for deeper cooperation in areas of mutual interest.
The UK, meanwhile, whilst continuing to insist that full single market or customs union participation are off the table, has nevertheless accepted the principle of alignment with a EU law in specific areas, accompanied by a degree of oversight by the CJEU (albeit on a fairly limited basis). These are all significant compromises of the position taken up by the UK at the time of the TCA, where it sought to maximise the UK's sovereignty and independence from the EU.

Finally, the joint statement shows that, as Switzerland has found, the UK is likely to find itself having to revisit aspects of its relationship with the EU on a regular basis. The "reset" therefore underlines how, whether we like it or not, the consequences of Brexit are going to continue to be relevant and a topic of ongoing debate for many years to come. For more coverage, see our Beyond Brexit portal, which includes: