Agathe Demarais, Senior Policy Follow ECFR European Power Programme, Written Evidence (RUI0003)

RESETTING UK-EU COLLABORATION ON GEOECONOMICS

AGATHE DEMARAIS, SENIOR POLICY FELLOW | ECFR

OCTOBER 2023

The European Council on Foreign Relations (ECFR) is an award-winning international think-tank that aims to conduct cutting edge independent research on European foreign and security policy and to provide a safe meeting space for decision-makers, activists, and influencers to share ideas. We build coalitions for change at the European level and promote informed debate about Europe’s role in the world.

Agathe Demarais is a senior policy fellow for geoeconomics at the European Council on Foreign Relations. Her areas of interest include the global economy, geopolitics, and sanctions. Before joining ECFR, Demarais was the global forecasting director of the Economist Intelligence Unit (EIU), the research arm of The Economist. Demarais is also the author of “Backfire”, a book on the global ripple effects of sanctions and export controls. The book draws on her experience as an economic policy advisor for the diplomatic corps of the French Treasury in Russia and Lebanon. She also previously worked in investment banking in Russia and the United States.

LOW HANGING FRUIT: RESTARTING UK-EU CO-OPERATION ON SANCTIONS

After the Brexit vote of 2016, most Treasury officials across the EU were willing to bet that sanctions were the one area where the UK would continue to apply European rules. Since the emergence of sanctions as a key foreign policy tool in the 2000s, the UK had been one of the leading EU voices on the matter, playing a huge role in designing and implementing sanctions on Russia, Iran and Syria. Seven years after the Brexit vote, it is clear that EU Treasury officials were wrong: since leaving the EU in 2020, the UK has been implementing sanctions in a fully autonomous fashion.

Of course, sanctions co-operation between like-minded Western allies exists. Such collaboration has helped the G7 and the EU to implement a joint price cap on Russian oil exports in 2022, for instance. Informal bilateral exchanges also take place, mostly on an ad hoc basis. Yet such discussions remain the exception rather than the rule, creating regulatory divergences that illicit groups can exploit. For instance, in September this year, the US and the UK imposed sanctions on Trickbot, a Russian cybercrime group. The EU did not follow suit, meaning that members of the group are still free to operate in the bloc. 

There is scope to restart UK-EU relations on sanctions, with the goal of having as much alignment as possible on the designations of individuals and companies. Resetting UK-EU sanctions co-operation would help to revive the post-Brexit relationship through a pragmatic project that is cheap, quick to implement and beneficial for both sides. Russia-related sanctions would be an obvious place to start, given the urgency of responding to the invasion of Ukraine and the broad alignment of views between the UK and the EU on Russia.

THE RATIONALE: WHY THE UK AND THE EU SHOULD RESTART COLLABORATION ON SANCTIONS

• The UK and the EU face similar foreign policy challenges. In the short-term, the UK and the EU consider that responding to Russia’s invasion of Ukraine is an immediate priority. Sanctions form a key part of the British and European strategies vis à vis Russia. In the long run, both sides believe that managing China’s rise will be the greatest diplomatic, military and economic challenge. The UK and the EU have broadly similar stances on Russia and China; in particular, they are less hawkish than the US when it comes to relations with China. 
• In the short-term, the urgency to respond to Russia’s invasion of Ukraine provides an impetus to boost co-operation on Russia-related sanctions. The UK and the EU may also consider pan-European collaboration on sanctions as a pre-emptive measure to take if a Republican president were to upend US sanctions policy concerning Russia from 2025. In the long run, UK-EU collaboration on sanctions would help to lay the groundwork for a Western economic response to a potential Chinese aggression against Taiwan.  
• Greater UK-EU collaboration on sanctions would be a quick win. The UK and the EU have several decades of experience working together on sanctions. In other words, both sides know how to work with each other, with British expertise in the sanctions field widely recognised across European capitals. This is mostly because the UK is – alongside France – one of only two European countries that have the intelligence capability to track individuals and groups engaged in illicit behaviours or sanctions evasion.  

THE BENEFITS: WHY ALIGNMENT ON RUSSIA SANCTIONS WOULD BENEFIT BOTH THE UK AND THE EU 

• Joint UK-EU designations would boost the effectiveness of sanctions. With common designations, individuals and companies engaged in illicit activities would be barred from travelling to, and operating from, both the UK and the EU—magnifying the impact of sanctions. Formalised information sharing between the UK and EU member states would also help to detect sanctions evasion. Such collaboration would be especially useful to clamp down on networks that smuggle semiconductors or other dual-use goods for the Russian military.  
• Greater UK-EU collaboration on sanctions is (almost) free. The adoption of joint sanctions designations would not require financing. The workforce is already in place on both sides, with sanctions-related institutions up and running in the UK and all EU member states (EU sanctions are adopted at the European level and implemented at the national level, often by national Treasury offices). After sanctions are adopted, it is up to private firms to implement these measures and cover the related compliance costs.  
• Public interest in sanctions is low, limiting the risk of a political backlash. Few people care about sanctions technicalities. In addition, there is a broad pan-European consensus on the need to confront Russia. According to a Bruegel poll from early 2023, support for sanctions policies has been remarkably stable since February 2022; it stands above 50 per cent in all but one European country. As a result of these two factors, greater UK-EU collaboration on sanctions would most likely be met with little to no pushback from the general public.  
• The private sector would welcome greater alignment of British and European sanctions. Private firms bear the brunt of implementing sanctions. This is particularly true for banks, which must check the compliance of all the transactions that they process with sanctions regimes. Greater alignment of UK and EU sanctions policies would help to reduce this compliance burden. It would also decrease uncertainty for the private sector, which sometimes faces situations where it is unclear whether some cross-border transactions are legal.  
• Joint UK-EU work on sanctions would lay the groundwork for collaboration on export controls. The US has made export controls on key technologies, such as semiconductors, a key tool of its de-risking strategy vis à vis China. American policymakers hope that the UK and European countries will follow the US lead and restrict exports of high-tech products to China. If the UK and the EU eventually choose to follow US demands in this field, then pan-European export controls could make sense for the same reasons that joint UK-EU sanctions listings do.   

THE CHALLENGES: WHY BROADER UK-EU COLLABORATION IN OTHER ECONOMIC FIELDS REMAINS A DISTANT PROSPECT 

• The UK is unlikely to commit to full sanctions alignment with the EU. Post-Brexit British political constraints mean that fully aligned UK-EU sanctions policies remain unlikely. In addition, the UK will occasionally want to avoid implementing sanctions on persons that the country has confidential relations with (for instance well-connected individuals that are deemed likely to take part in a potential political transition in Moscow). Finally, the UK may sometimes want to choose to align with the US, which is typically more hawkish on sanctions, rather than with the EU.  
• Some EU member states consider the UK as an American Trojan Horse. In the sanctions field, this situation may lead some European countries to assume that the UK would use greater UK-EU collaboration to promote American positions. Close EU-US alignment on Russia-related sanctions mitigates this risk. However, EU trust in the UK’s intentions would likely be far lower if UK-EU collaboration on sanctions were to cover sanctions regimes where the positions of the US and the EU diverge (like Iran).  
• The US may not welcome greater UK-EU alignment on sanctions. From Washington’s perspective, UK-EU collaboration on sanctions has pros and cons. On the positive side, such alignment would boost the effectiveness of sanctions and help to close loopholes. In addition, the US would assume that EU sanctions would become more aggressive under British influence. However, the US may fear that stronger UK-EU alignment on sanctions could help both sides to push back jointly – and therefore more effectively – against some US positions.  
• France will be hard to convince. Most eastern European states have good relations with the UK and would welcome measures enhancing Russia-related sanctions. France, by contrast, would be less enthusiastic. Following Brexit, France has been leading EU sanctions policies. The country may want to remain in the driving seat. This obstacle is not insurmountable, however. At the technical level, French appetite for sanctions collaboration with the UK is high. At the political level, both sides are still looking for a deliverable after the March 2023 France-UK summit. 
• The UK and the EU are economic competitors. Beyond sanctions, collaboration between Britain and the EU on other geoeconomics-related issues, such as supply chains or access to critical raw materials, would make theoretical sense. However, such co-operation remains unlikely in practice; the UK and the EU are economic rivals that are competing to attract private investment in a bid to create jobs and raise fiscal revenues. This highlights why sanctions are such a low-hanging fruit to reset UK-EU relations: there are no jobs at stake and no money to make. 

KEY EVENTS TO WATCH 

• The war in Ukraine: The conflict provides an impetus for UK-EU collaboration on sanctions. If the war flares up, the need for greater collaboration will become more obvious. Conversely, if an unlikely truce happens, then restarting UK-EU collaboration on sanctions will prove harder. 
• Meeting between Xi Jinping and Joe Biden (tentative, late 2023): There is little chance that US-China relations will improve any time soon. The meeting could, however, fuel Western fears that China is considering supporting Russia militarily, boosting an appetite for Western sanctions. 
• EU parliament election (June 2024): Early polls and recent political trends highlight the steady rise of far-right groups in the European parliament. Extreme-right parties tend to have Russia-friendly views and sometimes oppose sanctions.  
• US presidential election (November 2024): A Democratic win would mean “business as usual” for US sanctions policies in 2025-28. However, a Republican win could provoke a US U-turn – or at least a softening – regarding Russia.  
• G7 2024 Summit (Italian presidency, date TBC): The G7 has provided like-minded Western allies with a forum to co-operate on sanctions, such as the G7-EU price cap on Russian oil exports. At the upcoming forum, the price cap could be lowered or other similar G7-led measures could be imposed. 

AGATHE DEMARAIS

ECFR EUROPEAN POWER PROGRAMME

OCTOBER 2023

Received 2 October 2023