Saturday, 9 December 2017

There is no regulatory sovereignty

I am happy to see the Article 50 talks move on to phase two. Progress is encouraging even for its own sake. We've had to swallow a lot, particularly on the continued influence of the ECJ, but that was to be expected given the balance of power and restrictive time frame. There is no point in crying and whinging about capitulation. We should just get on with what we have and make the best of it.

Yesterday I wrote an article for in response to some of the outrage from the Brexit ultras. They believe the UK has capitulated, but in actual fact the negotiations have merely swung in the direction of reality. We are leaving a well-protected club that is intent on preserving the integrity of its institutions. Belief that both sides are on equal footing in this stand-off is verging on clinical madness.

It is easy for populist figures in Brexit circles to decry what they call the UK 'being sold down the river'. They are not in the negotiating rooms and their internal narratives are a comfortable distance from real world challenges. If we had negotiated with their demands, we would have crashed out with no deal and would need to rely solely on WTO rules as a basis for our trade, and the country would have endured untold economic and political damage.

From what I can gather, their anger appears to have stemmed from paragraph 49 of the joint Commission-UK Government report, which states: “The United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union.”

The headbangers are infuriated by this because they believe that Brexit gives the UK regulatory sovereignty. It doesn't. Nothing gives the UK regulatory sovereignty because regulatory sovereignty does not exist in any meaningful sense. At least not at nation state level. Last night on the BBC I raised the point that Single Market membership or not, we'll adopt standards determined at global level anyway. This fact has not been communicated to the public well, possibly because it is dry in nature. 

International bodies responsible for a large proportion of standard setting (exact percentages differ when we look sector by sector) include UNECE, the UN Economic Commission for Europe, now the primary European regulator; CODEX Alimentarius, the world's most influential agricultural regulator, based in Rome; International Standards Organisation (ISO); International Maritime Organisation (IMO); World Health Organisation (WHO); World Customs Organisation (WCO) and, of course, the OECD. These forums come under the umbrella of the WTO, which divides regulatory competence amongst them (usually on a sectoral basis).

These agencies are intergovernmental and are influenced by nation states and, crucially, the European Union itself. Regulatory governance is a two-way street and, quite often, finding the exact source of a regulation is made exponentially more difficult by the fact that these forums will take the core of an EU regulation, amend it, and then send it back down again. What we have is a mixed and very complicated picture.

Even the EU has lost control of a huge portion of its regulatory agenda, despite the influence it maintains at the tables of global forums. That infamous bent banana directive? The only one mentioned during the referendum campaign? It comes from CODEX and can be seen here. We adopt this as a member of the body in accordance with international TBT obligations (see below), regardless of our place in the EU or Single Market.

Harmonising devices are becoming increasingly significant. What makes them so crucial is that they act as impartial mechanisms for bridging regulatory divides between countries and major powers. A quick look at any of the EU's major trade agreements will find countless references to the agencies I refer to above. Find a PDF of any EU FTA at random and search for yourself. The efforts made to use global regulations as guidelines litter these agreements. They are staggeringly important and really capture just how widespread globalisation now is.

But beyond the global element, which I believe is vital, the UK has in front of it a binary choice. It can either remain embedded within European regulatory architecture or it can undertake a transatlantic pivot - effectively prioritising our second largest trading partner over our first. Opting for the latter will have profound consequences for our ease of trade with the EU. This is down to stark differences in product standards, most notably in the automotive industry.

If we twisted to a more Americanised approach to regulation, we would drive a wedge between ourselves and Europe. The more we diverge from the existing European regulatory sphere, the more checks we encounter and the higher the likelihood of our exports finding themselves incompatible with EU markets. Our beef would be checked to a higher frequency in order to ensure it did not come from America. Many of our cars would no longer meet vehicle type approvals.

Of course, the reverse is true also. There are barriers to trade between the UK and US thanks in large part to our current arrangement. The reason for the almost non-existent trade in cars between the EU and US is down to the US' refusal to adopt UNECE vehicle type regulations which forced them to redesign the sides of vehicles, in order to meet new crash standards, and the shape of headlights. Here we can see immediately the impact of a harmonised standard on vehicle type approvals.

Britain isn't going to emerge as a regulatory superpower because it is alleyed in between the two which already exist. We can only work with the reality we have and divergence for the sake of divergence is irresponsible, given the sensitivity and intricacy of most UK-EU supply chains. We can in principle divert where a standard comes solely from the EU, but obstacles like the maintenance of the Good Friday Agreement and the pressures on customs systems will render doing so completely pointless.

And we need to forget about regulatory bonfires. EU membership has for decades meant less and less red tape, at least as far as trade is concerned. Understanding this is vital to directing Britain's post-Brexit trade policy. If Britain wants to carve out its own leadership role, it must apply itself to strengthening global initiatives (like UNECE's Single Window) designed to minimise and eliminate technical barriers to trade. Otherwise, as a medium sized power, it will have very little influence or purpose.

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