The chancellor’s views on EU rules and standards suggest he may notby Guy de Jonquières / January 20, 2020 / Leave a comment
Does Britain’s chancellor of the exchequer know what he is talking about? That is a troubling question to ask about any cabinet member, above all the one charged with managing the nation’s economy and finances. But it is unavoidably posed by Sajid Javid’s weekend interview with the Financial Times, in which he warned business leaders to drop their campaign to keep Britain aligned with European Union regulations and standards after Brexit.
The chancellor’s message, which has predictably caused much anguish in corporate boardrooms, could hardly have been more explicit: “There will not be alignment, we will not be a ruletaker, we will not be in the single market and we will not be in the customs union—and we will do this by the end of the year.”
However, what he actually meant, and whether even he understands it, is far from clear.
Not only does Javid’s position directly contradict what he was saying just before the 2016 referendum, when he posted an article on his own website headlined: “The only thing leaving the EU guarantees is a lost decade for British business.” His remarks at the weekend also appear to be based on a misunderstanding of what regulations and standards are, how they are formulated and why they matter.
Many, probably most, standards originate with business and industry associations and are the result of lengthy international deliberation and coordination, after which governments will often enshrine them in law. Governments can also play a role in shaping them. However, it is by no means decisive. To empower officials to overrule business and impose their own dictates against its wishes, which is what Javid appears to have in mind, seems perverse. Such proposed intervention is all the odder coming from a government that claims to champion private enterprise and free markets.
Furthermore, many standards are global and the UK has worked hard as an EU member to make them more so. Abandoning or repudiating them would be a big U-turn. It would also make life much more difficult for UK exporters, not just in the EU but on many markets elsewhere. Indeed, the EU is committed to exporting its own regulations and standards to the rest of the world and has pushed to have them accepted in trade deals with other countries.
Its stance has run into resistance elsewhere, notably from the US, which has long opposed EU regulations in areas such as food safety and pharmaceuticals. Indeed, from the US perspective, one of the big prizes from a trade deal with Britain is the opportunity to wean it off EU regulations and standards and get it to submit to US ones instead. Brussels and Washington are seeking to narrow their regulatory differences, but progress so far has been painfully slow and seems likely to remain so.
Meanwhile, China is stepping up its efforts to export its own regulations and product standards. Though it has had mixed success so far, its economic weight and the size of its domestic market endow it with a lot of potential leverage. Hence, in a number of areas—and standards are a vast area where the issues vary widely between sectors—the stage appears to be set for a three-way battle for supremacy between the world’s economic titans.
What benefits the UK would gain by going it alone is far from clear. It is easier to count the disadvantages. Replacing existing international standards with its own would be an immensely long and complex task that would be barely started by the end of this year, when Brexit is due to take effect. It is made more difficult by the fact that standards and regulations apply not only to finished products but to the thousands of parts and components that go into them, many of which move across borders through the international supply chains on which manufacturing vitally depends. Some components used in UK car plants cross the Channel five times for different stages of processing before they are ready to be fitted.
If Britain were to set its own standards, all these items would be subject to EU border controls, customs checks and other formalities. The result would be far more bureaucracy, cost and delays that would make supply chains, which are finely tuned to deliver components exactly when they are needed, unworkable.
It also would require manufacturers to conform to different standards for the EU and for the home market. But that would still be unlikely to preserve their unimpeded access to the single market. Even if companies remained aligned with its standards in practice, the EU would still be likely to require a legal commitment to do so—something the government is reluctant to make. Otherwise, it would almost certainly require checks and border controls to ensure they complied fully.
It is often said that the fact that the UK and EU start out with common rules and standards will make a trade deal between them easy to strike. That is a misconception. It will make a deal much harder, when the government has said that one of the main purposes of Brexit is to enable Britain to diverge from EU law and practice. Agreement on where and how that divergence should take place is unlikely to be reached quickly, if at all.
Meanwhile, business remains profoundly uncertain what kind of regulatory and standards regimes will apply to it from the end of next year. Javid’s insistence that companies have had three years to prepare for Brexit and should get on with it is nonsense. It is impossible to prepare for the unknown. The government has not set out what the UK’s future standards and regulations will be and negotiations on future trade relations with the EU, in which those issues will be decided, have not even begun. Where they will end up is anyone’s guess. But Javid’s remarks are not an encouraging omen.