Can government plans for regulatory independence be intended literally?by David Henig / February 21, 2020 / Leave a comment
Seven years ago, long before Brexit, the UK government prioritised a trade deal between the US and EU—TTIP, or the Transatlantic Trade and Investment Partnership. Its primary benefit was to come from the removal of regulatory differences. Launched at the UK-hosted G8 summit in 2013, the Cameron administration invested significant resource in working with negotiators to make the deal happen. We didn’t succeed, factors in that including some fundamental differences of trade policy between the EU and US, a noisy public campaign from activists, and later the UK’s loss of EU influence after the 2016 referendum and the election of President Trump. Yet there was some legacy from deepening cooperation between the two regulatory superpowers as a result of these efforts.
What remains of that EU-US regulatory cooperation no longer includes the UK. More than that, the UK has rejected the entire basis of our policy in 2013, not to mention the Thatcher government’s part in the creation of the European single market in the 1980s. There is a new creed, as expressed by Boris Johnson’s Chief EU Negotiator David Frost in his recent speech in Brussels, namely that “Sovereignty is about the ability to get your own rules right in a way that suits our own conditions.” This in turn plays into a government approach to trade talks that had already been visible, namely that instead of regulatory harmony, the main focus is to be less ambitious tariff reduction.
The problem with such a focus is the extent to which it is at variance with the modern world. Tariffs are now generally low, except for those in agriculture and any country with whom President Trump has recently picked a battle. By contrast regulatory barriers are high and difficult for businesses to navigate. Across the developed world and increasingly in emerging economies, nearly every product and service is regulated in some way. In order to trade with countries you need to be able to meet these regulations, and if these differ from your own, that means extra cost.
Until the UK’s declaration of regulatory sovereignty and even accounting for President Trump’s tariff fetish, most developed countries focused their trade policy attentions on reducing regulatory barriers. This starts with the World Trade Organisation, which imposes some discipline on national rule making. But then there is a plethora of other agreements, bodies regional and global, which aim to tackle regulatory differences. All governments that are members of such bodies have waived the absolute right to set their own rules to suit their own conditions, choosing to focus instead on collective efforts to smooth the flow of goods and services.
Then there are bilateral or preferential agreements. Newer agreements seek greater regulatory alignment, to provide certainty for businesses. Even for simple tariff reduction it is typical to sign up to level-playing-field provisions to ensure that preferential terms are not undermined by unfair competition, whether through subsidies or reduced labour or environmental protections. A verbal promise is not considered enough.
This reality is why making regulatory sovereignty the cornerstone of the UK’s economic philosophy in a post-Brexit world will worry not just the EU but also many others. If of course the ambition is to be taken literally.
Concerns were already being expressed before Frost’s speech. One of the factors explaining the keenness of Japan for the UK to sign up to the new version of the Trans-Pacific Partnership was to ensure that we did not withdraw from the international economic rules-based order, which President Trump is severely endangering. Upholding this order was another UK government priority prior to 2016 that has scarcely been mentioned since. It appears that the Japanese were right to be worried. They are not the only ones.
Of course it could be that the statement of regulatory sovereignty was not to be taken literally. The UK has not threatened to leave the WTO or existing free trade agreements. The statement of regulatory sovereignty may in fact be relative, a matter of preference to be considered on a case-by-case basis. This makes more sense of terms of global trade, but equally means there is less need for us to be so concerned about conditions included in any agreement with the EU or any other partner.
This however doesn’t seem to be the correct reading; the same Frost speech says that economic studies showing falling GDP growth as a result of Brexit “exaggerate—in my view—the impact of non-tariff barriers.” This therefore suggests that the UK is perfectly happy to turn its back on much international cooperation, as the government does not expect this to have any significant economic impact.
It looks again like a retreat from the world. Or possibly an attempt to create a different world, one in which tariffs are the biggest issue, whose removal results in freer trade flows.
The problem is that’s not the world for businesses. A new book by EU law expert Anu Bradford, entitled The Brussels Effect, describes how the EU continues to be the global regulatory superpower helping shape regulation all around the world. On this reading we’ll either be following EU rules or taking the big economic hit Frost denies.
Brexit didn’t have to turn in this direction, towards pure definitions of sovereignty. You could, and people did, want to leave the EU because of a feeling that as an entire package it did not provide the UK with sufficient control, while accepting the reality that as our close neighbour it is ridiculous to opt out of every piece of EU-centred regulation, much of which is beneficial not just for trade. That may well be our most likely destination, geography proving more powerful than philosophy.
But equally the UK may choose a more fundamental breach, a pure definition that does heavily impact the economy, and at the same time our relationship with our neighbours. There seem to be few in government who are arguing against this. The pursuit of absolute regulatory sovereignty is creating more confusion over what exactly “Global Britain” means.