Brexiteers subscribe to an outdated economic theoryby Ian Dunt / February 6, 2018 / Leave a comment
For decades, Brexiters railed against Brussels red tape. It was their core message. Bananas couldn’t be bendy and lawnmowers couldn’t be loud. The world had gone mad. Brussels was lost in a frenzy of petty bureaucratic intrusions. On and on it went until eventually Britain voted to leave the European Union.
The underlying assumption behind these stories was that British industry was a roaring tiger, waiting to trade confidently with countries around the world, if only these eurocrat shackles could somehow be torn off.
That basic idea is at the heart of the current debate about whether we stay in the EU’s centre of gravity or not. The free market Brexit lobby believes that doing so will stifle Britain’s great trading future, just as they felt Brussels red tape suffocated it in the past.
Their error here is a fundamental one and one that speaks to how heavily influenced they are by nostalgia. They think about trade as if it were the Victorian times. What they don’t understand is that European regulation often encourages trade.
It is understandable that there is some confusion. Regulation can, after all, act as a significant “non-tariff barrier.” Say a country has certain rules about the use of recyclable content of food packaging. When another country tries to export to it, those goods have to be stopped at the border and checked to see if they comply with that law. This gets in the way a bit, meaning that trade becomes more difficult.
But here’s the thing. One of the chief aims of trade negotiators over the last few decades has been about melding rules together. If two countries have the same rules—and especially if they have the same institutions making decisions on whether they’re both following those rules—goods can cross the border without being checked. Everything moves freely and you can do more business. The European Union is one of the purest examples of this principle in action.
So while some forms of regulation hinder trade, others can help maximise it. So far, so straightforward. But to really see the effects, consider an example.
Take aviation. Britain is currently a member of the European Aviation Safety Agency (EASA). Every inch of a plane is covered by the accreditation system it operates, providing safety guarantees for the landing equipment, the engine and everything in between. This means that Britain is no longer fully in control of its decisions on aviation safety equipment. They are certified at the continental level. If you stay in the EASA, you haven’t “taken back control.”
But the advantages to membership are considerable. When a British company develops a new part for a plane, it only needs to get it signed off once, by the European regulator. They will then take care of everything that needs to be done with safety certification bodies in China, India, the US and the rest. It’s one portal to the world—and it was achieved through regulation.
Now imagine Britain leaves the EASA, as it will do if hard Brexiters get their dream of total separation. The British firm will have to get its new product signed off by a British regulator, then again for the European market with the EASA, and then again with all those other countries the Europeans used to negotiate with on our behalf. One bit of red tape suddenly becomes multiple strands.
The same dynamic is true for almost all UK exporters. Since Europe is our largest market, they are going to produce goods to European standards just to be able to do business, no matter what the British government eventually decides about Brexit. To do this they will have to follow EU regulations.
But what happens if the UK suddenly diverges in one area? It might adopt the US portion system on food labelling, rather than the grams-based information used in Europe. Now a firm would have to print both sets of information on each product. Or worse, what if the UK started demanding that certain information was included in food labelling, while the EU banned its inclusion? Now the firm would have to make two versions of every product.
This is the reality of shared regulation: It can help, rather than hinder, trade. It can reduce barriers and minimise red tape—but it does so by taking away a bit of control from the nation state.
The government’s gloomy predictions of economic damage outside the EU are not some kind of witchcraft, dreamt up by the Remainer saboteurs of Jacob Rees-Mogg’s imagination. They are the direct consequence of a political programme which seeks to remove the UK from any shared regulation. Doing so doesn’t reduce barriers to trade—it encourages them.
Brexit Britain: the future of industry is a publication which examines the future of UK manufacturing through the prism of the recently released Industrial Strategy White Paper. The report features contributions from the likes of Greg Clark MP, Miriam Gonzalez, Richard Graham MP and Frances O’Grady.
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