Post-BrexitBeyond the headline-grabbing claims from both sides of the Brexit argument lies a more prosaic fact that could make Britain’s departure from the EU much more complicated.

In the 21st century, gains from trade can often depend less on eliminating tariffs on imports and exports than bringing down “non-tariff” barriers created by different rules and standards between countries.

The EU’s average external tariff on industrial goods — which the UK could expect to be charged in the instance of a hard Brexit that gives no access to the single market — is just 2.3 per cent, although it is much larger in sectors such as motor vehicles. But academic studies generally show the cost of the bloc’s other barriers to trade is two or three times as large.

Non-tariff barriers to trade are “extremely important” says Stephen Woolcock, associate professor of international relations at the London School of Economics.

While leaving the single market could mean long and arduous border checks, many economists and trade experts do not expect anything like such an apocalyptic scenario.

Howard Kerr, chief executive of BSI, the business standards group, emphasises that EU regulations do not require most goods to be checked for conformity with rules at borders, only when they are put on sale.

Sensitive goods — food, chemicals, pharmaceuticals and potentially hazardous goods — are subject to strict rules. A hip replacement part, for example, requires a certificate of conformity to be put on sale in the single market.

But for most goods, it is the job of trading standards officials in EU member states, not customs officers, to check whether products have the CE — Conformité Européenne — mark. This shows they meet EU legal requirements and can be sold in the European Economic Area of all member states, plus Iceland, Liechtenstein and Norway.

In addition, products from the UK will not necessarily diverge from European regulations even after Brexit. On day one after leaving the EU, Mr Kerr contends, all products produced for the UK market will still comply with CE rules.

This is partly because the UK government is planning to incorporate a large majority of EU regulations into UK law after Brexit and to prune the legislation at its leisure after that.

But there is a bigger reason why differing regulations might not be a large problem: the agreed standards that are the cornerstone of the regulations. European product standards are normally voluntary, agreed outside an EU framework and led by industry to promote competition. The UK has played a leading role.

About 80 per cent of the standards governing manufactured goods in the single market are voluntary and have been progressively harmonised across Europe. During the past 30 years, the number has fallen from 160,000 to about 19,000.

Typically, EU regulations state that if a product meets these standards it can be sold in the single market.

While Brexiters say Britain has an opportunity to simplify regulations outside the EU, many experts see costs rather than benefits. British business would need to establish new UK rules and standards, while exporters to the EU would still need to comply with those rules.

Andrew Grainger, assistant professor of logistics at the University of Nottingham, says he can see “nothing good” in tearing up the current rules.

Mats Persson, head of international trade at professional services firm EY, previously served as adviser on Europe to David Cameron, the former prime minister. “The potential impact of regulatory divergence differs between sectors and firms. For some the impact could be limited, while others could benefit from better tailored rules,” he says. “However, particularly for some companies in competitive export sectors and with low margins, separate EU and UK standards could require costly duplication of production lines.”

Duplication could also affect the retail market for strictly regulated products, such as innovative medical devices. If the duplication of costly regulatory approval meant it was only worth exporting to the large EU single market, rather than also seeking UK approval, UK consumers might have no means of getting their hands on the product unless the government accepts EU approval as acceptable.

Some Brexiters are happy to accept the product standards and regulatory approval of other countries as a badge of quality, allowing sale in the UK. But trade experts say that large economies — the EU and the US, for example — would not allow such mutual recognition agreements to be reciprocal.

The UK could not, for example, agree to recognise US regulations as compliant with domestic sales without the EU wanting to ensure those same products were not routed through the UK for sale in Europe unchecked.

Peter Holmes of the University of Sussex says this will severely limit Britain’s ability to bring down non-tariff barriers to trade with countries outside the EU, in case it becomes a “back door” route for goods into Europe.

The upshot is that the question of regulations and standards will be a fiendishly difficult part of Britain’s negotiations with the EU and other potential trading partners.

There is no obvious solution that satisfies all the UK’s goals of simple and cheap regulations, easy trading relationships with the EU, deals with non-EU countries and full sovereignty over regulations.

Source: Financial Times


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