Is the UK a Regulatory Basket Case?
The UK government is exploring a three ‘baskets’ approach to domestic regulation after Brexit. One basket would contain those sectors where the UK would hope to maintain full harmony with EU regulations. The second basket would contain those sectors where the UK hopes that the EU would recognise the new UK rules as equivalent to EU rules. The third basket would contain those sectors where UK regulation would be completely different from that in the EU. It is not clear what sectors will be put in which baskets. This is something for the UK to determine and ultimately for the EU to agree with (the first two baskets).
The UK reflections on regulation give rise to a number of parallel reflections on the whole EU project and in particular in relation to the standards which reflect the way European want to live. It is generally agreed that the EU has the highest standards in the world for health and safety. For the most part, EU citizens are willing to pay the high costs of high standards. Citizens pay twice. The pay for the administrative infrastructure and agencies that set and enforce the standards. And they pay the higher prices charged for goods and services that meet the standard.
Younger EU citizens are the drivers for high standards as well as the ever expanding number of sectors for which standards are set. So, it seems unlikely that there will be a slowing in the drive for higher and higher and more and more standards across Europe. Given this reality then the only question is whether standards should be set at the EU level or at the national or local levels. For most of important standards the only way that they can be affordable to citizens is if the cost is spread out over as many citizens as possible. This inevitably points more EU regulation.
What will be the new sectors for standards harmonisation across the EU? The idea of tax harmonisation keeps popping up even if the smaller EU states like Ireland, Luxembourg and various Eastern countries are adamantly opposed. All agree that we need to complete the single energy market, the single banking market, have common transport rules all of which will require more standards. Most agree that the environment is best protected at the EU level because it leaves less room for local national interests to take decisions that are hard to reverse.
Logic says that 2018 must be a good year for the EU. It must begin a period where we move forward. Once Merkel is back in the saddle and the Italian election is out of the way a France German (with Italian support from the side) can power the EU on. And if the EU is to move on it cannot move back to a mere club of states. That is what the UK is doing. And UK citizens are discovering today the true cost of going it alone. The rest of Europe understands that citizens can only afford what we want if we do it together.
If a hard border or any border is to be avoided on the island of Ireland then the basket approach does not work. It does not work because there will not be regulatory alignment across all sectors. And the outline agreement between the EU and the UK from before Christmas provides that there must be regulatory alignment in Ireland. Thus there will have to be four baskets. The three baskets for the UK and one full basket for Northern Ireland.
Agreement on the equivalence of standards is not straightforward either. The WTO Agreements on Technical and Sanitary and Phytosanitary standards provide for equivalence. These agreements have been in place since 1995, more than 23 years ago. The number of areas where equivalence has been accepted are few and far between and, for the EU, mainly concern organic production methods. It seems that it has been difficult to accept as equivalent the background research that is needed to show compliance with standards let alone the equivalence of the standards themselves.
What are the sectors where the UK will want to go it alone on standards? Will the UK want to back away from the EU standard that limits the working week to 48 hours, for example? There are strong forces in the UK pushing for this. But at the same time the new style free trade agreements that the EU is concluding with third countries contain clauses that require compliance with labour and environmental standards. So even if the UK wants to back away from standards it may not be able to do so.
It is hard to see any sector where the analysis in relation labour standards would not apply. There are very few sectors of a modern society that are sheltered from the impact of trade. There may be some service sectors which are not open to trade but even then the list will not be great.
Will the criteria for choosing to include a sector within the harmonised basket be the capacity of the UK to afford to establish the infrastructure and skills needed to maintain high standards? This is the calculus that the sectors themselves will undertake and it is clear that, for most, the most economically advantageous option is to have harmonisation with EU standards.
Those sectors with regulations in the equivalent and the stand-alone baskets will face barriers to trade. And, unlike customs duties, technical barriers to trade are absolute barriers. If the import does not meet the standard applicable on the import market then it cannot be placed on that market for sale. It’s as simple as that.
Theresa May seems to be surviving as Prime Minister in the UK by having decided, and strongly defending, the position not to decide anything. Choosing a basket is a decision. It will mean for the sector easier access to the EU market or less easy. It is possible, therefore, that the basket approach will be abandoned over the next months which leaves the UK exactly where it started. And that is not a happy place to be in given that there is only one year left to exit.
The content of this article is only for information and does not constitute professional advice.
For further information contact Bernard O’Connor.