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Many Brexiters campaigned last year for the UK to leave the EU to liberate UK companies from the dead hand of Brussels regulation. But today many British businesses are clamouring to stay under EU rules.
“UK manufacturers will have to continue to make to whatever regulation applies in whichever market. The greater the variation, the greater the cost,” Mike Hawes, chief executive of the SMMT, the UK’s motor industry trade body, told the Financial Times.
Otherwise, he suggested, car production for the British market might contract: “Any particular brand might look at the cost and ask the question: Is it worth making a car [just] for the UK?”
Such concerns about post-Brexit regulation reach right across British industry. Trade officials, experts and business representatives emphasise that complying with regulations is essential for modern trade, adding that experience shows that Brussels is highly unlikely to issue automatic recognition of divergent UK rules.
Monique Ebell, a researcher at the National Institute of Economic and Social Research think-tank in the UK, says: “There is a simple trade-off between the freedom to set domestic regulation and access to overseas markets. This is a fact of life. It is not something Brussels has invented to make things difficult.”
As the world’s largest consumer market, the EU, in effect, exports its standards through sheer economic heft.
Other than in areas such as financial services it makes little use of the weak mechanisms available to accept foreign rules as the equivalent of its own, particularly for sensitive sectors such as food and chemical safety.
The EU’s Reach chemicals regime is one of the most detailed and invasive in the world.
But British industry, which initially complained about the regulation as burdensome and a choke on competitiveness, is far from convinced of the benefits of abandoning it.
In a recent letter to Michael Gove, the UK environment secretary, the Chemical Industries Association said that leaving the EU framework “would seriously bring into question 10 years of investment, as registrations and authorisations that permit access to the EU single market would suddenly become non-existent on exit day”.
Switzerland, which is not an EU member, has chosen to implement the regulations wholesale so as not to jeopardise its access to the bloc’s market.
Some supporters of Brexit say that many standards are, in effect, set at a global rather than European level, using rules such as the Codex Alimentarius food standards code established by UN bodies.
But, in practice, the EU has had no compunction about restricting products such as genetically modified foods or chlorine-washed chicken, ignoring international guidelines and even WTO litigation.
Nor has Brussels shown much interest in recognising foreign regulations as equivalent. A recently concluded EU bilateral deal with Canada contains little recognition beyond some “conformity assessment” — the EU trusting Canadian laboratories and testing centres to check that products meet European standards, and vice versa.
The EU did seek to negotiate on broad regulatory co-operation in now-stalled Transatlantic Trade and Investment Partnership talks with the US.
But officials involved in the talks said that considerable political energy was required to persuade two such powerful sets of regulators even to engage.
In the end, with TTIP hitting resistance on other fronts, the regulatory talks produced only minor progress in vehicle standards and agreed conditions in pharmaceutical manufacture.
“The EU put in a big political push in TTIP but found it hard to get any traction,” said one official involved in the talks, arguing that the relatively small size of the British economy meant it was questionable whether Brussels would make another such effort. “Why would it even bother to try with the UK?”
Additional reporting by Peter Campbell
The motor industry is keen for Britain to remain in step with Europe on automotive regulations, from crash test specifications to emissions.
At present, a car model approved for sale in one European country can be sold across the bloc. If Britain departs from EU standards, carmakers would have to spend the money to make a vehicle compliant with the UK’s unique rules in order to sell it in the country.
While the UK sells more than 2m cars a year, car sales in the EU exceed 15m, and in the US exceed 17m. Peter Campbell
Britain’s £60bn aviation industry has long made clear the importance of maintaining access to the EU’s Open Skies regime, which gives all EU airlines the right to fly between member states and domestically within member states.
However, the regulatory framework of the single EU aviation market requires the UK to submit to the authority of the European Court of Justice.
Brian Stratton, general secretary at Balpa, the British pilots’ union, said that the EU had been clear that UK flights to the EU would be grounded in March 2019 should no agreement be reached. “We need the UK government to sort air-traffic rights now. Once again, no deal is not an option,” he said. Tanya Powley
The chemicals industry is one of the most heavily regulated by Brussels.
Despite the chemical industry’s broader concern that a parallel regulatory regime would add further costs, some companies say selectively looser regulation could be beneficial.
Tony Bastock, chair of Contract Chemicals, a manufacturer of building blocks for pharmaceuticals and agrochemicals, said that, after Brexit, chemicals made for other markets outside the EU should no longer be bound by the Brussels rules known as Reach, but just by a new regime in the UK and those in the destination country.
Mr Bastock gave the example of a corrosion inhibitor that Contract Chemicals sells to the Americas.
Upcoming registration under Reach would cost about €120,000, equivalent to six or seven years’ profit on the product, so the company probably would have shifted its production to China, he said.
“Now we have an opportunity, if the UK has a Reach-lite [system], that we could manufacture it in the UK and ship it to the Americas., as long as we comply with all the requirements of the Health & Safety Executive and Environment Agency.” Michael Pooler
Energy companies are keen for continued UK participation in the Internal Energy Market, which allows free trade in gas and electricity through interconnectors between the UK and the rest of Europe.
Tariffs would increase costs for UK consumers because Britain is a net importer of energy and could deter investment in further interconnectors in varying stages of planning.
Companies active in the nuclear energy sector also want Britain to remain as closely aligned as possible with Euratom, the pan-European nuclear watchdog that the UK plans to quit as part of Brexit.
UK access to nuclear materials and technology ranging from reactor parts and fuels to medical isotopes could be disrupted if the UK fails to put a new regulatory system in place.
“We continue to urge the government to explore the options to retain the benefits of being part of Euratom in negotiation with the European Commission,” said Tom Greatrex, chief executive of the Nuclear Industry Association.” Andrew Ward
Food and drink
In written evidence this week to the House of Commons, British food and drink groups struck divergent positions on EU regulation.
The British Beer & Pub Association called for a system of equivalence or mutual recognition. It added that “the EU represents roughly 60 per cent of exports by volume, so maintaining access at minimal additional cost is essential”.
The Confederation of Paper Industries, whose members manufacture food packaging, said it was “concerned that UK legislation will rapidly diverge from that of the EU in areas such as the environment and that this divergence will become a barrier to trade”.
The Proprietary Association of Great Britain, which represents manufacturers of branded over-the-counter medicines and food supplements, expressed fears that unpicking EU regulation “will be a lengthy and difficult process, which could threaten public health if not completed accurately”.
It added: “In the short term, and certainly through any transition period, regulatory harmonisation with the EU is preferable.”
But the Wine and Spirit Trade Association said that “Brexit provides the opportunity to develop a smarter and more risk-based enforcement and inspection regime that is tailored to meet the needs of UK businesses”. Scheherazade Daneshkhu