Comment

Finding the right trade and regulatory framework (or learning lessons from TTIP, Brexit, and EU-US trade)

David Henig / Jan 2020

Image: Shutterstock

 

It is strange to recall that in the years before President Trump trade policy was barely concerned with tariffs. The argument seemed to have been won in general, that tariffs simply added costs to the consumer, and reducing tariffs in specific trade agreements was about ensuring that any ensuing competition was fair. Protectionist voices never went away, not least in agriculture, but they were the distinct minority.

A stronger focus of trade negotiators, experts, and the wider policy making community, was on regulatory or non-tariff barriers. More specifically, given that all countries have been increasingly regulating the same things, such as product safety or environmental protection, in different ways, was how we could best reduce the costs that imposes on trade. For if all products and many services are regulated, so nearly all trade is regulated in some way.

It would be fair to say that we are still some way short of complete answers to the question of how to handle the issues that arise from trying to reduce non-tariff barriers while respecting regulatory preference. Trump’s trade wars and Brexit have been distracting factors, but it still feels that finding good structures to manage trade and regulation has gone into the ‘too difficult’ basket. Now though there is a more pressing need to find answers, in the form of the future UK-EU relationship. It’s time to build on what we’ve learned to prevent further European trade disintegration, and then apply more widely.

A starting point is to recognise that regulatory cooperation is liable to be controversial. In TTIP we recall the fears that this would mean the EU having to drop the precautionary principle, allow in US food, and give the US a say in EU regulations. We can go back to the founding of the single market in the 1980s, and the controversies there about Member States having to give up cherished regulations such as German beer purity rules. More recently we saw a major strain of UK Brexiteer thinking that regarded EU regulations being forced and unnecessary.

Clearly regulatory sovereignty is important. In a similar vein even free traders should accept that regulators do not prioritise trade, and rightly so. We should not be treating this as a cost benefit exercise, and should recognise cultural differences.

With those caveats in mind it is nonetheless the case that economic gains are available, that the benefits of cooperation in terms of trade and improved regulations have long been pursued by countries working together in different ways, and that regulations can be designed in protectionist ways. The latter was recognised in the formation of the WTO, but the broad disciplines agreed there don’t take us far beyond this. Hence different countries will want to address the challenge and opportunity of regulation and trade in different ways. EU members have chosen the path of commonality overseen by judiciary. In external agreements there are a variety of tools including mutual recognition or equivalence of safe products to reduce barriers, regulatory dialogues, and the use of global norms in sectors such as automotive.

Apart from forming a common regulatory zone most of these tools do not however create any kind of overall framework to reduce regulatory barriers to trade. They can thus seem to be rather ad-hoc and limited, and evidence of their use by business varies considerably. They also fail to tell a story leaving too many business and politicians none the wiser about regulations and trade.

That was the challenge we faced with TTIP and attempted to solve with a regulatory cooperation chapter that would create a ‘living agreement’. Negotiators were making progress before this became a victim of the end of talks. As a veteran of both TTIP and Brexit, a select band that provides bragging rights in some Brussels circles, I have now spent 7 years considering the subject. Given the complexity of the subject it may be that there can be no easy answer, but I would offer the following design principles for the future UK-EU relationship on regulations.

First, tell a story of trade and regulation. What we are looking for is a new regulatory cooperation partnership, which respects the rights of both sides to make regulatory choices, but which also sees alignment where this makes sense to meet common challenges such as climate change or because there are global norms, to name but two. And where there is alignment, market access barriers will be reduced.

Next, accept that regulations always evolve, as therefore do the trade effects. This means that the task of managing regulations and trade is never complete, and there will always be dialogue. The UK and EU should have a permanent and structured regulatory dialogue, from which mutual decisions to align and reduce barriers to trade should be taken. This dialogue should engage business and civil society as well as officials.

Finally ensure that the framework for the overall relationship is suitably flexible yet robust such that new areas of alignment or divergence can be agreed without risking the wider relationship. There should be an annual regulatory report detailing activities, discussed by political leaders at a summit. In terms of flexibility it is probably not helpful for example for the EU to demand that all regulatory alignment is subject to ECJ, equally it is not helpful for the UK to make sweeping comments on dynamic alignment or the follies of the EU system.

In short a shared narrative of a flexible regulatory partnership between UK and EU. Neither UK or EU to have regulatory power over the other, nothing like EU membership, but a new start, building a new partnership. This could in turn be a model for that other tricky EU relationship, with the US. Whether the tight timescales and limited trust allow this to be created in the short term may be considered doubtful, but without such a destination the likelihood is that EU-UK regulatory relations become as frustrating as those with the US have been over the last 25 years.

David Henig

David Henig

January 2020

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