29 January 2017

Financial Times: Post-Brexit Britain cannot just copy out EU laws

[...]Already concerned about access to EU markets, bosses are mainly intent on preserving legal and regulatory certainty in the wake of Britain’s exit. European regulations may be far from perfect, runs the reasoning, but at least conformity prevents additional barriers being placed in the path of their products and services.

Best then not only to retain all of the so-called acquis communautaire of existing laws after Britain’s departure, but to commit to remain under the EU’s regulatory umbrella in future. That means periodically checking the Westminster fax machine to see which new laws parliament has been required by Brussels to pass.

It is certainly a vision that offers exporting companies and their investors a degree of certainty. But it is also one that sells Britain’s wider interests worryingly short.

Regulation is, after all, a dynamic process. Promising to swallow whatever you are sent in future is not some modest concession. It exposes Britain not only to a stream of future directives about product standards, but also to a host of legislation promoting fuzzier social and environmental goals, as well as harmonising edicts whose principal purpose is to sweep more activities into Brussels’ bureaucratic embrace.

Worse, these affect not only the 13 per cent of Britain’s economy that comes from trade with Europe. They are loaded on to every business, voluntary organisation and government body — with consequent costs for all.

Shorn of its representation on European institutions, the UK’s only guarantee against harmful or unnecessary lawmaking is that any Brussels directive would also affect EU businesses. But while that could work with sectors where the bloc has important political concerns, such as carmaking, it might be less of a check with ones, such as the financial markets, where it has fewer indigenous interests.

The Bank of England’s governor, Mark Carney, has already pointed out the risks of passivity in finance, warning Britain must not put itself “in the position of cutting and pasting [regulatory] changes which might not be suitable for the UK”. In extremis, he frets, these could even pose a threat to financial stability.

But well beyond the financial markets there are risks for Britain in staying fully within the EU’s regulatory ambit. First, there is the escalating financial burden, estimated in 2004 by the then European trade commissioner, Lord Mandelson, at 4 per cent of gross domestic product.

That figure looks big enough already, but excludes the burden of national regulation and administrative costs of overall compliance, as well as the fact EU regulation has been growing far faster than the economy. Lump all these factors together and the Association of European Chambers of Commerce came up in 2009 with a figure of more than 12 per cent of gross domestic product. Many of these costs may be necessary and proportionate, but others duplicate or serve little purpose other than to extend the commission’s remit. Harmonising measures can also prescribe solutions that fit poorly with a country’s cultural or even geographical circumstances. [...]

Concerns about control and a desire to avoid such regulatory activism have already led the UK’s financial rulemakers to seek a more distant relationship. They favour a deal based on the legal concept of “equivalence”.

Full article on Financial Times (subscription required)

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