26 February 2018

Financial Times: Britain, the EU and post-Brexit regulation

Assuming that by “mutual recognition agreements” Mr Davis means the EU’s, well, Mutual Recognition Agreements, this is misleading on two counts. One, their coverage is in fact often very sparse. The MRA with the US, the EU’s biggest goods export market, covers only two areas, electromagnetic compatibility (safety tests for electrical goods) and radio equipment. No toys, no cars, no medical devices — and indeed no pressure vessels, no machinery, no measuring instruments, no pharmaceuticals and certainly no food.

The MRA lists just 14 EU-approved testing centres in the US, mainly in California, probably thanks to the state’s own tough environmental and product regulations. Steve Behm, director of engineering for CKC Certification Services in Mariposa, the first-named testing centre on the list, says his company’s EU certification for exporters generates “not a tremendous amount” of work. One of its main functions, he says, is as a badge of quality for the company’s domestically oriented clients. Great for CKC, but not exactly what the MRA was designed for.

Two, the agreements refer only to “conformity assessment”, or testing goods to each other’s standards, rather than accepting foreign standards as equivalent.

Even the goods regulations part of the EU’s newer trade deals, such as the Comprehensive Economic and Trade Agreement with Canada, focus only on conformity assessment. (Ceta also set up regulatory committees in some parts of the service sector, such as architecture, to agree on mutual recognition of professional qualifications, but again the coverage is limited.)

True, the EU did contemplate pushing this further in the Transatlantic Trade and Investment Partnership with the US, tentatively exploring the idea of equivalence, or accepting trading partners’ rules if they were judged to produce the same outcome. Despite vast tomes produced on the subject, including this 530-page page-turner on vehicle crash test standards, those talks, along with the rest of TTIP, went almost nowhere. 

The UK’s best hope is that those free-trading nations exposed to trade with the UK, such as the Netherlands, are able to push the EU to try again for some kind of regulatory recognition in a deal with Britain. Even then, though, the EU’s approach to countries outside its single market is based on co-operation between regulators rather than a blanket acceptance of the other’s rules.

The EU is a regulatory imperialist by dint of the size of its consumer base. It operates a strong form of mutual recognition within the single market, based on the principle established by the “Cassis de Dijon” case at the European Court of Justice in 1979, which prevented Germany blocking entry to French blackcurrant liqueur for failing to meet German rules on minimum alcohol levels. Mutual recognition of member states’ national rules is buttressed by a second tool of “harmonisation”, or EU-wide regulations. But Brussels does not extend anything like the same courtesy to trading partners. This is particularly true for goods such as chemicals and food, the safety and environmental impact of which are highly politically sensitive. [...]

The closest to a true regulatory equivalence agreement in the world is the Trans-Tasman Mutual Recognition Arrangement between Australia and New Zealand. But even that excludes whole sectors — vehicles and pharmaceuticals, for example — and unlike most trade deals can be revoked by one side for up to a year.

The UK’s confidence in achieving regulatory recognition seems to be based on an assumption that wider international norms, to which both it and the EU will adhere, will set a common standard. In reality, EU goods regulation is frequently idiosyncratic, gets tougher every year and maintains an intense suspicion of accepting foreign rules. [...]

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