14 February 2022

This Valentines Day let’s enter an open trading relationship with as many countries as possible

By

New minister for Brexit opportunities Jacob Rees-Mogg asked last week for suggestions of EU rules to reform. While some may reasonably point out that we’ve had a few years to think about this now, there is of course no time like the present. Serendipitously, the publication of my latest paper on a radical, pro-free trade regulatory reform coincided with the week of Mr Rees-Mogg’s appointment and I was heartened to see that it meets with his approval.

The UK is currently one of the most open economies in the world, thanks to our unilateral recognition of EU rules and certification. But, despite its much trumpeted commitment to free trade, the government’s current policy is to bring that to an end of next year.

The Trade and Cooperation agreement that came into effect at the end of the Brexit transition period did not include even basic mutual recognition that is often included in free trade agreements between advanced economies to address regulatory barriers to trade.

The EU declined to offer even the levels of recognition that it has afforded to countries that it doesn’t have a free trade agreement with, such as the USA. Presumably this is because its negotiators considered that they could do without the benefits of regulatory recognition in the hope of enticing the UK to commit to aligning with EU rules.

This means that British exports not only need to comply with EU rules (exports always need to meet the rules of the destination market) but where independent testing and certification is required, this now has to be carried out by an EU company, not a British conformity assessment body.

This is a classic case of non-tariff barriers to trade being used for protectionist and political purposes, to no consumer benefit at all. So far, to avoid burdening British businesses and consumers with additional costs of separately testing and certifying imports from the EU, the Government has continued to unilaterally recognise EU rules, both for industrial goods, and food and agriculture. But domestic interests see this as unfair – EU suppliers can continue with relatively seamless access to the UK market, while British farmers and manufacturers face the full force of the EU’s regulatory border. The Government is therefore bringing in full border requirements for sanitary and phytosanitary rules later this year, and will mandate the use of the new UKCA mark on industrial goods in 2023. This means EU suppliers will not be able to rely on their compliance with EU rules and the CE mark on goods any more, and UK manufacturers will have to add the UKCA mark to their goods (it is permissible to carry both).

Instead of perpetuating this mercantilist approach to trade and regulatory policy the UK has an opportunity here to embrace a truly liberalising approach.

Countries have historically been reluctant to recognise the regulations of other territories for reasons including preservation of autonomy and protectionism, as well as substantive concerns about the rules and procedures in the country of origin and different approaches to the perception and management of risk. Unilateral recognition is rare, as the possibility of working towards compatibility and recognition is seen as a bargaining chip in negotiations for other objectives or to achieve reciprocity.

EU rules are largely the same as they were while were a member state, consumers trust them, importers and intermediate manufacturers rely on them. There is no objective reason to cease recognition and demand a UK specific certificate. This does not mean that we cannot change UK regulations as well – if our regulations diverge for certain goods and sectors, that doesn’t mean that the EU goods shouldn’t also still be welcome in our market – consumers will decide which goods they prefer, and British reforms could enable the delivery of improved and innovative goods, improving competition and consumer choice.

And this needn’t stop at the EU. Why not charge our regulators with a free trade mission to identify countries (or just sectors within countries) that have regulations that meet the requirements for the UK market? Then, without needing to embark on complex negotiations to deliver harmonisation or reciprocity, allow goods produced in those countries to those standards to enter the UK market. This will mean giving up a bargaining chip in potential negotiations with that country, but the gains from trade (where the costs of regulatory barriers can equate to the equivalent of tariffs of up to 20%) could outweigh this and position the UK as an international leader in free trade.

So this Valentines Day let’s embrace free trade, break up with non-tariff barriers and enter into an open relationship with as many countries as possible.

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Victoria Hewson is Head of Regulatory Affairs at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.