Quiet Moves Toward EU Rule Alignment

Keep it at a whisper for now, but it is becoming increasingly apparent that Britain is seeking to pragmatically align its regulations in certain areas with those of the European Union (EU), where it makes sense. Low profile legislation has been passed, largely without debate, to make it easier for ministers to do so without having to seek parliamentary approval each time. Although the approach is sensitive politically, it is seen as necessary economically.

Post Brexit new bureaucracies have been created in Britain, or existing ones expanded, to cope with the influx of regulatory work previously handled for the UK by Brussels, at a significant cost to the public purse and to the businesses they regulate. Yet these are under resourced by comparison with their EU counterparts, whose regulations they still need to monitor, track, or respond to. Meanwhile, business is having to weigh the costs and benefits of meeting product conformity requirements in both the EU and British markets which, in more highly regulated product sectors such as foodstuffs, chemicals and pharmaceuticals, can be considerable. Such that, in some cases, companies may decide not to make certain of their product range available in Britain.

Therefore, unsurprisingly, Britain wants better co-operative arrangements with the EU, which may require more convergence and will likely necessarily involve more regulatory alignment or shadowing. For although Brexit gave Britain the freedom to go its own way and the nominal autonomy to make its own rules, the operational reality is that the economic and regulatory gravitational force of the EU inevitably exerts a significant pull on the economies within its orbit. So, like other countries with larger neighbouring economies, including other European states, the UK, or more particularly Great Britain (given that Northern Ireland remains in the EU Single Market) must recognise this reality and learn how to better manage its relations with the EU, now that it is outside it, so as to maximise the benefits and minimise the costs of the new relationship.

Brexit is thought to have played a significant part in Britain’s lacklustre economic performance since the end of the Brexit transition agreement going into 2021 - the UK-EU Trade and Cooperation Agreement (TCA) notwithstanding - which the country can ill afford. Obstacles to growth are perceived to be particularly acute in the more regulated sectors of international trade. Any benefits of the TCA tend to be negated by the costs and hassle factors associated with the significant non-tariff and technical barriers to trade between the two markets in many areas, which are especially irksome to small to medium sized enterprises (SME), responsible for so much employment in the economy.

The Reset Summit and Dynamic Alignment

The UK-EU reset summit of May this year acknowledged the existence of border frictions and the scope for greater co-operation on trade, specifically referencing the agri-food sector and the intention to work towards the establishing of a Common Sanitary, Phyto-Sanitary (SPS) Area for cross-border trade in such goods. To be underpinned by the regulatory principle of dynamic alignment. By which the UK undertakes to continuously align its SPS rules to those of the EU. There was also the inference of degrees of alignment in the field of energy and Britain’s proposed equivalent of the EU’s carbon border adjustment mechanism. There is already dynamic alignment in respect of aspects of the Tariff operated by each territory, indicating that the principle has become accepted as part of how the parties work together.

Perhaps building on the novel arrangements in place on the island of Ireland, to finesse cross-border trade, or the dynamic alignment model adopted by the EU and Switzerland for their relationship, the British government is hoping that appropriate solutions can be found in other areas of mutual regulatory interest, after foodstuffs have been addressed, to reduce the burden of trade barriers and to foster economic growth for the benefit of both parties. In addition to foodstuffs, examples of other sectors ripe for a dose of innovative regulatory thinking are those of chemicals and pharmaceuticals, for which the regulatory environment is also particularly challenging, and compliance costly.

The Swiss model may be instructive, in that the latter can involve unilateral dynamic alignment, where thought beneficial, so that, for example, something registered or authorised in the EU market does not necessarily have to be re-registered or re-authorised in Switzerland. This would seem to make a virtue out of a compliance necessity, easing the burden on business by eliminating some of the friction, uncertainty and cost that would otherwise exist.

It is unclear how far the UK Government wants to take its EU alignment approach, or indeed how far it will be permitted to, both domestically, politically, and by the EU Commission and Member States which, must carefully balance the benefits accruing to members of the club, for example the Single Market, as compared with non-members. Fortunately, the current geopolitical context seems to be making the EU more open to new approaches to co-operation within the wider Europe, and it helps that the current British government has a certain respect for the EU institutions Britain has left and that it is not averse to paying its way, through contributions to the EU budget, for access to certain defined benefits and programmes. Were a strategy of low-key, incremental EU alignment to succeed in feeding through to improved economic growth it would be difficult for a successor government to justify a reversal.

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‍‍This article was written by Christopher Starns, Customs & Trade Advisor (BKR Consultants Limited).