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Flexibility does not come for free by Sam Lowe 16 January 2020
An EU-UK free trade agreement will result in new barriers to trade and border friction even if the UK chooses to unilaterally align itself with EU rules and regulations. Prime Minister Boris Johnson has said that the UK will “not align” with EU rules in any future EU-UK free trade agreement (FTA). European Commission President Ursula von der Leyen has responded by pointing out that “the more divergence there is, the more distant the partnership has to be”. Her statement reflects the EU’s general principle that access to the EU market is intrinsically linked to a country’s acceptance of EU rules, institutions and legal obligations. But in practice the EU’s approach is likely to be even tougher than von der Leyen’s words suggest: the greater the UK’s ability to diverge is, the more distant the partnership will be. The moment the UK obtains the right to choose whether it diverges or not from EU rules, it will – in most areas – be treated by the EU as if it has already done so. So it matters little that on day one of a new EU-UK FTA, all UK rules and regulations would be the same as the EU’s. Once the UK leaves the EU’s single market rule book and institutions, British exports to the EU will broadly be treated as if they came from any EU FTA partner. The British government claims to have accepted that gaining the freedom to regulate as it sees fit will mean new trade friction. But it is not yet clear that businesses and the public have understood what this means in practice. Unilateral UK alignment with EU rules post-Brexit does have benefits for businesses: it avoids a situation whereby they have to produce to two different sets of rules when selling to both markets. It does not, however, lead to a substantive reduction in regulatory barriers to trade, if the UK has secured the ability to diverge if it wants to. For example, once the UK is outside of the EU’s food hygiene (SPS) regime, British exports of products of animal origin will face new regulatory controls at the EU border in the form of new paperwork and physical inspections. This will occur whether the UK applies the same food hygiene regime in practice or not. Thus, the upfront costs of being outside of the EU’s SPS regime are large. However, if the UK does then decide to diverge, and, for example, accept US production methods, this would not lead to a significantly larger increase in trading friction with the EU. The additional trade costs associated with choosing to diverge are large; the relative costs of then actually diverging are smaller. To give another example, the moment the UK is outside of the EU’s single market, even if British producers continue to produce to EU standards, they will not be able to place them directly on the European market. CER INSIGHT: Flexibility does not come for free 16 January 2020
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