A pre-requisite for Single Market participation is adopting the EU's Single Market Rule Book, or EEA acquis. Theresa May's proposed Common Rule Book is in reality the EEA acquis, minus some elements (services, free movement of people) that she hopes to exclude. Ultimately, the EU will insist on all the rules being included. It is also clear that in seeking a Common Rule Book, May is negotiating to stay in the Single Market, despite her repeated promises to the contrary. If we simply wish to trade with the Single Market, as per Canada, a Common Rule book is not required.
The leaked DExEU alternative proposes broad regulatory equivalence as an alternative to Single Market harmonisation and Common Rule Book, based heavily on the Swiss model. However, the EU have repeatedly stated they regret agreeing the Swiss model (agreed as an EEA alternative while the Swiss application for EU membership still stood) and the EU will not offer this model to anyone else, least of all a departing UK. In any case, the EU's measure of equivalence is barely distinguishable from full harmonisation. The Conservative Brexiteers have gone up a blind alley with this approach.
The main trade gain comes from using common standards. A UK product designed, manufactured & tested to harmonised European CE standards for the UK market can also be marketed in the EU/EEA market without needing a separate design, manufacturing or assessment process. But of course, an independent UK can voluntarily choose to recognise and use harmonised European CE standards, without membership of the Single Market.
So the question arises - what are the gains from a Common Rule Book / Single Market membership over and above the use of common standards ? Does being outside the Single Market for goods mean other expensive or insurmountable barriers to trade ? I'll try to answer that question with an overview of the impact of leaving the Single Market on UK goods.
Manufactured Goods - Conformity Assessment
As I described in a previous blog, all manufactured products conforming to EU harmonised CE standards are afforded "presumption of conformity" by EU legislation, whether the manufacturer is based in EU/EEA or third country outside the single market.
For the vast majority (~95%) of manufactured products covered by EU harmonised regulations, the manufacturer certifies the product, issues a Declaration of Conformity (DOC) & affixes the CE label. A minority (~5%) require certification by an independent EU/EEA based Certification Assessment Body (CAB). The mitigation for this is straightforward:
● UKAS (UK Accreditation Service) is applying to retain membership of EA (European Accreditation), so that UKAS accreditation will continue to be recognised by the EU.
● A Mutual Recognition Agreement (MRA) on Conformity Assessment would allow UK based CAB's and their certificates to be recognised by the EU (and vice-versa).
● In any case, UK-based CABs can use subsidiary/subcontract relationships with an EU-based CAB to allow their certificates to be recognised in the EU/EEA (and vice-versa).
The primary difference for third country manufacturers is the need to use an EU/EEA-based importer - who holds the declarations of conformity / technical file and acts as a contact point - but is not responsible for conformity assessment. Companies who have a subsidiary, office or even an individual based in the EU/EEA can act as their own importer. The end customer can act as importer. Shipping/Warehousing companies, agents etc. all offer importer services. It's not onerous.
Outside the Single Market, goods will become subject to regulatory checks at the border. Checks are determined on the basis of risk assessment, and even today EU-UK trade is subject to risk assessment and checks for contraband and counterfeits. Overall rates are low (just 1% of third country goods entering RoI are subject to checks) mostly checking paperwork or container seals / labels - only a very small number of consignments are subject to opening and physical inspection. Attention is focused on known sources of risk, e.g. counterfeit goods from the Far East. Non-compliance with standards is mostly identified via market surveillance (not at the border), which then feeds back as intelligence into customs risk assessment for future consignments. The risk of increased border checks for regulatory non-compliance (as opposed to deliberate counterfeits and fraud, which is already checked today) is negligible, especially for established and trusted traders.
Highly Regulated Sectors.
Some sectors are more highly regulated, requiring product pre-approval via an EU agency. In her Mansion House speech, Prime Minister Theresa May identified 3 such key sectors : Chemicals, Pharmaceuticals, Aviation.
In the Chemicals & Pharmaceuticals sectors, the impact of leaving the single market is transferring approvals/authorisations to an EU/EEA based agency via an EU/EEA based individual (while manufacturing can remain in the UK) e.g.
●REACH registrations via an "Only Representative"
●BPR (Biocidals) product authorisations via an "Authorisation Holder"
●BPR (Biocidals) product suppliers via a "Representative"
●Pharamaceutical products via a "marketing authorisation holder"
●Pharmacovigilance (batch quality control and monitoring of pharmaceuticals for adverse affects) via a "Qualified Person for Pharmacovigilance" (QPPV)
Standard third country MRAs (as enjoyed by Swiss, Canada, Australia, New Zealand, Japan etc) can mitigate barriers in Chemical & Pharmaceutical sectors:
In the Chemicals & Pharmaceuticals sectors, the impact of leaving the single market is transferring approvals/authorisations to an EU/EEA based agency via an EU/EEA based individual (while manufacturing can remain in the UK) e.g.
●REACH registrations via an "Only Representative"
●BPR (Biocidals) product authorisations via an "Authorisation Holder"
●BPR (Biocidals) product suppliers via a "Representative"
●Pharamaceutical products via a "marketing authorisation holder"
●Pharmacovigilance (batch quality control and monitoring of pharmaceuticals for adverse affects) via a "Qualified Person for Pharmacovigilance" (QPPV)
Standard third country MRAs (as enjoyed by Swiss, Canada, Australia, New Zealand, Japan etc) can mitigate barriers in Chemical & Pharmaceutical sectors:
● MRA on Good Manufacturing Practice (GMP) would allow Pharamacovigilance to be undertaken in the UK territory and simply signed off by the EU/EEA-based QPPV (and vice versa) - waiving re-testing of products on import.
● MRA on Good Laboratory Practice (GLP) would allow mutual acceptance of data generated in the testing of chemicals, which means approvals in both regimes can refer to the same lab tests.
In the aviation sector the EU Parliament Proposal (paras 31 & 32) exhibits a strong desire for a bi-lateral agreement on air transport and aviation safety, "in the interest of the passengers, air carriers, manufacturers and workers' unions", based on "similar agreements with other third
countries". The UK would need to adopt EU aviation safety law & ECJ rulings (as for example Turkey's "working agreement"). UK's Civil Aviation Authority (CAA) would then retain the right to issue EASA certifications of air-worthiness. Swiss-style observer status at EASA may also be a possibility. In time, CAA will recover capacity and a mutual recognition agreement with EU may then be more appropriate (as per USA, Canada).
Car industry
The Car industry is also a vital sector where product pre-approval applies. The UK's Vehicle Certification Agency (VCA) issues whole car type approvals which allow a model to be marketed throughout the Single Market
EU vehicle regulations are increasingly driven via UNECE WP.29, an international forum for harmonisation of automobile regulations. UN International regulations annexed to the UNECE 1958 Agreement provide mutual recognition of car component type approvals (even without any UK-EU agreement). UN Global Technical Regulations annexed to the 1998 agreement allow mutual recognition of regulatory equivalence for car components (included in EU's Free Trade Agreements (FTAs) with Korea, Japan & Canada). This removes regulatory barriers for car components (where covered by UNECE regulations), and UNECE approvals can substitute for elements of the EU's whole car type approval.
What is missing is the continued recognition of VCA's whole car type approval outside the single market. Is there scope for a form of "working agreement" (as per the aviation sector) to allow VCA to continue issuing EU recognised whole car type approvals ? I think so:
● EU has tabled regulatory co-operation on vehicles for talks on the future trade agreement.
● Korea, Canada, Japan do not have national bodies for vehicle certification in any case. Whereas the Swiss do and the EU-Swiss MRA provides for mutual recognition of whole car type approvals in return for adoption of relevant EU regulations.
● At EU's behest, UNECE is developing Regulation 0 to provide for international whole car type approval. So EU is already actively planning to extend mutual recognition of approvals beyond the EU/single market.
● UK's VCA has also issued approvals for some EU and third country car manufacturers. Why should they be punished and denied EU market access ?
● UK's VCA would need to continue commitment to UNECE WP.29 and adopt EU regulations / ECJ rulings where UNECE has not (yet) legislated. In time UNECE regulations (including Regulation 0 on whole car type approval) will replace all EU car regulations.
● UK exports 800k cars to EU but imports 2.3 million from EU every year. Who loses by erecting a huge trade barrier in this sector ?
Agriculture
● MRA on Good Laboratory Practice (GLP) would allow mutual acceptance of data generated in the testing of chemicals, which means approvals in both regimes can refer to the same lab tests.
In the aviation sector the EU Parliament Proposal (paras 31 & 32) exhibits a strong desire for a bi-lateral agreement on air transport and aviation safety, "in the interest of the passengers, air carriers, manufacturers and workers' unions", based on "similar agreements with other third
countries". The UK would need to adopt EU aviation safety law & ECJ rulings (as for example Turkey's "working agreement"). UK's Civil Aviation Authority (CAA) would then retain the right to issue EASA certifications of air-worthiness. Swiss-style observer status at EASA may also be a possibility. In time, CAA will recover capacity and a mutual recognition agreement with EU may then be more appropriate (as per USA, Canada).
Car industry
The Car industry is also a vital sector where product pre-approval applies. The UK's Vehicle Certification Agency (VCA) issues whole car type approvals which allow a model to be marketed throughout the Single Market
EU vehicle regulations are increasingly driven via UNECE WP.29, an international forum for harmonisation of automobile regulations. UN International regulations annexed to the UNECE 1958 Agreement provide mutual recognition of car component type approvals (even without any UK-EU agreement). UN Global Technical Regulations annexed to the 1998 agreement allow mutual recognition of regulatory equivalence for car components (included in EU's Free Trade Agreements (FTAs) with Korea, Japan & Canada). This removes regulatory barriers for car components (where covered by UNECE regulations), and UNECE approvals can substitute for elements of the EU's whole car type approval.
What is missing is the continued recognition of VCA's whole car type approval outside the single market. Is there scope for a form of "working agreement" (as per the aviation sector) to allow VCA to continue issuing EU recognised whole car type approvals ? I think so:
● EU has tabled regulatory co-operation on vehicles for talks on the future trade agreement.
● Korea, Canada, Japan do not have national bodies for vehicle certification in any case. Whereas the Swiss do and the EU-Swiss MRA provides for mutual recognition of whole car type approvals in return for adoption of relevant EU regulations.
● At EU's behest, UNECE is developing Regulation 0 to provide for international whole car type approval. So EU is already actively planning to extend mutual recognition of approvals beyond the EU/single market.
● UK's VCA has also issued approvals for some EU and third country car manufacturers. Why should they be punished and denied EU market access ?
● UK's VCA would need to continue commitment to UNECE WP.29 and adopt EU regulations / ECJ rulings where UNECE has not (yet) legislated. In time UNECE regulations (including Regulation 0 on whole car type approval) will replace all EU car regulations.
● UK exports 800k cars to EU but imports 2.3 million from EU every year. Who loses by erecting a huge trade barrier in this sector ?
Agriculture
EU Sanitary & Phytosanitary (SPS) regulations provide a very high barrier to agricultural trade for third countries outside the Single Market. Third country meat/dairy imports face veterinary checks at Border Inspection Posts: 100% documentary/identity checks; varying percentages for physical inspections (50% for some products). EU agricultural equivalence agreements with third countries allow for lower rates of physical inspections (e.g. Canada 10%, New Zealand 2%). The Swiss have harmonised their SPS regulations with the EU and are deemed to be part of the EU/EEA SPS regime, with no border checks required for Swiss-EU/EEA trade.
The EU's SPS regulations are particularly protectionist. They require UK to apply the same protectionist measures to third countries (as discussed in a previous blog here), ruling out FTAs with USA (chicken etc), India (Basmati rice etc), Liam Fox's hope of joining the TPP and a host of others. Scientific research & development in GMO is blocked. A WTO ruling/fine against the EU's ban on Canadian beef will be served on the UK if we keep EU SPS rules after leaving the EU. We are currently a captive customer for EU agricultural products, with a 3:1 trade deficit.
It is clear to me that we will be much better served leaving the EU's SPS regime. UK-EU trade will face border veterinary inspections in both directions, so UK meat/dairy exports to EU would be diverted to the domestic market. We can quickly strike agricultural equivalence & Tariff Quota agreements w/ Australia, New Zealand, Canada, Commonwealth states, South America etc - removing tariff and non-tariff barriers to these alternate (and generally lower priced) non-EU suppliers. Subsidies (Green-box etc) & use of quotas should be deployed to protect the UK meat/dairy sector through a transition. But ultimately, we will end up in a much better place and secure more trade globally on the back of it.
Conclusion
In the manufacturing sector, there will be some relocation of individuals/roles to fulfill the requirement for an EU/EEA based importer/representative, but some EU/EEA individuals/roles will also relocate to the UK - a one-off adjustment but not a long term issue. The risk of extra border checks for regulatory compliance is negligible. Breaching the EU law/ECJ red line in the car & aviation sectors is a small price to pay and in time the need for EU jurisdiction in these sectors will pass. In the agriculture sector, there is a clear case for breaking free from the EU's protectionist SPS rules in the interests of consumers and greater trade opportunities globally.
We are likely to broadly continue using harmonised European CE standards in any case, so reaping the benefit of a single design, manufacturing & assessment process for both UK & EU markets. But outside the Single Market, we are free to diverge as and when it makes sense to do so - in full consideration of the interests of our domestic economy and global trade. We would also be free from the EU's indivisible 4 freedoms and free movement of people. This would make negotiaing and maintaing a new relationship much easier and cleaner. In short, we should ditch the Common Rule Book and become a fully independent and sovereign third country - like Canada.
The fly in this ointment is the NI border, which I will look at in my next blog.
