Singled out for third-rate treatment?

fishermen

What the shellfish row tells us about being a third country to the Single Market

The Twitter reaction when something like this happens is as predictable as were the new costs that Lance Forman’s businesses is facing. Rejoiners pile in with a mix of Schadenfreude and frustrated “I told you so’s”. Seeing the costs as an inevitable result of Brexit rather than a failure of trade policy, they are unaware of the facilitations that non-EU Norway and Switzerland have to avoid such problems.

Hard Brexit supporters, meanwhile, retort how the whole sorry saga shows that the EU is a failed economic model that the UK needs to ignore. Fresh fish all the way to Australia (less than a tenth the size of the EU market as well as being 10,000 miles away) is apparently now the way to go.

Forman has, of course, entirely missed the point through his ignorance of how the Single Market works. The Trade & Cooperation Agreement (TCA) is not the Single Market. Inadvertently, though, he has made another valid point that shows why the only, way, eventually, is EFTA.

Forman of the jury?

Forman is correct in saying that fish products from Britain (let’s not call them British fish otherwise Jacob Rees-Mogg will be telling us how “happy” they are) are no more dangerous now than they were on 31st December. The UK has, as far as we know, not changed any regulations on aquaculture sanitary standards, sustainable fishing, and the like. Yet now its fish products are potentially unfit.

And that’s because, while nothing has changed, everything has changed. The UK has the right to regulate differently. And for the EU, that means that a layer of proof has gone.

To recap: All goods sold in an EU country must meet that country’s standards. As long as the UK was within the Single Market – which harmonises regulations or ensures common mutually recognised minimum standards among Member States – there was no need for proof. If it came from the UK, then it met UK standards. UK standards were the standards of the destination country, so end of story.

New reality

That is no longer the case. George Eustice may be right that shellfish from Britain should not be banned. It sounds like a legal grey area. But even if they are allowed, his letter accepts that expensive Export Health Certificates (EHCs) are now needed. They were not necessary before.

In his letter, he also makes the same fundamental error as Forman does: he expects the UK to be treated as a recent ex-member. In fact, it is a third country. Or, to use, the government’s preferred phraseology, “an independent coastal state”. If the trade is still allowed, it will not be because of Eustice’s main argument: that the trade has existed for years and that the UK has “excellent traceability standards”. For most of those years, UK standards were by definition EU standards. Not anymore. The EU has no visibility on what is happening to those “excellent traceability standards”.

Necessary barriers

The UK has not yet changed any regulations. But it can. The EU hence has two choices. It can try to monitor the UK’s regulations in real time: too cumbersome. Or it can apply controls to British products as it does to those from any other third country that has not committed to aligning its regulations.

For the EU, then, the barriers are necessary. The question is whether there is any point to them from the UK’s side. Why maintain that right to regulate differently if it causes so many problems? The TCA’s multiple joint committees, after all, do allow the agreement to be tweaked.

In some ways, the answer is obvious: the UK prioritised the right to regulate differently over frictionless trade. So obviously, it will regulate differently. But will it?

Pointless barriers

Let’s break it into two areas: sectoral regulations – which apply to one industry – and “horizontal” regulations: workers’ rights, consumer protection, and environmental protection, which apply to all.

Many sectors saw these barriers coming and lobbied the government to avoid them. The content of the common standards of the Single Market can be a pain. But most UK business bodies would rather keep them to trade with the EU. For Products of Animal Origin (POAO), like fish and meat, this would mean aligning sanitary standards as Norway does to gain the facilitations that Norway has.

George Eustice says “we will not accept regulatory alignment”. But who would benefit from different standards? Business: which wants to stay aligned with the EU. Plus, if the UK no longer had “excellent traceability standards” then George Eustice would not be able to write tough-sounding letters about the UK’s “excellent traceability standards” to accuse the EU of being unreasonable.

And then we get into workers’ rights and the like. Apparently, they are going to change. But they won’t be reduced. One message for Kippers and a totally different one for Caroline Flint.

Every time the government identifies a potential use of its new regulatory freedom, it rows back for political reasons. The ERG’s goal might be deregulation. However, the government knows that the business community that might have favoured this always preferred the benefits of frictionless trade that go with regulatory alignment. Over time, the Conservative Party has hence become reliant on constituencies that voted Leave but that nevertheless do not want their workers’ rights abolished.

Rebalancing

What does business have to lose from deregulation now, though? Simple: tariff-free trade (yes, the entire TCA). The rebalancing mechanism in the TCA means that the EU can hit the UK with tariffs if British firms gain a distortive advantage from regulatory divergence. The review clauses – of the trade part in 2024 and entire TCA in 2025 – and 12-month drop-dead clause heighten this concern.

The cost of regulation is mostly about changes to it. There are costs when you have to deal with new regulations. Businesses know how to deal with regulations that have been around for years. They would prefer to avoid new red tape – such as EHCs – than try to get rid of old labour laws.

And the point is…?

So what exactly will the government do on regulation? It has heaped costs on British exporters, many of whichincluding in shellfish – are now simply giving up. It has traded away their businesses in return for the right to regulate differently.

But either business, the Red Wall, or the government’s regard for its own political skin prevents it from using this right. The UK has – quite pointlessly – exchanged real benefits for symbolic ones.

The government has sacrificed the majority of British exports to the EU in return for a nebulous concept of sovereignty that consists only of the theoretical right to do things that we don’t want to do, on very dry technical issues, literally just so that we can say that we can. It might be in 2025. It may be sooner. But that will soon come to be seen as the ridiculous and unsustainable state of affairs that it is.

Being outside the EU did not have to mean any of this. EFTA countries maintain largely frictionless trade with the EU in return for enforcing the technical standards of the Single Market. But they are outside of the political union that the EU is now and the one that it is on the way to becoming. It’s a trade-off that most of the British public would be fine with. They just want to earn a living.

As the anger of UK Plc grows, so too does the gap between the narrow ideological obsessions of the ERG and the more pressing worries of the people who run the businesses that they have destroyed.

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Martin is a management consultant, former think tank researcher and lobbyist (appearing on national TV) for small business organisations and successful campaigns featured in Public Affairs Magazine. He has provided research and articles on trade issues for the Conservative Group for Europe.

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