Joe Litobarski

European Politics, British Politics, Brexit

Britain may end up with more EU red tape after Brexit

One of the promised benefits of Brexit was an end to EU red tape. Yet leaving the European Union could end up actually increasing the bureaucratic hurdles facing UK businesses.

The current strategy is to transpose all EU legislation directly into domestic UK law as part of the so-called “Great Repeal Bill”. The government’s white paper proposes that all existing EU law should essentially continue to enjoy effective supremacy over UK law, and that existing rulings by the European Court of Justice (ECJ) will continue to apply after Brexit.

In theory, the Supreme Court will be able to overturn pre-Brexit ECJ rulings, but the government admits that in practice this is unlikely to happen. Parliament could also replace these EU-derived laws, but that process will almost certainly take a considerable amount of time given how overwhelmed both MPs and civil servants are likely to be.

In fact, the Financial Times reports (£) that the UK is seeking to remain under the direct remit of EU regulatory agencies immediately after Brexit because it lacks the time and experience to set up its own national bodies before 2019.

In other words, existing EU red tape will continue to apply after Brexit. This will likely be true even in the very hardest of Brexit scenarios, where the UK bombs out of divorce negotiations without any transitional arrangement in place.

Theoretically, regulatory divergence could begin after Brexit, as the UK drafts new laws to replace the bits of EU legislation it doesn’t like. However, this will take a long time, and the greater any divergence is in scope, the less chance of maintaining deep and comprehensive access to the EU Single Market.

The government appears to recognises this. In March, the Telegraph called for the Conservative Party to “promise a bonfire of EU red tape in its 2020 manifesto”. Their call was completely ignored; there is no such promise in the Conservative manifesto. Instead, there is a commitment to continue Cameron-era policies on regulation, and even a statement that “reducing the cost of regulation is not just about reducing its volume”.

Brexit will not be like a bonfire, burning quick and pure. It will be like turning an oil tanker. Things will move at a glacial pace and a great deal of EU red tape will continue to apply for years, possibly decades. There will eventually be regulatory divergence, but that will likely be limited (or else Britain will pay a cost in terms of market access to Europe).

It gets better. On top of existing European rules and regulations, new red tape will be added because we are leaving the EU Customs Union. British exporters to the EU will now have to satisfy complicated EU Rules of Origin to ensure that the UK doesn’t become an entrepôt for, for example, Chinese goods into the Single Market.

A report from the Centre for International Governance Innovation suggests that Rules of Origin can sometimes be so onerous as to render tariff reductions from a Free Trade Agreement meaningless:

The problem with rules of origin in general is that it is costly for firms and government to comply with them and administer such a process. For instance, Brian Staples and Laura Dawson (2014, 6) indicate that the paperwork can represent more than 100 pages for a single product. Government officials have to review and sometimes audit this paperwork. It all adds up to a very costly process.

This is why in some cases businesses decide that it is cheaper and less cumbersome to pay the MFN tariff than to comply with rules-of-origin regulations, thereby rendering pointless an FTA’s preferential market access for its members…

David Davis, the Secretary of State for Exiting the European Union, believes that the Rules of Origin issue will be “manageable”. Yet that’s not what he thought in 2012, when he argued in favour of remaining a member of the Customs Union precisely because Rules of Origin would be too “complex and punitive”.

The Bruges Group has argued that the WTO will prevent the EU from arbitrarily imposing “red tape or inordinate Rules of Origin requirements upon the UK”. Yet WTO rules can only protect the UK from being singled out for unfair treatment. British exporters will still have to comply with the same complex EU Rules of Origin as all other “third countries”.

Another argument put forward by the Bruges Group is that “imposing difficult new [Rules of Origin] procedures upon the UK would be going against the EU’s ‘direction of travel'” because the Commission wants to streamline Rules of Origin. As an example, the Bruges Group cites reforms to the EU’s Rules of Origin under the Generalised System of Preferences (GSP).

What the Bruge Group neglects to mention, however, is that the GSP is designed exclusively for developing countries. I trust they aren’t suggesting the British economy will be so hurt by Brexit that it will be able to claim developing nation status.

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© Joe Litobarski 2017