Saturday, 3 March 2018

The price of ignorance


So why is the EU against the UK diverging on standards and regulations? In simple terms, the EU is aiming for regulatory hygiene whereby it is seeking to avoid cross contamination: where there is a risk of polluting the system with substandard or unrecognised goods.

It is the knowledge that single market members extend their own controls and have a single regime that allows for free movement of goods. That level of conformity is the guarantee against cross contamination. It is a single regulatory area - or regulatory union.

What Mrs May has said she wants is an agreement to recognise UK standards as equivalent no matter how far we diverge, even if we diverge without consultation. The UK then sets the lowest barrier to entry independently. That puts power over the single market in the UKs hands.

It means that if the UK goes for a pick & mix then there is an increased risk of controlled foodstuffs or components entering the EU market for circulation thus weakening the integrity of the system. Consequentially there is no possible way the EU can waive border inspections.

As part of the regulatory union the UK is presently permitted to approve its own goods for circulation negating the need for border inspections. This is on the assumption that UK conformity assessment is done to standard as well as the product meeting regulatory specification.

Through mutual recognition it is possible to grant some added freedoms but if the UK is not part of the regulatory union, independently changing its regulatory code, it cannot be treated as a single market equal. This is third country status. Third country controls apply.

That means, depending on the product type, the UK has no means of self-approval and must submit to border inspections which vary intensity according to the risk. This can be time consuming and expensive. The savings from deregulation, therefore, are overstated.

For instance, if you depend on rapid transit and you have a supply chain costed to the last cent, you cannot introduce the random variable of an unscheduled stop where goods perish and you're paying a driver to stand idle.

Not only are you subject to third country controls, you also have to have product authorisation so there are upfront costs and you need to find an importer willing to take responsibility for import. Leaving the single market means considerably more red tape for business.

Obviously there are mechanism available to speed up this imposition and high volumes of trade will establish certain precedents and routines which is what allows exporters to build up a trusted reputation whereby "good actors" face fewer interventions. Trusted trader etc.

This is mooted as part of the solution for Northern Ireland. It is part of a solution but without the regulatory infrastructure behind it and without measures to prove conformity, you still do not have frictionless trade.

In an ideal world the EU would be able to concede that the UKs system is and will be as good as theirs, therefore could grant equal standing to the UK. This is what May wants. The single market, however, is a system of rules, governed by EU law and WTO conventions.

If a preference is extended to the UK or is given unprecedented exemptions which cold reasonably be extended to others then others can reasonably demand the same treatment. That's why Mrs May cannot have what she wants.

Sitting over and above this system is a network of border inspection posts, market surveillance systems, disease control measures and policing systems to tackle food fraud, counterfeiting and smuggling. This is what we pay for and it's why market participation isn't free.

We are, therefore, faced with a stark choice. Either we want free movement of goods or we don't. If we do then there are costs and obligations that go with it, which requires compromise of regulatory sovereignty. That's just how the system works.

This is what the EU means when it says there can be no cherrypicking. From a practical point of view, to make any substantial concession it must compromise its own system of controls for which it would have to seek agreement from all member states.

This is simply not a credible demand. The system has evolved this way over twenty years and they are disinclined to modify it for the sole benefit of the UK on its own whim with no real idea of where and how the UK would diverge.

In fact, only someone who didn't understand the system would even ask this of the EU. That is why Mrs May's speech is inadequate. What she wants is impossible. UK would get the advantages of single market membership with no obligations. There is no advantage for the EU.

Some suggest that the UK could negotiate market participation sector by sector, but this fails to note that the single market is an interwoven system with multiple dependencies. This would create more bureaucracy for the EU. Their system is not up for renegotiation.

All the EU can do to accommodate us is to offer the maximum cooperation it can to facilitate UK trade inside the scope of its current controls for third countries. That though cannot compare to being an actual single market member.

The UK can grumble but Mrs May has chosen third country status of her own volition. The consequences were known. May simply refused to accept them. We are therefore certain to lose a substantial amount of trade. Ignorance is expensive.

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