Saturday, 25 January 2020

Living as a rule taker

Universities and Science Minister Chris Skidmore has said that the UK will not implement the EU Copyright Directive containing the dreaded Article 13 after the country leaves the EU. This delights Brexiteers and quite a few remainers, but the issue is not so clear cut. We may yet end up implementing a version of it.

There is a lot not to like about this directive. There are doubts as to how it can be realistically implemented and it's going to create a lot of problems. Some of the criticism is overblown and distorted, forgetting that there are exemptions for individuals and smaller companies it would otherwise affect. This is really aimed at the big players in the market.

As with most EU initiatives it follows the same pattern whereby they install a dog's dinner of a system but with a surveillance mechanism to feed back to the EU so it can be refined over time (See CFP). Regulated markets brought into being by EU frameworks are very often hated because of the disruption and implementation costs but as they mature, much like the REACH system, the major players would rather be in than out. 

The directive, though, is not a standalone measure. It is part of a raft of legislative instruments to bring about a high value digital single market. The directives have EEA relevance and no doubt any comprehensive free trade agreements the EU makes in future will contain extensive conformity requirements.

As I understand it, these issues aren't really touched on by existing FTAs but this is set to be the new frontier in trade. While the Brexiteers are raving on about fish and tariffs on tins of beans, there is a global space race to formalise trade in digital services and e-commerce and dominate the regulation of it. For the moment, digital concerns come under the broader category of trade in services which in modern FTAs are still only marginal increments on the GATT baseline, but now encompassing themes such as data protection.

Eventually comprehensive FTAs will have far reaching chapters on digital services bringing together aspects of data protection, copyright protection, intellectual property and more generic services rules - not forgetting financial transactions. As with anything else it will be subject to a hive of lobbying and special interests.

Leaving aside that the UK is probably obliged to implement the Copyright Directive under the aegis of the transition, where there may be penalties for non-conformity, any which way you cut it, if the UK wishes to participate in lucrative digital markets it will find it difficult to do so without at least having equivalent measures. All the while, as the regulatory systems of digital single market expand and mature, unless there is a formal system of harmonisation the UK risks becoming a digital backwater.

The simplistic mantra of "taking back control" plays into the Brexiteer belief that outside of the EU we are at liberty to make all our own laws. Typically Brexiteers do not recognise the utility of regulation and its role in international trade. In reality the external and commercial pressures placed on the UK will mean in most instances, like Switzerland, we will adopt regulatory frameworks wholesale. The UK is at liberty to refuse but at the expense of market access.

Remainers would have it that this is an inferior position to be in being that we would have no say in the creation of these rules. But then as far as the public is concerned that's no different to the status quo. Regulatory measures arrive with little warning that nobody was really consulted on, that nobody ever asked for, heavily influenced by corporate lobbyists, which in many cases are actively harmful. Our governments could veto such measures but they just don't.

In the case of Switzerland there are constitutional safeguards on the adoption of rules where there must at least be a parliamentary vote if not a referendum. Where there is refusal there is then a degree of back and forth to reach a negotiated compromise. Aside from the lack of formal voting influence in the creation of these rules, this system is in a way more democratic in that the decision making is at least done on a domestic basis with a degree of public debate. Then, of course, there is nothing at all to stop the UK employing its own lobbying apparatus in Brussels - not forgetting that the foundation of the rules are global standards more likely to be fashioned in Geneva.

It is then a crude misrepresentation to use a term as clumsy as "rule taker". I have in recent weeks warned that there is a danger the UK could become a vassal state but that really depends on the institutional mechanisms of the future relationship which are far more important than level playing field provisions or quotas. Like the Northern Ireland protocol there will have to be a consent mechanism and parliamentarians should be pushing to ensure they get a say and a chance to scrutinise.

In that regard, if such constitutional safeguards are in place, Brexit will satisfy the requirement to repatriate decision making and bring the debate back home where it should be. Offshoring this kind of decision making to the apparatus of the EU and the European Parliament lengthens the chain of accountability and creates a disconnect between the rulers and the ruled.

If we can arrive at such a settlement with only a limited role for the ECJ, employed only for intractable headline disputes (in the same way the WTO is employed), then Brexit is not as self-defeating as it would outwardly appear. We could have had this off the shelf, while also removing the ECJ from the equation by opting for the EEA/Efta route but that seems now to be entirely off the table.

If we work from the premise that adopting rules is just a reality of participating in the global rules based system, it shouldn't really matter where they come from be it IMO, UNECE or the EU, just so long as there is meaningful domestic scrutiny and a right of refusal. If, however, we take the naive view that we will make all our own laws without reference to anything happening out in the wider world, the wider world will adjust its own decision making accordingly and cut the UK out.

By taking a hardline minimalistic approach to EU relations we exclude ourselves, of our own volition, from a number of important regulated markets. This makes no sense as our fishing industry ought to be realising some time soon. If, however, we resign ourselves to the reality of "rule taking" then we can at least use that as a foundation of our commercial strategy.

The thing about the EU, as mentioned above, is that when it chooses to regulate for new and emerging markets, its initial forays often prove unpopular both inside the EU and out. The EU uses its external trade treaties to export its regulatory culture if not the precise regulations, and though smaller states have little option but to conform, the UK is not entirely without options and by way of marshalling resistance in the international forums, sufficient external pressure can be brought upon the EU to rethink. It has been done before in the field of agriculture, notably with the involvement of the Cairns Group (an interest group of 20 agricultural exporting countries).

Though the Commonwealth is essentially defunct as a trade entity, it is still a useful instrument of influence and a forum in which opinions and national positions are shaped. There are also ad-hoc alliances and emerging trade fraternities where the UK can garner support by the application of trade and development, utilising its new found agility, not having to coordinate action with the EU27 and the Commission.

In respect of that, for the UK to put itself in pole position it needs a directed aid and development strategy combined with a strong research sector, so to have first mover advantage in the creation and proliferation of standards. Though remainers believe the EU is the rule maker, there is a long chain of lobbying involving standards bodies and industry groups long before any texts are formalised for horse trading in Brussels. This is where the UK can shape the rules before they go into the meat grinder and then shave off the excesses at the adoption stage.

That said, we can be under no illusions, the EU is still a serious power and has considerable leverage of its own and will seek to frustrate any independent UK agenda so we are better looking at means to collaborate. In that regard leaving the single market and passing up the opportunity to join Efta is a serious mistake. The UK combined with Efta would have more clout in the shaping of the rules at the "meat grinder" stage.

As it happens, the longer term assumption is that the UK will gradually rebuild its regulatory relationship with the EU to at least the extent of that of Switzerland, and much of the damage done in the interim is largely a result of Tory folly rather than a consequence of Brexit. Eventually we will recover and rebuild our influence but with the Tory obsession with divergence and regulation driving our departure from the EU rather than any principled democratic foundation, we are sure to inflict a great deal of pain on ourselves.

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