Tuesday, 26 April 2016

Brexit: a world beyond trade deals

In late 2015 more than 200 people were set on fire after an explosion at a water park in Taiwan caused a fireball to tear through a huge crowd today. Coloured powder sprayed onto hundreds of people suddenly ignited, with flames engulfing people as they tried to flee. It took just seconds for the fire to spread through the throngs of revellers, with dozens seen running for their lives through the huge blaze. Taiwan is now, for obvious reasons, keen to improve regulations for hazardous areas following a number of fatal explosion incidents. That pesky red tape we keep hearing about.

In the light of big explosion disasters affecting the country over the last three years, notably the series of gas explosions in the Cianjhen and Lingya district of Kaohsing in 2014 there is a need for improvement of the regulations for hazardous areas. That's where the International Electrotechnical Commission (IEC) comes in. More specifically the IEC System for Certification to Standards relating to Equipment for use in Explosive Atmospheres. This would be the appropriate technical standards body.

Emerging economies and even developed ones increasingly look to global forums for the benchmarks in regulation. In this, Working Party 6 of United Nations Economic Commission for Europe (UNECE) is already tasked with providing a regulatory blueprint for countries wanting to improve their national explosion protection system.

The document ‘A common Regulatory Framework for Equipment Used in Environments with an Explosive Atmosphere’ is available for download from the UNECE homepage in different languages. From the very beginning of this project there has been close cooperation between WP 6 of UNECE and the IECEx system and as you can see, standards are absolutely integral to the regulation. 

In this there are enhancements and improvements happening all the time. The stated aim of IECEx is to harmonise the basic rules of the four conformity assessment systems - besides IECEx there are the IECEE system dealing with general tests of electrical equipment, the IECQ system dealing with the surveillance of quality inside the supply chain for electronic components and the IECRE system dealing with the test of renewable energy equipment. With the support of the IECEx National Committee of the Peoples Republic of China, there should be a way to integrate Taiwan in the IECEx community.

In that regard, there is already a cooperation agreement in place between various agencies
A historic agreement between IEC, International Laboratory Accreditation Cooperation (ILAC) and International Accreditation Forum in order to significantly reduce cost, time and complexity for the reassessment of certification bodies and testing laboratories. One of the most important outcomes of the tripartite MoU (Memorandum of Understanding) is a single reassessment, instead of three, and be accepted by all three bodies. We are now looking at a single system globally for: 
  • Automotive refuelling stations or petrol stations
  • Oil refineries, rigs and processing plants
  • Chemical processing plants
  • Printing industries, paper and textiles
  • Hospital operating theatres
  • Aircraft refuelling and hangars
  • Surface coating industries
  • Underground coalmines
  • Sewerage treatment plants
  • Gas pipelines and distribution centers
  • Grain handling and storage
  • Woodworking areas
  • Sugar refineries
Not only does it form the basis of UNECE regulations, you won't be surprised to learn that such standards are encoded into the International Maritime Organization’s SOLAS Convention. Enter the Paris Memorandum of Understanding (aka Port State Control). Port State Control (PSC) is the inspection of foreign ships in other national ports by PSC officers (inspectors) for the purpose of verifying that the competency of the master and officers on board, and the condition of the ship and its equipment comply with the requirements of international conventions (e.g. SOLAS, MARPOL, STCW, etc.) and that the vessel is manned and operated in compliance with applicable international law. It is to these international assessment standards to which they will be working.

Lost yet? I'm not surprised. Who are these people? What do they do? To whom are they accountable? Let's not even go there. The point is that while some of these standards and conventions go back into the mists of time, the trend here is ever more cooperation between international non-state actors working well outside the realms of government, even working above the UNECE level to provide the benchmarks and regulations for international trade. It is this that forms the basis of a global single market and nearly all technical EU regulation. The EU is not the top table.

What we see is that countries seeking to improve their own regulatory regime increasingly turn to global forums and existing conventions and in that regard are every bit as much a recipient of rules and regulations and Britain is as a member of the EU. Being that the case, if Britain seeks regulatory reform, the EU is the last place to go to try and influence the rules. It's at the bottom of the chain and is little more than an obstructive middleman as far as UK interests are concerned.

While the above illustration gives a massively oversimplified picture of the regulatory process, you can see that regulatory harmonisation is very much an ongoing global activity, and it evolves almost organically by means of a desire for greater clarity and cost effectiveness.

In this economy, insurers are increasingly seeking to reduce their liabilities, and insisting on conformity to international standards. Not only does it reduce paperwork but also risk. Inspectors and assessors also need only learn a single framework that applies nearly everywhere on the planet. In terms of reducing costs to business this is seismic in influence when compared to "free trade agreements". There is every advantage in global harmonisation.

In this there are networks of Mutual Recognition Agreements not only for standards and inspections but also qualifications. It is these agreements which facilitate trade far more than agreements on tariffs. Many of them between blocs and nations are virtually identical and could just as easily be consolidated into multilateral cooperation agreements for improved transparency and greater reach.

In this domain just a single agreement to recognise standards is more valuable to industry than any agreements on tariffs - and if the basis of such rules is a single global framework (WTO TBT) then they are infinitely more achievable than than going for big hits like TTIP.

TTIP in some ways highlights the improbability of securing a comprehensive deal with the USA. The USA is infamously resistant to adopting global frameworks already employed by the UK, instead maintaining its own. Consequently the technical difficulties in realising mutual recognition are many. Ossified systems and nearly impossible to establish equivalence and even more difficult to reform. It's like asking Brits to drive on the right.

This is why cooler heads won't be surprised if TTIP talks collapse completely. President Obama said yesterday "If we don’t complete TTIP this year, political transitions in the US and the EU could leave it unfinished". And that, in a nutshell, is why bilateral comprehensive bundled deals are the least effective means of securing progress.

Now supposing you could hammer out an agreement of this nature, it would have to be an exchange of highly experienced and qualified auditors and technicians, the result of which wouldn't be up for much debate once it reaches the ratification process. This is why lowly MEPs are unable to make any significant amendments.

Unless they can present compelling reasons for sending it back up the chain (keeping deadlines in mind) they will more than likely be ignored lest the whole package stall and we end up back at square one. With regulation becoming increasingly globalised and forged on a multilateral basis, the scope for MEPs tinkering with the rules is minuscule. And if you've met any, you probably think that's a good thing. You might even ask what the point of having MEPs is. Answers on a postcard please!

There are, however, some areas where the international frameworks are not fully developed. This would certainly be true of services regulation where even the EU admits that its own provision are n their infancy. This then triggers a space race between EU bodies and international bodies. What it isn't is cooperation. The EU is often in a race to impose its own frameworks on international bodies, not necessarily for the facilitation of trade and more to do with ideological supranational reasons.

There is also a protectionist element to it. If there is no global standard then the EU can create regulatory barriers similar to those that exists for African producers who do not as yet conform to global standards. But this is becoming increasingly rare are recent years have seen an explosion in multilateralism and global cooperation on standards and regulations. Not only are EU rules subordinate to the global standard, as more nations come on stream into the global harmonisation efforts, it is increasingly losing its ability to control the agenda. The EU, as much as anybody else is a recipient of rules. The EU is becoming increasingly redundant.

The danger of continued EU membership is that there is virtually no democratic oversight in all this and we are subject to the full force of globalisation. We take the rules the EU insists on with no real say in it. In that regard I find it most irritating that people get sucked into tit-for-tat rows about how much law comes from Brussels. As much as the origin scarcely matters, the volume is wholly irrelevant too. If you look at regulations you will see very short passages reading "The member state shall replace their standards and practices in accordance with x standard". And while that is just fourteen words - they can wipe out an entire industry.

And so then it doesn't matter if it's one law or one million. Any rule adopted without right of refusal or opt out is wholly intolerable. There are times where compromise is in the greater good but the word compromise implies member states have a choice. That is not the case with the EU - and it never will be. Such is built into the EU treaties. The inherent problem with EU membership is that increasingly does the talking for us.

What that means is the needs of the UK economy are often overlooked or sidelined entirely in the rush to create a common EU framework, where sometimes no such thing is required, where it is more important to have a global common framework specific to a sector or industry rather than a geographic region. This is why we should be looking at creating multiple tiers of common markets based on common rules spanning many sectors and industries, particularly in services where there is every reason to think globally.

In order for our voice to be heard our own industries need full representation not only at the UNECE level but in all of the standards bodies and super regulators. At least that way we have an effective early warning system for changes to the regulatory regime and right of unilateral opt out presently prohibited by the EU.

EU advocates would argue that such opt outs are the very antithesis of creating a single market, which is a view I have some sympathy with, but in most of the ways that matter, commonality is evolving faster than the EU can keep pace with. All the EU does is remove the necessary protections and democratic checks and balances. Opts outs need not necessarily be permanent either. They just mean we can better manage transitions without the human cost.

More to the point, we need to ask the question what the purpose of harmonisation is. For us it should be about facilitating trade and opening up new markets. For the EU it is about creating a single entity, a single government and a monoculture throughout, hence why it ends up regulating that which is best left well alone. It should not be tinkering with Ukrainian social policy while in a state of low grade civil war.

In this we shouldn't underestimate the influence of IT either. Produce entering the global marketplace is classified by the World Customs Organisation and there are any number of databases online to tell you where your potential markets are. And in looking at this we find the USA is often a closed shop to us even with existing agreements on tariffs. As much as there is no queue to speak of, our trade with the US is about as good as we're going to get until the US undergoes some major domestic reform. Even if TTIP passes, it is unlikely to deliver what it  promises.

To my mind, the reason to be out of the EU is to restore the democratic checks and balances on the rules we adopt, but also to be an agile and independent player, helping to facilitate greater participation in global forums.

We should be looking to expand the global single market instead of viewing it as a threat as the EU does. Our legal, technical and cultural assets make this a possibility. It is less our market size that gives us clout as what we bring to the table. In that regard we bring expertise and the rule of law - which is why we are the top of the soft power rankings.

What we want is to build a global single market where participation is voluntary, where opt outs are not obstructive to the process, where it can evolve at its own pace rather than hanging on what may or may nor pass in the European Parliament or what might be struck out by America turning inward.

Too often we are told that Brexit means we will lose our capacity to shape the rules, but it is our continued membership that diminishes our role in making the rules and by way of rules being global, we diminish our ability to shape the global trading platform. And while the debate is fixated on EU-US trade, that's not where the most potential is. By way of having an integrated trade and aid policy, removing technical and physical barriers to trade we can not only stimulate new export markets but also open up our markets to cheaper produce - and in so doing reduce the need for more destructive forms of aid.

In this regard, when europhiles say we Brexiteers are inward looking, I just don't recognise it. It is they who are parochial minded, largely inward looking and far too fixated with the Anglosphere. In fact, the few Brexiteers most keen on the Anglosphere are batter off sticking with the EU. A truly global outlook is to step outside of the walled garden of the EU and start shaping a single market for the benefit of humanity rather than the paranoid superstitions of little Europeans hell bent on building their isolationist empire.

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