Saturday, 18 November 2017

Brexit: Britain must learn to think outside the box

There is some imprecision in the Brexit debate and partly it is my fault for saying most EU rules come from global bodies. It's interesting how Twitter shorthand can transmogrify a concept. As with everything else, it is heavily caveated.

It is more accurate to say that most standards come from global bodies and each standard has its own equally laborious guidelines from the same sources which form the basis of private conformity assessment. This is important.

In fact, when we are talking about regulatory costs on business we are in fact talking about the costs of implementing standards where just a single subclause of a standard opens up an entirely new domain of bureaucracy, spawning hugely complex systems of their own - especially when it comes to data standards, management practices, document management and health and safety/hygiene monitoring - measuring and corrective actioning.

When it comes to the manufacture of goods, as much as you must be able to prove your product conforms to a standard you must also be able to demonstrate full traceability and that the production process was also to a given standard. This is where conformity costs balloon. For a small fry it is next to impossible fully implement all of the standards, not least since (on a certain scale) they are not applicable. Not forgetting that standards themselves cost money to buy and auditing is not cheap either.

It is primarily this which excludes new market entrants - and not for nothing do savvy corporates invest a great deal in influencing standards to ensure it stays that way. The domain of standards is barely understood, especially by politicians and the top tiers of the EU simply because it is, to a large extent, a private domain. In that respect our national influence on the substance of rules is barely connected to the EU. Over 80% of electrotechnical standards in the EU come from the IEC.

In this it tends to be the first movers who gain the influence advantage. As a commenter over on EUReferendum noted last week, private companies are 99,9% driven by short term profit and the overwhelming amount of priority issues they deal with are closely linked to the (sometimes very complex) value chain, not speaking of the time and energy these companies waste in daily internal politics.

These are ecosystems for itself and really big mistakes are often committed because they see no value in investing in skilled people able to formulate broader government strategies. Rule of thumb is that most of the companies leave these issues to be dealt through industry associations which offer no more than a very low profile approach.

Only really leading companies in each sector, depending on having clever shareholders who understand the value of investing in government relations, invest to drive medium and long term strategies out of it. For this reason, when the bus comes and overruns most of the players (as it is expected to happen with Brexit), most of them barely know what hit them. Warnings from industry over the dangers of leaving the single market have been under-informed and inept. It is assumed the institutional knowledge is held by government.

As to how much regulation is adopted from global bodies, that is a different question and not so easily measured. The influence of UNECE is now well documented, but what I've noticed in my studies is that new UNECE measures tend to adopt older EU rules as the foundation, which are then in turn re-adopted by the EU. Vehicle emissions rules and thresholds are one such example. When you look at how EU FTAs are pressing third countries to use UNECE, Codex etc, we can see that the EU is essentially surrendering exclusive domain over its technical regulations.

What is more important to note, however is the fluidity of the global regulatory ecosystem where each body forms joint committees and working groups, some on a permanent basis to work toward entirely new frameworks for emerging technologies. There is huge crossover between the WCO, UNECE and ITU in respect of blockchain - which will completely transform trade and in many respects remove government from the system entirely. Many of the MoUs between them will have a far greater impact on the global regulatory sphere than deep and comprehensive deals like TTIP (assuming it ever passes).

This of course raises a number of questions regarding influence, transparency and accountability, and pressingly for the UK it requires that we formulate our own strategies to ensure we continue to punch above our weight. Increasingly we find global conventions standing in the way of the EU gold plating standards and regulations and so "having a say in the rules" is less tied to EU membership than ever. However, the UK will have to seek out sectoral alliances so that the EU is not calling all of the shots.

We also should note that there is a huge difference between standards and EU product frameworks, the latter being the mode of EU dominance, but even then we gradually see methods for conformity assessment kicked out to ISO - and we can expect to see the World Customs Organisation increasingly asserting its influence - especially in the field of anti-fraud and counterfeiting - which is soon to be a greater concern than tariffs.

For now the debate is bogged down in discussions about the WTO which is only one framework in a far larger ecosystem. The debate about the mechanics of standards simply isn't fashionable - not least since most of the trade wonks have never had anything approaching a real job and have never seen standards implementation in practice. Companies are more likely to be absorbed in standards documentation than EU regulations.

So coming back to the original premise that most of the rules come from global bodies, as far as business is concerned that much is true. The working and the syntaxes and various thresholds may be set at the EU level but the substance is way beyond the EU's institutional capabilities.

To put it in more crude terms, Brexit is not the catastrophic loss of influence many assume it is. We have the great and the good repeating Financial Times dogma, but there is no real expertise currently in the public debate. Government should be consulting Walter Mattli, Ngaire Woods, Thomas Biersteker and Tim B├╝the rather than Westminster think tank interns and eco-lobbyists with a chlorinated chicken fetish.

I am, however, not in the least bit surprised that the debate has not evolved beyond the Janet and John level. This stuff very rapidly gets boring and the more effort you put into research the fewer rewards there are to be had. Writing about this stuff is the fastest way to see your hits take a nosedive. 

In many ways this is quite dangerous. Possibly one of the most vital trends and most underreported aspects of global governance is the privatisation of regulation. If people thought reporting of the EU was poor and the EU lacks transparency, trying getting your head round the standards process. It is simply not in the Overton Window and we have a remain inclined media determined to keep it that way. Brussels is the furthest extent of their horizons. 

If the UK is to make a success of post-Brexit trade policy then this domain is where we should focus our attention. It will require more compulsion on business to support trade bodies and to get involved, far greater research into trade technologies - and a better intelligence mechanism to ensure we have a working picture of how standards are evolving. There is every possibility we could be better than the EU at this since even our government would have to work hard to be worse at it

As far as Twitter goes the discussion on trade seldom ever ventures beyond the now tedious domain of FTAs and those influencing the trade debate are barely discussing the tip of the iceberg. We are going to need a multitiered strategy and we need to very seriously beef up our representation in Geneva. We have too many generalists like Julian Braithwaite, who, while an excellent ambassador, cannot possibly cover all the ground. It is simply not possible. 

Put simply, if the UK is going to be an independent country then we need to start acting like one and break out of the Brussels-centric mindset. Though we will in all likelihood stay aligned with the EU, we must be mindful of the Geneva Effect and ensure we give the current trends a shove in the right direction. 

Whether or not most of the regulations come from global bodies right now is a redundant debate. What concerns us is Britain's strategy and the inescapable reality that Brussels is gradually losing its control over the regulatory agenda. With an intelligent approach there are a number of opportunities to lead the field, but if we allow ourselves to be boxed in by all the conventional wisdom on trade then we will get nowhere. We must learn to think differently and we must urgently expand the debate.

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