The task of unpicking 40 years of economic and regulatory integration is complex and colossal, that is the stark conclusion of a new CBI report on the EU rules that matter for the UK economy and jobs.
The report – ‘Smooth Operations’ – is based on thousands of conversations with UK businesses and provides an A to Z of the rules that will matter after the transition period. From architects to zoos, it outlines the regulatory needs of 23 industry and service sectors.
The experience of companies across the country will be essential in the months ahead. A major acceleration in the partnership between business and the UK Government is needed to make a success of Brexit and to ensure this experience is heard.
The CBI study, compiled over a six-month period, says Brexit presents opportunities for rule changes in sectors such as agriculture, shipping and tourism that could benefit the British economy and consumers.
However, the report adds that these opportunities for divergence are vastly outweighed by the costs of deviating from rules necessary to ensure smooth access to the EU market.
Another important finding is that changes to rules in one sector have significant knock on effects for companies in other sectors and throughout supply chains.
Where rules are fundamental to the trade or transport of goods, such as in the automotive, chemicals and life sciences sectors, remaining in lockstep with the EU is essential. The Brexit deal should set a new international precedent for liberalising trade in services and digital products. The CBI also outlines opportunities to improve how EU rules are implemented in the UK, such as procurement processes for the defence and construction industries, which would allow the UK to do things differently and better without diverging from EU rules.
It’s vitally important that negotiators understand the complexity of rules and the effects that even the smallest of changes can have.
While the CBI acknowledges the UK will no longer have the same say in EU rule-making as member states, new mechanisms will be needed to manage alignment and for the UK to influence rules that affect it.
It’s hard to overstate the importance of the decisions that will be taken over the next six months. Put simply, for the majority of businesses, diverging from EU rules and regulations will make them less globally competitive, and so should only be done where the evidence is clear that the benefits outweigh the costs.
The CBI has devised three principles that should guide both UK and EU negotiators. First, where rules are fundamental to the trade or transport of goods, the UK and EU must negotiate ongoing convergence. The diversity of products is only set to expand, and the complexity of, and need for, cross-border supply chains will increase. Convergence is essential for frictionless trade in goods in almost every sector. Both sides should find a way of keeping the trade in goods frictionless.
Secondly, as part of the new relationship, negotiators should set a new international precedent for liberalising trade in services and digital products. The industries of the future will be cross-border, and alignment globally and regionally will be essential.
Third, alignment will need to come with mechanisms for influence and enforcement that benefit both sides. Cooperation will be vital to ensure that regulatory systems match sufficiently to enable frictionless trade. This is a priority for a majority of industries, particularly those where the EU’s regulations are technical and detailed – such as in energy and financial services – as well on cross-cutting areas like employment rules. There is precedent for this, and both sides must be flexible to meet the other’s legitimate concerns about trust or sovereignty.
Finally, policymakers in the devolved administrations will have to work very closely together, as well as with the Government in Westminster, to ensure that no unnecessary barriers to trade are created within the UK internal market. For example, negotiators must consider how rules on the agri-food and drink sector will be made and enforced across the UK in future. Most food and environmental regulation, when it is not managed at an EU level, is devolved to Holyrood, Cardiff Bay and Belfast. There is a risk of further unintended regulatory fragmentation between the devolved administrations once the UK leaves the EU if the integrity of the UK’s internal market is not protected effectively. Different rules for sectors like food and drink across the four nations could make producing the UK’s breakfast, lunch and dinner more complicated and expensive.