Accommodating Brexit

Are there any expressions other than ‘the elephant in the room’ to connote the ignoring of big, obvious things? If so, it would be useful to know them as that poor old elephant is now the most clichéd of clichés to describe the government’s attitude to Brexit. In their speeches to this week’s Labour Party conference, Rachel Reeves mentioned it only briefly and in passing, and Keir Starmer not at all. It’s absurd, especially as the guiding theme of both speeches, as of the government’s entire incoming communications message, is that of the dire inheritance bequeathed by its Tory predecessors. Brexit can hardly be excluded from that reckoning.

It's tedious to go on and on making that observation, and it’s certainly not made with any surprise on my part that Nellie is still ignored in the corner, but it remains a necessary one, for two reasons. One is because, mentioned or not, Brexit continues week-in and week-out to exert its damaging effects. Ignoring them doesn’t make them go away. The other is that, in the continued absence of discernible post-Brexit strategy, this means that the government’s approach is one of ‘accommodating’ Brexit. That is perhaps slightly different to ignoring Brexit, as it is a kind of acknowledgement of Jumbo’s existence alongside a dogged determination to live with it.  

The ongoing damage of Brexit

As for the first of these, the latest news on the economic damage of Brexit comes with a new study by Professor Jun Du and others of Aston University. Apart from providing new evidence of the already well-attested “profound and ongoing” dampening effect of post-Brexit trade barriers on UK-EU goods trade, it identifies two, more specific, things. One is the particular effect of reducing the varieties of goods traded, sharply and continuously in the case of UK exports to the EU; declining, sharply recovering, then slowly declining again in the case of UK imports from the EU.

My reading, although it isn’t stated quite in these terms in the report, is that what has happened is that small product lines (and especially those of smaller firms) have simply been dropped as not being worth the extra costs. That has happened continuously as regard UK exports because the EU introduced full import controls immediately. In the other direction, it was discontinuous presumably because the initial impact of customs and VAT charges had an immediate effect, which was then adjusted to, but more recently the gradual introduction of UK import controls has produced a new decline.

Whatever the process, the result is that specialist products are now less likely to be traded. That has an economic impact on the firms affected, of course, but it also reduces consumer choice, with effects which are not just economic but adversely affect quality of life. Delicatessens are a good example, as trade in small batches of artisanal food products is exactly the kind of thing which has suffered. It’s easy for Brexiters to sneer that, like post-Brexit travel barriers to fancy foreign holidays, such things are the complaint of the effete metropolitan elite. But, whatever purveyors of this new politics of envy may imply, it is hardly the case that everyone other than middle-class Londoners holidays, if at all, in Bridlington, and subsists solely on bread and dripping apart from an orange at Christmas. (An orange, you say? You had it lucky!)

The other noteworthy finding of the Aston study is that Brexit has “heavily disrupted and weakened” UK-EU supply chains. This isn’t surprising, and confirms earlier research by, for example, the Resolution Foundation, but, apart from providing valuable new empirical evidence, it is worth highlighting because it strikes at the heart of one of the Brexiters’ many stupidities. Because they thought of the single market as being a kind of trade agreement, potentially replicable by a new trade agreement, they entirely failed to understand its role in integrating supply chains. Obtaining, as the UK did, a (largely) ‘tariff-free’ trade agreement with the EU did little to address this, and now we are living with the consequences.

It’s worth stressing again that, as with the consequences for trade, these are ongoing. As I pointed out when the transition period ended: “what is underway is a fundamental shift in the ‘tectonic plates’ of the UK trading economy and its supply chains, happening in real time and under our noses, but with little comment on the aggregate picture. And it is going to get worse when all the new rules are stringently applied on the EU side and applied at all on the UK side. It is reaching, or will reach, into every niche of economic life …”

What has changed now, of course, is that it is becoming possible to see the aggregate picture, with the Aston study being the latest instalment.

Mutual recognition - again

Press reports of the government’s reaction (£) to the Aston study just repeated the standard mantras about “improving” trade terms with the EU by “tearing down unnecessary barriers”, which doesn’t begin to address the problems. The study’s policy proposals for doing so include regulatory alignment, which seems likely to be consistent with government policy, but rightly recognize that to significantly reduce trade frictions such alignment would need to be accompanied by ‘mutual recognition’ of regulations as between the UK and the EU.

To a degree, that too is consistent with government policy, at least as regards its stated intention to seek mutual recognition of professional qualifications. However, there are significant obstacles even to that, and far more to the extensive use of Mutual Recognition Agreements (MRAs). The EU does enter into some MRAs with third countries, but it was a persistent folly of some of the more ‘sophisticated’ Brexiters to believe that the single market could be extensively replicated by a patchwork of such MRAs, a folly embraced by Theresa May in her March 2018 Mansion House speech when she called for “a comprehensive system of mutual recognition”. However, there was simply no possibility of the EU agreeing to this, as it would effectively end the single market, for reasons set out elegantly and in detail by Professor Stephen Weatherill of Oxford University at the time of May’s speech. That analysis still holds.

It’s true that the Aston proposals are nothing like as unrealistic as Theresa May’s were, in that they refer to a small number of “key sectors”, but, although MRAs in such sectors can’t entirely be ruled out, there is unlikely to be much appetite within the EU to entertain them. Not only would doing so begin to make the EU’s relationship with the UK look rather like that which it regards as complex and cumbersome with Switzerland, it would do so without the UK accepting, as the Swiss do, freedom of movement of people. We’ve been all round these loops before, both before the UK left the EU and afterwards, most recently in November 2022. As the reference to May’s 2018 speech also illustrates, in many ways the UK is still stuck on what in the past I’ve called the Mobius Strip of trying to square the circle of Brexit, by endlessly revisiting solutions to the impossible conundrum of how to be ‘out’ and yet be ‘in’.

The one area where that circle might be squared is that of what seems to be Labour’s ‘flagship’ post-Brexit policy of seeking a Sanitary and Phytosanitary (SPS) regulation deal with the EU. I’ve written about this numerous times but, even there, if the government intends to seek, as at one time the Tories did, an SPS deal based on ‘regulatory equivalence’ then it will not be agreed by the EU. And this is because such a deal would (in effect, even if not in formal terms) be a form of MRA, with both the UK and the EU mutually recognizing each other’s regulations as ‘equivalent’.

If the EU agrees any SPS deal, it will be based on ‘dynamic alignment’ with ECJ jurisdiction and, in that de-limited sense is often described as a ‘Swiss-style’ agreement. It could also be described as, within the SPS domain, the UK being ‘in’ whilst in all other respects being ‘out’. But this would be an exceptional deal, conceivable because it has in the past been offered by the EU (and rejected by Johnson’s government as violating UK sovereignty), and not a template for other sectoral carve-outs.

Regulatory alignment of product standards

An SPS deal may be one of the main ways that the government will seek to accommodate Brexit, but some of the issues wrapped up in those of regulatory alignment and mutual recognition surface in other policy developments.

A key example is the Product Regulation and Metrology Bill (PRMB). I’ve mentioned this Bill a couple of times since it was unveiled in the King’s Speech, referring to it in terms of providing the legal basis for the UK to continue to follow EU safety regulations and, as such, being an important indication of the government’s commitment to regulatory alignment. What I failed to spot, but was alerted to by Nigel Haigh of the Institute of Environmental Policy UK, is that whereas in the King’s Speech the Bill was indeed entitled the Product Safety and Metrology Bill, in its published form the word ‘safety’ was replaced with ‘regulation’, and that betokens a much wider ambit. Just how much wider remains to be seen, but one important clause in the Bill refers to potentially tracking EU regulations relating to the environmental impact of products.

No matter how wide its ambit turns out to be, this doesn’t amount to ‘dynamic alignment’ with EU product regulations, in that, whilst creating an easy mechanism for the UK to follow such regulations as they change in the future, it does not create any commitment automatically to do so. In this sense, despite Brexiters’ horrified reactions to the Bill, it does not actually violate sovereignty, even in their highly restricted meaning of the term. However, it does at least imply a commitment to ongoing regulatory alignment as the norm rather than the exception.

To the extent that this implication is realized in practice it will have the effect, amongst other things, of somewhat mitigating the costs of Brexit, since it means that businesses only need to produce to a single standard whether selling in the UK or the EU. To a degree, that may not make much difference. We’ve already seen, most famously with ‘tethered plastic bottle tops’, that firms sometimes choose to follow EU product standards even without any corresponding change in UK law, so as to avoid the costs of dual production lines. However, the PRMB should mean that businesses, when selling to the EU, are relieved of much of the burden of having to establish for themselves what EU regulations they need to conform to, since this would be done by the government. It also prevents firms, whether in the UK or overseas, from ‘dumping’ what might be considered sub-standard products on the UK market. It should also serve to ‘thin’ the Irish Sea Border, to the extent that it reduces the possibility of passive divergence between product standards in Great Britain and Northern Ireland.

Nevertheless, it can’t be emphasized often enough that simply having the same regulatory standards as the EU, to the extent that the PRMB will deliver that within some regulatory domains, whilst reducing some of the costs and inconveniences of having left the single market, in no way provides the benefits of single market membership. Alignment is not access (£): the PRMB still means that we are ‘out’ and not ‘in’. To put it another way, there is no ‘mutual recognition’ in any of this, which is the flipside of it being something that the UK can do unilaterally, without the need for any agreement with the EU. The fact that the UK may choose to align with EU regulations does not make those regulations ‘recognized’ by the EU. What it does show is that the UK recognizes (in a different sense of the word) the pragmatic benefits of having regulations which are aligned with those of the EU.

So whilst the PRMB does not in fact violate the Brexiters’ idea of sovereignty – the UK is making its own laws – it does show just how facile that idea is. For what it really demonstrates is that the practical realities of the UK’s economic proximity to the EU mean that regulatory alignment is still its best option, despite Brexit, whilst massively reducing its benefits, because of Brexit. The UK may, in the Brexiters’ terms, have regained sovereignty, and paid the price for doing so, but it can’t afford to use it. The PRMB is simply a (limited) acknowledgment of this reality, and an attempt to accommodate to it by ‘making the best of a bad job’*.

‘Not for EU’ labels

Some of these issues appear in a different way in one of the most abstruse of Brexit topics, that of ‘Not for EU” (NFEU) labelling. As I discussed in a detailed post last October, NFEU labels are, in part, a particular illustration of the difference between alignment and access. They don’t necessarily mean, as many mistakenly believe, that the product they are attached to does not conform to EU standards, but rather that, whether or not they do so, they are not certified for sale in the EU single market.

Without re-hashing that long and complicated post, the labels arise as part of the Windsor Framework as a requirement for certain goods produced in Great Britain (GB) but sold in Northern Ireland (NI), preventing them being legally sold in Ireland (or, of course, anywhere in the EU, but it is primarily aimed at the possibility of them entering Ireland). The decision to extend their use to GB was an entirely unilateral one taken by the UK government, largely as a sop to NI unionists as it assuaged their concerns about NI being treated differently to the rest of the UK. In a way, this could be regarded as yet another way of acting as if Brexit hadn’t really happened, in the particular sense of trying to act as if the Irish Sea Border Brexit has given rise to didn’t really exist. 

NFEU labels were due to become a legal requirement in GB at the beginning of October for meat and dairy products (fish, fruit and vegetables were set to follow next July), although many firms began to introduce them in advance of the deadline. However, at almost the last minute, the new government announced this month that the requirement has been indefinitely postponed, with a review to be undertaken. To avoid any misunderstanding: this does not mean the end of NFEU labels in NI, where they have been required since last October and will continue to be used, because doing so is part of the Windsor Framework agreed with the EU. Rather, it is the UK’s unilateral decision to extend to their use in GB which has been reversed.

But not for GB

At one level, it’s yet another example of the mess and chaos which Brexit has brought in its train, and especially of the consequences not just of the UK leaving the EU single market but of the way that Brexit has fractured the UK single market. It is also, of course, an eruption of the consequences of the insoluble ‘Northern Ireland Trilemma’. But it is particularly fascinating because the business economics of NFEU labels point in contradictory directions.

For some firms, in some respects, it is quite desirable for NFEU to apply in GB, given that it applies in the NI. If they are selling in both territories then it reduces costs, as it avoids having to have different labels, and increases flexibility, as it allows stock to be distributed to wherever in the UK it is needed. This would be the case for those supermarket chains which extend across the UK, for example, and, indeed, there was some business lobbying of government to introduce the GB policy. It also explains why some chains began to implement the policy before it was legally required.

Against that, however, is the fact that mistaken as it is, the impression that the goods marked NFEU are sub-standard may deter some consumers from purchasing them. I suppose they might be offset by fanatically pro-Brexit consumers, who read the label as denoting some special Brexity product, denied to envious continentals, but it is surely hard to imagine them to be very numerous. Meanwhile, for firms which only sell in GB, including chains which have no presence in NI, there is no upside to NFEU, only downside. Hence there has also been business lobbying to abandon the GB policy.

It's probably sensible to have postponed, and very likely to have halted, NFEU labels for GB, but doing so will inevitably provoke unionist grievance in NI. And, as with the postponement of UKCA marking, it is another case where those firms which incurred costs to comply in advance of the now abandoned deadlines have wasted money. That may not amount to much in the overall scheme of Brexit costs, but it’s yet another example of how those costs just keep mounting, and how even modest attempts to reduce them are not, themselves, cost-free.

The bigger picture

One of the difficulties of analysing Brexit is that it is hard (and, for any one individual, I would say it is impossible), to grasp it in its totality. That is mainly because of its scale and the technical complexity of each of its elements, but also because of the ways in which those elements interact and interlink with each other.

For example, in relation to this post, the need for NFEU labeling would disappear if there were to be an SPS agreement, and I assume that this is what the government hopes will ultimately be its fate. By extension, this is one reason why the EU is likely to be amenable to an SPS agreement. For the original offer of one was made in the context of the then ongoing row about the Northern Ireland Protocol and it arose because the EU has a strategic and principled interest in ameliorating the problem Brexit created for Ireland, as was demonstrated from the very first days after the referendum result. It is unclear that this interest exists in relation to any other regulatory area.

There is also a potential interrelationship with the PRMB, because although we don’t yet know its full ambit, we do know the areas it will exclude, as they are listed in a schedule at the end of the Bill. For the most part, they are things like food, plants, and products or by-products of animal origin: in short, the kinds of products that SPS regulations relate to, and, moreover, listed with reference to their definitions in EU law. No reason is given for their exclusion so this is pure, very possibly stupid, speculation on my part, but I wonder if it is because the government anticipates an SPS deal with the EU which would entail standards for these products being dynamically aligned with the EUs and, as such, treated separately from all other product standards?

Whether or not that is the case, the wider point is that with which I began, and which I’ve written about in the last couple of posts: the government’s lack of a post-Brexit strategy. For the implication of the interlinked nature of Brexit issues is that they are not really amenable to piece-by-piece attempts to accommodate to being out of the EU. Whilst that strategic absence persists, there will still be plenty of Brexit news to discuss but it won’t add up to a coherent picture and, in the absence of that, many of the old debates will continue.

This is the first post of the ninth year I have been writing this blog. There’s still little sign Britain has accommodated itself to Brexit, or even has any idea of how to do so.

 

*A more extensive acknowledgement of this reality could lead, even within Labour’s red lines, to a new post-Brexit settlement along the lines of the Ukraine model. If it is objected (let’s go round the loop again) that this would make the UK a rule-taker, then it would show a failure to recognize that, as things stand, the UK is already a de facto rule-taker, but with few of the benefits.