A Brexit supporter on Quora asked me to explain something I had written about trade law, with a question about a subject that I know confuses a lot of people and makes them think the EU is applying different rules to the UK than to its other trade partners. Fair play, I thought. So I wrote this answer (with some further additions).
Post Brexit, we have the status of a third country to the EU exactly the same as the USA – except the USA has a large number of sector-specific trade agreements with the EU that we do not. This is from the EU’s trade portal:
The European Union and the United States have the largest bilateral trade and investment relationship and enjoy the most integrated economic relationship in the world. Although overtaken by China in 2021 as the largest EU import source for goods, the US remains the EU’s largest trade and investment partner by far.
Equivalence rules
The issue isn’t the nature of the goods, which haven’t changed – it’s the UK treaty membership and laws that determine what is recognised as equivalent, or not, that have changed. In the sectors where those trade agreements exist, the EU and USA recognise each other’s standards as equivalent by law, meaning that either no checks or limited checks are required on imports.
We don’t have those sector trade deals with the EU.
The USA and EU essentially guarantee not to import goods which don’t meet those standards, so they can’t be re-exported to the other. This doesn’t apply to US food, which is not regarded as equivalent in standard, and is the main reason there is no full Free Trade Agreement between the USA and EU.
The European Union has taken the idea of equivalence even further to create the EU Single Market, removing all barriers to the free movement of goods. They can do this because the law in each EU member state on food safety, chemical safety, consumer protection etc. is equivalent.
Government rejects equivalence
However, the UK doesn’t want legal equivalence because “sovereignty, innit”. We can now choose to import shoddily-made goods from anywhere in the world, and there is no way, apart from border inspection, to make sure they don’t enter the EU.
In particular, we currently have no import checks (£) (because of the economic damage it would cause), so we can’t provide any guarantee to the EU that our exports are safe and meet our own standards if those goods are re-exported. In some cases they never were up to EU standards – shellfish, for example. We previously shipped our shellfish, mostly destined for European restaurants, to cleaning facilities in the EU. Now we can’t because those shellfish don’t pass the phytosanitary checks at our new border with the EU.
The EU is doing what it must do by international treaty and WTO law: applying exactly the same rules to non-members based on their legal treaty agreements with the EU. It’s the same with services, such as banks and insurers. Many services are regulated in each country.
Services can be traded anywhere within the EU because each state has adopted the same regulations, and any legal issues have a route for resolution under the same laws in each member country.
UK to ditch remaining EU laws
At the point of Brexit, the UK retained much EU legislation. The government is planning to ditch it all by the end of 2023, so that we no longer have the same laws as the EU. And the EU isn’t going to check if we have, if we’re not prepared to legally guarantee equivalence. So to answer the Quora questioner, the EU does not treat us any differently to other third countries that don’t have equivalent laws by agreement. This means UK services businesses cannot sell those services, unless they have a legal entity based in an EU country fulfilling all of the EU requirements, which many have set up.
That accounts for the over £1 trillion in financial assets that have left the UK’s financial sector to the EU. So the problem with Brexit is what I’ve known it is from the beginning – the law, and the principle of equivalence. If the UK seriously wants the ability to do its own thing without trade treaties that prove equivalence, then any existing export trade that only works with equivalence is going to rapidly decline, because that’s how the more sophisticated trade agreements work.
What is that trade?
The UK’s biggest goods exports – vehicles, aerospace/turbo jets and pharmaceuticals, as well as food – are all safety-critical industries that are heavily regulated across the world, and certainly in the countries that can afford to buy them.
To be sold in other markets, these products must be produced to, and approved to, the standards used in those markets. Certification to a UK standard, even if identical, is useless if there is no trade treaty stating that the standards in both countries are legally equivalent. This increases costs for UK manufacturers, and is the same reason foreign manufacturers are less likely to apply for their products to be approved for the UK market.
All goods must be shipped with the correct documentation to verify their provenance and quality, something the UK has still to get used to. It’s an additional trading barrier that creates delays and risks of non-delivery. All of this is added cost that disadvantages UK exporters, and makes them uncompetitive compared to EU businesses selling into the internal (single) market. It also makes the UK uncompetitive compared to EU exporters selling into other markets like the USA with sector-specific equivalence treaties.
“Total sovereignty” has a real-world cost to the UK consumer.
