The Sovereignty Delusion
On Trade, Brexit and Regulatory Superpowers
The Financial Times today published a story that will likely have many of the hard Brexit types up in arms: ‘UK set to keep EU regulation after Brexit’.
The piece focuses on the EU’s regulatory agencies, and the unlikelihood of the UK being able to replace them within the two-year Article 50 period. At the very least we would need to remain party to EU agencies in the transition period, it is argued.
This is both obvious and eminently sensible. Which leads me to worry it won’t actually happen. Regardless, we will remain subject to EU regulatory influence long after we leave, deal or no deal:
In the modern trading world, tariffs — taxes on imports — are not the biggest barrier to trade. Increasingly, the focus of free trade negotiations has shifted towards the removal or mitigation of differences in regulatory approaches, standards and procedures - so called non-tariff barriers to trade.
And in this modern trading world, there are leaders and there are followers. The bigger your market, the bigger your role in shaping global rules and regulations.
There exist two regulatory superpowers, the EU and US, with a third, China, on the rise.
It is therefore not a question of whether we will continue to broadly align ourselves with another entity’s rules and regulations post-Brexit, it is a question of whose rules and regulations.
For all that has been said about TTIP — the besieged free trade agreement currently being negotiated by the EU and US — it can be understood in part as an attempt by the two superpowers to reconcile their regulatory differences, so as to guard against the rising influence of China and ensure so-called Western values continue to dominate the international trading system for the foreseeable future.
This reconciliation looks doomed to fail; the EU and US regulatory cultures are too distinct, and the politics too fraught. However, it does raise some questions in the context of Brexit:
- In the long-run, will the UK continue to align its regulation and approach with the EU, or will we see a gradual transatlantic pivot towards the US?
- Will the US seek to eke as many regulatory concessions from the UK as possible in any future free trade agreement, significantly shifting the global balance of power and increasing its leverage over the EU in international forums and future EU-US negotiations?
- Will the EU seek to bind the UK as firmly as possible in any future UK-EU negotiations so as to guard against an erosion of international regulatory influence and power?
There are leaders, and there are followers. And when it comes to regulation, by sheer virtue of economic weight, or relative lack of it, the UK is very much the latter.