British companies may find it harder than they expect to unravel the EU’s red tape
ANOTHER week, another EU regulation: number 1169/2011, to be exact, concerning “food information for consumers”. Like much that comes out of Brussels, it sounds innocuous, but has already had far-reaching and costly consequences. The new rules, which came into force on December 13th, specify font sizes on food labels, require details on allergens in prepared food and a lot more. They may improve safety, but they have forced producers to rejig their manufacturing processes once again.
The breadth of EU regulation in the food industry is extraordinary, covering everything from hygiene to storage, says Helen Munday, the chief scientific officer at the Food and Drink Federation, a lobby group. Conforming to these rules over the past four decades has shaped an industry that now employs 400,000 people in Britain. The Europe-wide regulations are a faff, but they allow British firms to trade on equal terms with other companies in the EU’s single market and maintain seamless supply chains across the continent, without lengthy inspections of imported Italian mushrooms at national borders.
Executives and lawyers are now scrambling to understand how Brexit, and the likely withdrawal of much EU regulatory oversight, will reshape British business. As the government prepares for divorce negotiations, firms must identify the pitfalls and opportunities presented by the coming new regulatory order.
Those expecting a post-Brexit bonfire of paperwork may be disappointed. The government sensibly plans to import all existing EU rules into British law via a (misleadingly named) Great Repeal Bill; any unwanted regulations will be abolished only gradually. And if Britain wants to go on trading with its neighbours, its exporters will have to keep following their rules. Nearly half of Britain’s exports go to the EU. European countries will still demand compliance with their environmental, safety and other standards, so Britain may decide to keep many of these on the statute books.
Those industries that depend on complex supply chains and “just-in-time” deliveries will be most affected, says John Fingleton, a former competition regulator. British carmakers dread the bottlenecks at ports that could be caused by customs inspections and paperwork, holding up the imported parts that keep their factories going. “Lean manufacturing” requires them to hold little stock; a couple of days’ delay of one part could have greater knock-on effects. Remaining a member of the EU’s customs union would avoid this problem—though it would also prevent Britain from signing free-trade deals with third countries, a key aim of Brexiteers.
The EU’s environmental regulations are among those most complained about by Brexiteers. Take the End of Life Vehicles Directive. As of last year, 95% of every new car sold in the EU has to be reusable or recyclable. In theory, Britain could opt out of such rules after Brexit, reducing carmakers’ costs. Yet it is unlikely to. One reason is to maintain the ability to export to Europe. The other is that Britain itself has been one of the strongest advocates in Brussels of stricter environmental laws.
Something similar is true in competition policy, where free-market Britain has been a big force behind beefing up EU law. Decisions on mergers and takeovers in telecoms are referred to the European Commission by Britain’s domestic regulator, Ofcom; on leaving the EU these powers will be repatriated. In practice, it may make little difference. In May, for example, the commission blocked the proposed takeover of O2, a mobile-phone operator, by Three, a rival—but this had already been recommended by Ofcom itself. “We wouldn’t see very different outcomes,” believes Andrew Griffith, an executive at Sky, a broadcaster and mobile operator which is the target of a takeover bid by 21st Century Fox (see article). He points to other transnational regulations—co-ordinating radio frequencies, for instance—which Britain will remain within.
There is more concern regarding the replacement of regulatory bodies. Britain’s life-sciences firms, which do nearly half their business with the EU, worry that if the European Medicines Agency ups sticks from London they will lose influence. Similarly, food companies fret that after Brexit they will lose access to the pooled expertise of the European Food Safety Authority. Setting up new domestic regulators will take time and money.
Public procurement, worth about £240bn ($300bn) a year in Britain, has also been shaped by European regulations. Central governments have to put out to competitive tender any contract worth over €135,000 ($143,000). According to Ali Nikpay, a partner at lawyers Gibson Dunn, this obligation could be abandoned on Brexit, so contracts for supplying police cars, for example, could be awarded to domestic carmakers instead of foreign ones.
This could tempt the government into industrial policy by stealth, especially as the prime minister, Theresa May, has announced her interest in promoting an as yet ill-defined “industrial strategy”. State aid is subject to the World Trade Organisation’s anti-subsidy rules, but the government could choose to interpret those rules more loosely than Brussels has done.
Yet anti-competitive tendering would rip off taxpayers. Serco runs prisons, and much else, for Britain’s government, but its boss, Rupert Soames, says that EU rules work in the public interest. It would be “utterly wrong in principle” to encourage monopolies at home, he says. Britain might have to set up its own body to monitor state aid, if it is to convince the EU that its firms are competing fairly for public authorities’ business in the EU, which is worth about 14% of the union’s GDP. And if Britain favoured its own firms at home, that could invite a tit-for-tat response from European governments, warns Mr Nikpay.
Britain’s business landscape has indeed been shaped by EU regulations. Yet it will find that leaving the union does not mean it can ignore them. The main difference after Brexit will be that Britain no longer has a say in how those rules are written.