Brexit: mutual recognition of standards

19/10/2016

While the media is still stumbling around, trying (and largely failing) to make sense of the available Brexit options – often relying on sources who have less idea than they do – we see the idea of an interim solution gradually taking hold.

Not yet though do we see any coherence in defining an end game, other than the vague offering of a "free trade agreement" with the EU, most often expressed in terms of the EU-Canada trade deal (CETA), which has yet to be ratified.

But, if the interim package is to involve continued participation in the Single Market via the EEA, what none of these media geniuses are asking is why industry and commerce would accept such a transition.

After all, the EEA Agreement offers unparalleled access to EU markets, while the Canadian deal – which is one of the most comprehensive negotiated outside the EEA – affords a very substantially reduced rights. There is no logic at all in abandoning an interim deal if the final outcome is substantially worse.

One significant example I have been studying is the issue of mutual recognition – not the recognition of conformity assessment to which we have previously referred, but the mutual recognition of standards.

Within EU law, this principle applies in the so-called non-harmonised sectors, where goods are not subject to common EU rules and may come under the national rules. In that case, in the absence of a harmonising law, a Member State must allow a product lawfully produced and marketed in another Member State into its own market, even if its own local rules impose more stringent (or different) requirements to which the product does not conform.

Ironically, this principle was not initially promulgated by the European Commission, but emerged from a ruling from the much-maligned ECJ, in the now famous Cassis de Dijon case of 1979, cemented in by Case 113/80 of 1981.

For over 20 years, traders largely relied on the case law: the principle was not fully incorporated into EU law until 2008, in Regulation (EC) No 764/2008, "laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State".

As an aside, the title itself (as well as the text) illustrates some of the limitations of Mrs May's intention to repatriate EU law. Even if the UK adopts this law, it will have no effect on our trade relations with the EU because the principle applies to goods produced in one Member State and marketed in another. When we leave the EU, we will no longer be a Member State, so the law will not apply to us – unless special provisions are made by the EU.

A suitable provision could be continued participation in the EEA as the Regulation has been incorporated into the Agreement by virtue of Annex II Part II (page 214), following EEA Joint Committee Decision No 126/2012 - with the exception of food and animal products.

That, however, is as far as you will get, outside the EU/EEA. When it comes to the fabled 1,508-page EU-Canada Agreement, the Parties merely endeavour to undertake regulatory cooperation activities that may include:

… identifying the appropriate approach to reduce adverse effects of existing regulatory differences on bilateral trade and investment in sectors identified by a Party, including, when appropriate, through greater convergence, mutual recognition, minimising the use of trade and investment distorting regulatory instruments, and the use of international standards, including standards and guides for conformity assessment.

In other words, there is nothing like any blanket mutual recognition principle – not in this trade agreement nor any other.

The effect of the UK leaving the EU and not continuing with the EEA Agreement, therefore, would be dire. Where there is no EU harmonising law covering specific products – which accounts for about 20 percent of our trade in goods – our exporters would have to comply with the local laws of each Member State to which they send goods. With different standards applying to different states, exporting would become somewhat complicated (and considerably more expensive) - increasing costs by as much as 20 percent..   

Nevertheless, there are always those optimists who suggest that Member States would take a relaxed view of regulatory divergences, and would not apply local codes to UK goods. But we are unlikely to be so fortunate. 

Even with mutual recognition in place, a 142-page report on the "Evaluation of the Application of the mutual recognition principle in the field of goods" for the Commission suggests that the principle "is still not achieving its objectives", particularly as the knowledge of the functioning of the principle is generally at a rather low level among companies and Member State authorities.

So problematic is its implementation that the trade body Business Europe recently complained that national standards were interfering with the free circulation of goods.

The Commission, therefore, is to present an EU-wide Action Plan to raise awareness of the principle of mutual recognition, and is to revise the Mutual Recognition Regulation to improve its functioning. This is part of its strategy to strengthen the Single Market – something of which the UK will not be part.

And there is yet another illustration – this time of the dynamic nature of the Single Market. It is subject to constant change and development, in which the UK currently participates but will no longer if we stand apart from it after Brexit.

Thus, should we take advantage of the EEA-interim solution – assuming we can – the divergence between the Single Market and any free trade agreement that we can broker is likely to increase. The idea then of using an interim arrangement to buy time to negotiate something worse then starts to look absurd.

Without some serious thought, therefore, the idea of an interim solution isn't going to fly. And one of the add-ons which we will have to secure in any end game is the full application of the mutual recognition principle.