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Brexit: prior approval

2017-11-16 07:50:29

I am coming to the conclusion that we are fighting a losing battle. Actually, that should read as a plural: we are fighting multiple battles, on diverse fronts and losing most if not all of them.

But here, I had one particular battle in mind my personal battle to spread information and improve understanding of the EU regulatory system. The purpose of such an arcane endeavour is quite simple: to secure a workable exit settlement, we must have some idea of how the EU's systems work and how, as an independent nation, we can interface with them.

The trouble is that we have a caucus of MPs and journalists to say nothing of academics and think tanks who regard regulation in simplistic terms, often calling it as "red tape", believing it to be restrictive in nature and, as far as is possible, to be removed or minimised.

In relation to the Westminster parliament, we have a generation of MPs who work in an institution which has ceded much of its law-making power to the European Union. Thus, they have very little personal or practical experience of regulation, and rarely give any thought to what it is, what it is designed to do and how it goes about achieving its objectives.

Mulling over this, what occurred to me is that many of our Brexit-related problems are stemming from a body of law designed to impose systems of what are broadly referred to as "prior approval" the particular purpose of which is the ex ante avoidance of harm or injury.

The concept itself, in law-making terms, is a departure from the original function of the criminal code. This, often in relation to non-economic activities, sought to prohibit certain actions, such as murder and assault, thereby establishing statutory offences and penalties which are imposed after the events.

This type of law does not go out of its way, directly to prevent certain behaviour other than by deterrent. Its primary purpose is to enable the transgressor to be punished in a manner acceptable to society.

However, as human activity has evolved, a body of law has evolved which does not stop at merely punishing "offenders" when they transgress. It seeks to regulate economic activity, bringing it within the scope of criminal law for the primary purpose of preventing "crime" from happening. It is pre-emptive rather than reactive.

At a practical level, we see this applied to the manufacture of a wide range of products. They include medicinal drugs and equipment, food additives, pesticides and veterinary medicines.

They also cover such things as vehicles and their components, aircraft and their components. But then they extend to related services such as pilots' licenses and engineers' certificates, and then spread to major service industries such as banking and insurance.

In all cases, the burden of proof placed on the manufacturer or service-provider to demonstrate to an official body that an activity or product is not dangerous or harmful, before the event. And only when satisfied that the burden of proof has been discharged including furnishing evidence of conformity with relevant law do the officials give permission for commercial activity to commence.

For all that, the idea of precautionary law is in some senses still controversial, and it is possible to argue that there are better ways of doing things. In medicines, for instance, there is a good case to argue for nothing more than a duty of care be imposed on manufacturers.

Under such a regime, the manufacturer is solely responsible for the decision as to whether to market a product. There is no official intervention. But if the product harms people, victims (or their relatives) are able to sue the manufacturers for damages. As these can often be punitive, they provide an ex-post facto corrective and a deterrent to encourage others to get it right.

In fact, most regulatory systems are hybrids and incorporate an element of retributory justice. But the stronger the ex ante component, the weaker the reactive element becomes. Manufacturers who submit to stringent and expensive pre-marketing testing and official clearance are entitled in the event of a product failure to rely on their regulatory conformity, at least to mitigate the "offence".

The difference between the two in part sums up differences between the US and the EU systems. The Europeans tend to major on prior approval, where US can exhibit a lighter touch, relying on civil liability and (well-funded) legal activism to provide the corrective.

It is not my intention here to argue to the merits of the different approaches or whether the right balance has been struck between the ex ante and the reactive approaches. Suffice it to say that the leading proponent of the "prior approval" approach has been the EU. And, as a member of the EU, we have fully bought into that system and become part of it.

Now that we are about to leave the EU, there is some scope for rethinking the balance between pre-emptive and retributory regimes, the latter usually enabling businesses to enjoy a lighter regulatory touch.

The problem though is that the EU, as a matter of philosophy, is wedded to the so-called precautionary approach. Thus, if we want continued access to the markets of the EU-27 (and the Efta states), we will have to subscribe to the same philosophy.

Here, the use of the term "philosophy" illustrates why we are going to have problems if we seek a lighter regulatory regime. At their extremes, the "pre-emptive" and "reactive" philosophies are incompatible. If you adopt the former you have, by definition, rejected the latter. Furthermore, the philosophical difference rules out any idea of mutual recognition. Neither regime can recognise the other.

Thus, come Brexit, we have a choice to make which regulatory philosophy to adopt. But there is actually no choice. The EU is by far and away our biggest export market and many of our trading partners also adopt EU regulatory systems. We thus choose the EU path or pay a hefty price.

Sadly, though, things are not that simple. They rarely are. While prohibitions can be cast as law relatively easily and thus have universal application the pre-emptive system is far more problematical.

At its heart is the fact that we are talking about systems. But, above that, it is a permissive system. The potential trader must be put through a series of hoops and the nominated official body must be called on to pass judgement as to whether the product or service complies. Then, most often, this is a whole life process, so continued permission requires constant assessment of conformity.

Within this sort of regime, the official bodies and the post-release surveillance and control is as much part of the system as the relevant law. Thus, simple regulatory conformity is not enough to ensure participation. You must buy into the whole package.

And this is where the UK is coming unstuck. Government ministers and their advisors seem to be labouring under the false impression that participation can be secured simply by regulatory conformity. They don't seem to realise that the other elements of the Single Market package are an integral part of it and cannot be separated or cherry-picked.

From a political perspective, though, acceptance of the reality presents a Tory government (and certainly the "ultras") with a serious problem. Having sold a prospectus of deregulation, doing away with burdensome "red tape", Ministers are finding that they have no scope in the short-term for any changes. If they want market access, they must buy into the system they are running away from thus negating much of the rhetoric used to justify Brexit in the first place.

Sadly, much of that rhetoric was (and is) misplaced. It is based on a child-like view of regulation and a failure to appreciate that modern control systems have evolved to meet consumer demand, as much as anything, and cannot be changed.

The irony is that the mad deregulators are largely out on their own. Within industry, there is no great upwelling of demand for a bonfire of regulation. In fact, many businesses prefer the certainty and the predictability of a pre-emptive regime. If you want to see a pharmaceutical industry executive go white with fear, suggest to him the dismantling of the current regulatory system.

Nor at the consumer end will you find any enthusiasm for winding down the regulatory system and the media invariably speaks with forked tongue. Whenever there is a product safety failure, it is newspapers such as the Mail which are in the vanguard, calling for new or tougher laws.

And so, Mrs May and her Ministers are going to have to think hard about where they are going if indeed they are capable of such an exercise. The commitment to leaving the Single Market was made without any clear idea of what was involved, and the consequences. And even now, there is a complete failure to come to terms with the status of the UK as a "third country", outside the Single Market.

Without a re-think, we are going to see many more examples of potential disaster awaiting us. On Brexit day, as it stands, most of our food exports to the EU will cease; likewise chemicals and pharmaceuticals, vehicles and their components, and much more besides. Alongside a whole raft of manufactured products, we will see many aviation products blocked because UK-issued certification will no longer be valid.

And, once again, this is not the EU "punishing us". Neither the Commission nor the other EU institutions are taking action against us. This is what we do to ourselves by stepping outside the Single Market. It was never necessary, and we only have ourselves to blame for the consequences.