The UK’s regulatory sovereignty vs. free trade dilemma

We can’t have both, argues David Henig.

As the date for leaving the European Union’s customs union and single market comes closer so does the moment for the UK’s trade policy decisions.

No longer the relatively easy business of rolling over existing trade business, or deciding what trade remedies to keep. As from January 1 next year the expectations on government will be higher, as seen by the growing demands to try to resolve the whisky – bourbon tariffs war with the United States.

The narrative is increasingly that the UK will be champions of free trade while regaining full regulatory sovereignty. This is what we hear from those leading talks with the EU, where it is the UK’s state aid regime which may have to be controlled to get a deal. We similarly hear it with regard to US talks, where the question of the UK changing food regulations is centre stage.

Unfortunately this is yet another moment of wanting to have our cake and eat it. Just as per earlier attempts to leave the single market but still retain the benefits, we are now in the place of wanting not to change our regulations to get trade deals, but expecting others to guarantee access for UK products like lamb or cars.

It speaks to failing to grasp the nature of trade in the 21^st century: you can’t have both regulatory sovereignty and free trade, you have to choose between them, probably per country and per product group.

Or perhaps to the reason why the UK has seemed to prioritise tariff reduction above all other outcomes of trade agreements, even though global tariffs are already low, because the alternative is either too politically difficult, uncomfortable, or not understood.

Aided by advisors for whom access to those in power sometimes seems to only come in return for offering questionable theories of the world of trade, such as the notion that regulatory equivalence is somehow the magic potion guaranteeing sovereignty and free trade.

The nature of 21st-century trade

The regulatory sovereignty against free trade dilemma is, to be fair, a global problem, with the UK only one of many struggling.

All countries want to see their exports facilitated, whether through geographical indications, science based regulations, international voluntary standards, or recognition of professional qualifications. That’s one of the main points of modern free trade agreements.

Rather fewer want to admit that they might have to give up their own regulatory sovereignty in return. That the US might demand they don’t do trade deals with China or accept the chlorinated chicken, while the EU will insist that only cheese from Greece can be Feta, in return for your preferential access to their markets. That their own barriers are also mostly regulatory.

It is all particularly uncomfortable if you left one trading bloc vowing to ‘take back control’ and then find that same trade power will only give you a trade deal if you give back some of that control, and that another trade power is also thinking in the same way. The demand was seductive and speaks to the rise of populist nationalism. But suddenly it looks like the promises can’t be delivered, and – worse – that some domestic groups might be negatively affected, whether that’s farmers or manufacturers.

Back to WTO basics

There isn’t though a simple way out of the regulatory sovereignty versus free trade dilemma for any country or trade bloc, however powerful. The US and EU have been arguing about regulatory approaches pretty much since the formation of the World Trade Organisation, whether in terms of subsidies or food, and solutions still seem unlikely. Meanwhile China has become a third major trade power, with their own interpretations and priorities. The WTO currently looks close to ungovernable with such divisions.

The free marketeers’ dream of deregulation as the route to free trade, but the world continues in the opposite direction, and on climate change or artificial intelligence you can understand the need. But without some levels of international agreement on regulation we can only see that trade will be harder. We even see such tensions in the EU or North America, long standing zones of regional integration.

We’re likely then to be stuck with demands for regulation and regulatory sovereignty, while as a concept free trade has rarely been more popular. A good starting point would be to acknowledge all of that, which rarely happens at multilateral or national level. At the WTO restating the importance of core concepts like non-discrimination and right to regulate would probably be helpful.

But that doesn’t solve the UK’s problems of trying to find our pathway between free trade and regulatory sovereignty, after having claimed this would be easy.

The public might already be picking up that it won’t be so easy from the difficulties in getting quick deals with the US and EU. They are now starting to state their priorities, which seem to be more about regulatory sovereignty, against either EU or US, than for free trade. Or as some had forecast some time ago, the UK becoming more European by leaving the EU. Though possibly by accident or omission.

What would at least be something would be for UK politicians and the media to finally step up and ask some questions about the direction of Ministers in terms of their priorities for free trade or regulatory sovereignty. It might even help Ministers to decide their direction. For it remains possible that even among all of the conspiracy theories about selling a local hospital to the US, that the UK government still doesn’t really know where they want to emerge after the slogans go cold.

Given discussions with the US and EU, this is probably a good time to find out.

David Henig is member of the UK Trade Forum’s Steering Committee.