01 September 2017

Mutual recognition is unlikely to prove the magic bullet that allows the government to avoid the choice between domestic freedom on regulation and friction-free access to the single market, argues Alex Stojanovic.

‘Mutual recognition’ moved to centre stage at yesterdays’ heated press conference in Brussels following the third round of Brexit negotiations. Some have hoped that it could be the secret ingredient that will let the UK have its single market cake and eat it.

But Michel Barnier accused the UK of wanting to use mutual recognition to undermine the single market through the back door:

The UK wants to take back control, it wants to adopt its own standards and regulations. But it also wants to have these standards recognised automatically in the EU. That is what UK papers ask for. This is simply impossible. You cannot be outside the single market and shape its legal order”.

Later he said the UK was doing this “in the form of specific requests which would amount to continuing to enjoy the benefits of the single market and EU membership without actually being part of it.”

What is mutual recognition? 

There is a clear tension between the objectives of controlling our own laws and ensuring that barriers are not introduced into UK-EU trade.

“Mutual recognition” has been suggested by the Government in its Northern Ireland paper to remove the need for extra border checks on agri-food trade. It also has been floated as a solution for issues in the chemicals industry.

The problem is that the term “mutual recognition” applies to at least three different kinds of regulatory cooperation: the Cassis de Dijon principle, equivalence and mutual recognition agreements.

Crème de cassis?

What the single market has now is an exceptional form of mutual recognition – based on the Cassis de Dijon principle first established in a 1979 EEC court case of the same name. The principle applies to all rules in the EU/EEA which have not been harmonised – that is, replaced with supranational EU rules common to all member states.

It means that any product lawfully sold in one country can automatically be sold in another even if the product does not fully comply with the technical rules of the other. The only other place a similar (but weaker) provision can be found is in the Trans Tasmanian Mutual Recognition Agreement. An OECD study on regulatory cooperation notes that both are made possible through a “uniquely deep form of economic integration and common institutional frameworks”. 

Equivalence

The UK has not yet proposed this in a post-Brexit framework and bearing in mind all the institutions that would come with such an arrangement, this seems very unlikely.

But Michel Barnier appears to interpret the UK position as wanting to achieve the same thing that the Cassis de Dijon principle achieves through “specific requests.” This normally means a much narrower kind of mutual recognition that may be termed equivalence.

In cases of equivalence, the European Commission recognises that regulations of a third country in a specific area achieves the same regulatory objectives even if they do not follow the exact same specifications as EU law. As a result, if a product is compliant there, it need not go through extra checks and certification for compliance in the EU.

This is the kind of mutual recognition suggested by the UK in its paper on the Northern Irish border:

“One option for achieving our objectives could be regulatory equivalence on agrifood measures, where the UK and the EU agree to achieve the same outcome and high standards, with scope for flexibility in relation to the method for achieving this.”

The UK is trying to reassure Brussels that it intends to meet the same regulatory outcomes. At the same time it also wants to have “flexibility” on the legal rules and standards underpinning them. The EU, which is already concerned about competing with a post-Brexit UK on an “unlevel playing field,” may interpret that flexibility as a risk to its environmental, social and health and safety standards.

Mutual recognition agreements

There is a third option for the UK that would not threaten the integrity of the single market - mutual recognition of conformity assessment. This is usually found either in specific mutual recognition agreements (MRAs) or embedded in trade deals such as the EU’s agreement with Canada. MRAs acknowledge the differences in two different regulatory regimes but permits one party to test and certify that a product complies with the other parties’ regulations.

Such conformity assessment only deals with one aspect of regulatory barriers – those created by duplication of testing and certification at the border. When it comes to heavily regulated sectors like chemicals there are no MRAs in existence because when it comes to ensuring that suppliers meet all regulatory requirements, testing is just the tip of the iceberg.

Even where there are MRAs, producers still have to separate production lines to meet regulatory requirements in different markets. 

Does mutual recognition offer a way forward?

Some recent reports have suggested that mutual recognition would allow the UK to square the circle between the freedom to diverge from EU regulation while maintaining unfettered access to the EU single market. But as Barnier’s comments show, the EU will be very reluctant to open the back door to a liberalised UK.

Only a deep form of mutual recognition - that of equivalence across most sectors - would avoid serious regulatory barriers being introduced. Although the UK will be “equivalent” on day one, the EU would only agree if there are effective mechanisms for surveillance and enforcement to manage future divergence. The more divergence there is, and the more you signal this is your intention, the harder it is for equivalence to be agreed.

Mutual recognition of conformity assessment should in principle be easier. But it does not offer the same benefits as mutual recognition and, because it is about physical testing, it only applies to goods and not to services.

The Government’s position papers to date show that it has not yet found a solution to this problem. 

Comments

Isn't the description by M. Barnier slightly off? The UK does want to 'take back control' but in terms of trade (and Northern Ireland & EU citizens in UK) that control is not to 'adopt its own standards and regulation' but rather to rebadge the standards and regulations of the EU as UK standards and regulations. At the very least, as you suggest 'The UK wil be equivalent on Day One.'

Essentially - a bit like rebadging Marathon as Snickers - what is currently called a customs union with a transition period might be renamed as a provisional comprehensive free trade agreement which will, in the areas that it covers, ensure the same degree of frictionless trade as currently exists. [The question of governance is separate.] 

It may be that over time the regimes may diverge - either because of EU or UK changes. But that is life. And, given that both the UK and the EU ostensibly favour free trade it may be that some of the changes will move in a more free trade direction rather than diverge. 

What is more, given the UK's objective of achieving the same level of frictionless trade and its sign-up through (eg) the Repeal Act to the non-tariff barriers to the EU rules & regulations to move away from the 'equivalent' position will require an active change to be imposed by the EU on the situation. This could, perhaps be described as a protectionist move. Consequently, I have some some question of what 'No Deal' might mean. If UK on the day after they leave the EU trun up and do exactly the same as the previous day then it seems to me that frictionless trade will only be damaged if the EU alters the administration and rules that were in place the day before. Deterioration in the free trade situation would seem, therefore, to be due to EU action and that is true whether there is 'Deal' or 'No Deal'.

Bill Wells

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