Complex task ahead
Breaking EU rules risks adding to costs, says CBI
Tracy Black: ‘this report couldn’t come at a more important time’ (photo by Terry Murden)
Business lobby group, the CBI, is warning that diverging too much from EU rules will make British business uncompetitive.
In a comprehensive study, drawn together from thousands of conversations over six months, the CBI says some sectors such as food and drink and hospitality and tourism could benefit from Brexit rule changes.
However, it says these opportunities for divergence are “vastly outweighed” by the costs of deviating from rules necessary to ensure smooth access to the EU market.
This is particularly significant for key sectors in the Scottish economy such as financial and professional services, energy and life sciences.
Another important finding is that changes to rules in one sector have significant knock on effects for companies in other sectors and throughout supply chains.
CBI Director-General Carolyn Fairbairn said: “The task of unpicking 40 years of economic and regulatory integration is complex and colossal”.
The 90-page report Smooth Operations provides a guide to the rules that the CBI says will matter after the transition period. From architects to zoos, it outlines the regulatory needs of 23 industry and service sectors.
Where rules are fundamental to the trade or transport of goods, such as in the automotive, chemicals and life sciences sectors, remaining “in lockstep” with the EU is essential, says the CBI.
The Brexit deal should set a new international precedent for liberalising trade in services and digital products, the report says.
It also outlines opportunities to improve how EU rules are implemented in the UK, such as procurement processes for the defence and construction industries, which would allow the UK to do things differently and better without diverging from EU rules.
Carolyn Fairbairn: task is ‘complex and colossal’
Ms Fairbairn, said: “It’s vitally important that negotiators understand the complexity of rules and the effects that even the smallest of changes can have.
“Deviation from rules in one sector will have a knock-on effect on businesses in others, and divergence from rules in one part of a production process will have consequences for market access throughout entire supply chains.
“It’s hard to overstate the importance of the decisions that will be taken over the next six months. Put simply, for the majority of businesses, diverging from EU rules and regulations will make them less globally competitive, and so should only be done where the evidence is clear that the benefits outweigh the costs.
Tracy Black, CBI Scotland director, added: “With ongoing debates over common frameworks and our own post-Brexit rule-making, this report couldn’t come at a more important time for Scottish businesses.
“For the majority of Scottish companies, continued alignment with EU rules and regulations can provide the certainty they need to continue growing and investing safe in the knowledge that they will not face competitive disadvantage from being out of step with one of their largest markets.
“Looking at a sectoral breakdown, it’s clear for that many of Scotland’s most important industries, particularly energy and financial services, regulatory convergence or alignment remains the right option.
“With Scotland also looking to attract the high skilled, high growth sectors that will deliver the jobs of tomorrow, it’s significant that companies in the technology and life sciences sectors also expressed a strong preference for alignment or convergence.
“While there is a positive overall case for remaining aligned with the EU, we recognise that some Scottish companies see opportunity in a level of divergence.
“For those in the food and drink industry the opportunity to reform and improve farming regulation would be greatly welcomed. Similarly, a revision of Package Travel Regulations could be a significant boon to the hospitality and tourism sector.”
The CBI has devised three principles that should guide both UK and EU negotiators:
- Where rules are fundamental to the trade or transport of goods, the UK and EU must negotiate ongoing convergence. The diversity of products is only set to expand, and the complexity of, and need for, cross-border supply chains will increase. Convergence is essential for frictionless trade in goods in almost every sector. Both sides should find a way of keeping the trade in goods frictionless.
- As part of the new relationship, negotiators should set a new international precedent for liberalising trade in services and digital products. The industries of the future will be cross-border, and alignment globally and regionally will be essential.
- Alignment will need to come with mechanisms for influence and enforcement that benefit both sides. Cooperation will be vital to ensure that regulatory systems match sufficiently to enable frictionless trade. This is a priority for a majority of industries, particularly those where the EU’s regulations are technical and detailed – such as in energy and financial services – as well on cross-cutting areas like employment rules. There is precedent for this, and both sides must be flexible to meet the other’s legitimate concerns about trust or sovereignty.