New CBI report seeks to inform Brexit negotiations by outlining where British businesses want to stay close to EU rules and where they want divergence
‘The task of unpicking 40 years of economic and regulatory integration is complex and colossal’, CBI Director-General Carolyn Fairbairn warns at the launch of a new CBI report on the EU rules that matter for the UK economy and jobs.
The report, Smooth operations, is based on thousands of conversations with UK businesses, as well as dozens of trade associations, and provides an A to Z of the rules that will matter after the transition period. From architects to zoos, it outlines the regulatory needs of 23 industry and service sectors, of which 18 prefer convergence or alignment for the majority of regulation that matters.
The CBI study, compiled over a six-month period, says Brexit presents opportunities for rule changes in sectors such as agriculture, shipping and tourism that could benefit the British economy and consumers.
However, the report adds that these opportunities for divergence are vastly outweighed by the costs of deviating from rules necessary to ensure smooth access to the EU, the UK’s largest trading partner.
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.
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. 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.
While Smooth operations acknowledges the UK will no longer have the same say in EU rule-making as member states, new mechanisms will be needed to manage alignment and for the UK to influence rules that affect it.
Introducing the report, Carolyn Fairbairn, CBI Director-General, said:
“This report comes from the heart of British business. It provides unparalleled evidence to inform good decisions that will protect jobs, investment and living standards across the UK.
“The experience of companies across the country will be essential in the months ahead. A major acceleration in the partnership between business and the UK Government is needed to make a success of Brexit and to ensure this experience is heard.
“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.”
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 range and type of products available is only set to grow, 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.
- In the negotiation of the new relationship, both sides should look to set a new international precedent in the trade of 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.