One of the recurring themes of the Brexit debate is that the EU is said to impose an excessive regulatory burden on UK companies and on the UK economy. Remarkably, a substantial number of business people also adopt such a position. As a mere academic I am of course not in a position to disprove assessments within companies that EU membership has led to more “red tape”. But I do feel that some basic facts are missing from the conversation. They concern the reasons for EU regulation, and the question whether Brexit equals escape from it.
Most of the EU regulation of goods and services is aimed at establishing an EU internal market – the very EU project which is met with near universal approval in the UK. The regulation may at times be complex, because of the inherent difficulties of regulating myriads of goods and services in Europe’s sophisticated economies, but the overall goal is clear and straightforward: to substitute 28 sets of rules with harmonised ones which allow companies to trade throughout the EU (and indeed beyond, as I will show). It is easy to lose sight of that dimension of EU regulation, which is taken for granted, precisely because the EU has been so successful at achieving free trade, at least as far as goods are concerned.
So why might this dimension of EU regulation be undervalued? I think it may have to do with its very policy mechanics. Where the EU harmonises national product regulations, it substitutes itself for national regulators, who do not regulate for the sake of it, but seek to achieve goals such as health, consumer and environmental protection. That inevitably means that the EU, when harmonising, must also pursue those goals. If it did not do so, it would be accused of simply deregulating, at the expense of public health, the environment, and the consumer. Obviously, people and companies may disagree whether the EU strikes the right balance, in a particular case, between free trade (deregulation) and the public policy concerns underpinning regulation. Companies may well think that the EU regulates with too much of an eye on public policy and too little on free trade. But the overall prize is nevertheless a very big one: the ability to sell products which comply with EU regulation in a market of more than half a billion people. Moreover, most of the academic literature has expressed concerns about excessive EU deregulation, rather than excessive regulation.
But let us assume that the UK verdict is nevertheless negative, and that Brexit is preferred because it removes the EU regulatory burden. Well, those who favour this might come in for a surprise. And in saying that I want to discount the so-called Norway option: that the UK would become part of the European Economic Area, and therefore continue to bind itself to EU internal market regulation. Let us assume the UK government does not opt for this. What would happen?
First of all, UK companies seeking to export to, or operate in the EU’s internal market would still have to comply with EU regulations. That much is incontrovertible. In that connection, I have to say that those who argue that, instead of exporting to Europe, the UK economy could orient itself towards trade with other parts of the world, are living in fantasy land. There is nothing whatsoever in EU membership which compels UK companies to trade with Europe, at the expense of trade with the rest of the world. Quite the contrary. The EU has concluded free trade agreements with many non-EU countries, from which UK exporters currently benefit. And it is negotiating the biggest free-trade agreement of all, TTIP, with the US. If anything, Brexit might make it more difficult to trade with certain countries. Also, why would successful UK companies want to forego the huge market which lies just across the Channel?
Second, and this is perhaps the most significant yet least noticed feature of EU regulation: being outside the EU does not equal escaping from regulation, even for businesses whose trading with Europe is limited. There is indeed, if you will, a dark, hegemonic side to EU regulation. In lawyers’ parlance, it often has extraterritorial scope or effects. When I say this is least noticed, I am particularly referring to the UK. Other parts of the world are much more aware of this phenomenon, and complain about it. This is particularly the case for the US. How exactly this extraterritoriality phenomenon works is not for this blog to disentangle, but there is very serious academic work on this, for example by Anu Bradford at Columbia, who speaks about the Brussels effect; and by my colleague Joanne Scott at UCL. Let me just give some quite telling examples.
Exhibit 1. The EU Court of Justice has interpreted EU data protection and privacy legislation as including a so-called “right to be forgotten”. This was in a case involving Google, which is now obliged to remove certain links, when so requested by an individual who considers that the links are outdated and affect their privacy. Wherever you log onto Google, you will see a message about this. If there was ever a UK competitor to Google, it would have to comply with this right to be forgotten because of the very nature of the world-wide web.
Exhibit 2. The same EU Court of Justice has recently decided, in a case involving Facebook, that the US is not a “safe harbor” as regards the processing of personal data. There are insufficient guarantees in US law for the protection of such data, and unless and until a new deal is reached with the US, internet companies could not hold the data of EU citizens on US servers. That would constitute a violation of the relevant EU legislation. After Brexit, such legislation would continue to apply to any processing of EU-originating personal data in the UK.
Exhibit 3. EU policies on climate change have aimed to include airline CO2 emissions into the EU’s emissions trading scheme. But this has not been limited to intra-EU flights: the goal is to extend it to all flights to or from EU territory, including those operated by non-EU airlines.
There is a wider political point about all this. Even in the cleanest Brexit scenario, where the UK decides not to negotiate access to the EU internal market of the kind from which Switzerland or Norway benefit, much EU regulation will continue to apply in the UK. Of course, the UK could try to object to some of this regulation, but it would need to negotiate with the EU in order to change things. From the outside, that is inevitably going to be much harder than from the inside, as a full EU member.