Brexit and the “red tape fallacy”

During a fake news-plagued Brexit campaign, the Leave camp remained confident in the United Kingdom’s ability to thrive on its own, by negotiating its own trade agreements around the world more swiftly than the European Union and without the hassle of complying with absurd European legislation. The bureaucratic excesses of Brussels, imposed upon member states through the Court of Justice, remain a leitmotif in Eurosceptic discourse. Although demands stemming from the Commission are by no means perfect, Peter Foster – a British policy specialist for the Financial Times – makes the point that arguing in favour of Brexit by claiming that EU law burdened British businesses was fallacious. As he argues in his 2023 essay book What Went Wrong with Brexit and What We Can Do About It, the ever-criticised regulations stopping British ingenuity could have also been praised as the “bureaucratic oil that greases the wheels of trade”. As the UK has been one of G20’s slowest-growing countries since 2020, let’s take a glimpse at how the British economy has sometimes struggled integrating the European market ever since leaving, thanks to new red tape at the border of the continent.

Pressure on small and medium businesses

Among all economic actors, small and medium-sized businesses trading with Europe have suffered the most from increased paperwork due to Brexit. While larger corporations have managed to cope with the administrative burden imposed by the re-emergence of trade borders with the single market, small and medium-sized businesses have struggled. Foster gives the examples of a tea company and of an industrial heater business. The former had to adapt to new VAT regimes, and legislation on organic products and customs, while the latter had to hire another member of staff to manage paperwork. In short, both not benefiting from the European Union’s regulatory umbrella anymore and thus enduring increased operating expenses, they decided to move their exporting activities to the Netherlands. As Guardian columnist Polly Toynbee reports, Brexit has failed to reduce regulation despite Tory hopes and claims, though. Businesses do not want deregulation “for its own sake,” say the British Chambers of Commerce, but rather regulatory stability – and consistency.

With the stricter new “points” regime on workers’ freedom of movement, small and medium businesses have also struggled with hiring competent workers, mostly in the fields of construction, manufacturing and hospitality. Overall, with a decline in 6,4% of British exports, SMEs have been pointed out as the most affected by the withdrawal from the single market.

Costs of domestic standards

Despite the bright promise of a Global United Kingdom, more than 40% of British exports of goods and services went, and still go, to the 27 countries and 450 million citizens that make up the European Union. Therefore, British goods being able to integrate the single market as smoothly as possible through conformity to continental norms was crucial. In this regard, the United Kingdom has arguably failed on certain aspects.

When the ‘United Kingdom Conformity Assessed’ (UKCA) certification for goods produced locally was announced in 2020 as a functional replacement to the CE (Conformité Européenne), Brexit supporters did endorse it as a step away from Brussels’ red tape. Still, as Remainers argue, what is the use of having a domestic-only marking that would not be recognised by the biggest trade partner, hence meaning further paperwork down the line for the product to be recognised in Europe as well as for importing businesses? On the businesses’ side, this means that integrating UK firms in supply chains becomes costlier. There is also further pressure on the state’s side, due to a new British goods certification regime requiring investment in testing infrastructure, a system that previously used to be managed by the European Union. By gaining more regulatory independence, the UK becomes less attractive outside of their domestic market, and has to manage new infrastructure and paperwork.

As for the largely exporting automobile sector, the European Safety Regulation has been amended since Brexit. Hence, British manufacturers have had the freedom not to comply, allowing for innovation (such as producing data for autonomous vehicles), but British cars that do not meet European standards can deter foreign buyers. With the combined effects of Brexit-induced tariff raises and legislative instability, semiconductor shortages, new environmental legislation, and COVID-19, car production on British soil is ebbing.

Withdrawing from all the regulations also means being left out from evident improvements such as the new directive over USB-C chargers, which are now mandatory for electronic gadgets bought in the European Union. This measure is expected to prevent thousands of tons of electronic waste and should help consumers save up to 250 million euro a year. The British government is still considering the issue. Switzerland (where the CE certification is recognised) will import the new norm despite being outside of the Union, thanks to its agreement for mutual recognition of norms with the EU. A similar path could be a future solution for the United Kingdom.

New expectations under Starmer

As Keir Starmer becomes the first post-Brexit Labour Prime Minister, he has pledged a “Brexit reset,” closer collaboration between the UK and the EU on defence and security is expected, and European Council President António Costa has announced that both parties want to “do more together.” A meeting in May between the two as well as with Ursula Von der Leyen has been announced. Although little policy details have been disclosed, one can hope for British trade that they will lead to more consistent and flexible agreements.

Jean-Baptiste Fasel

Sources

What Went Wrong With Brexit (And What Can We Do About It)

Statistics on UK exports

SME’s “Quarterly Recruitment Outlook” for Q3 ‘24

How SMEs’ exports have declined

The right’s Brexit ‘bonfire of red tape’ was just wind and smoke.

New USB-C legislation