Should Brussels regulators show their empathetic side?

Hello from Brussels on the longest day of what so far, given lockdown and all, seems a very long year indeed. We’re already looking forward to Christmas. Today’s main piece is on an interesting issue thrown up by both the sausage-related Brexit travails of the UK and Northern Ireland, and Switzerland’s recent decision to pull out of talks on a framework agreement with the EU. Could Brussels perhaps show some flexibility in the way it recognises regulation in non-EU countries?

On the subject of food-related rules, we should note that the (rather vague) “agreement in principle” over the UK-Australia bilateral announced did not contain the mechanism they were contemplating, namely the UK giving lower tariffs in return for Australian farmers reaching higher animal welfare and environmental standards. As it happens, as we explain in this Twitter thread, the risks of UK farmers being undercut by such standards is small. Nor is there any sign that food rules such as the UK’s ban on hormone-raised beef will change. But in giving up on differential tariffs, the UK has in effect discarded a potentially important tool for future deals with trading partners like Mercosur and the US where those issues might be big.

Charted waters looks at the fall in the price of timber.

Of seaborne sausages and sanitary standards

All is not well in Northern Ireland. The largest party, the Democratic Unionists, lost its leader after three weeks in the job, and the province risks being cut off from the supply of sausages from Great Britain across the Irish Sea. If only there were a country directly to Northern Ireland’s south across an open border, lavishly supplied with road crossings, which boasted a world-class pig meat products industry, but them’s the breaks.

Obviously Boris Johnson’s government is accusing the EU (which it seems to think has been captured by Irish interests, or perhaps is riding roughshod over Ireland’s true interests, depends which day you ask) of a tactically nitpicking attitude to enforcing the Northern Ireland protocol. And obviously the UK is largely talking, er, hogwash. The British government knew exactly what it was signing, or ought to have, and should have been very familiar with the tough procedures for inspecting imports to protect the single market, not least since the UK had a big hand in creating it in the first place.

Still, it’s not just Brexiters who wonder whether the EU should edge in the direction of mutual recognition of standards (across selected areas, not necessarily including food) rather than maintaining the bright line between automatic acceptance of products in the single market and suspicion of Those Other Countries Over There, with partial exceptions for special cases like Ukraine. The collapse of talks with Switzerland, a far more constructive and enthusiastic partner than the UK, might provoke some thought. 

There’s a fascinating paper, The Power Surplus, on this subject by Kalypso Nicolaidis and Ignacio Garcia Bercero, respectively professor of international relations at the University of Oxford and a senior official in the European Commission’s trade directorate. Garcia was formerly chief negotiator with the US in the Transatlantic Trade and Investment Partnership, where you learn a thing or two about incompatible regulatory regimes (the paper, by the way, very much reflects Garcia’s own personal view, not commission policy, and nor does he necessarily endorse the implications regarding Brexit).

The paper argues that the EU exporting its rules may become increasingly difficult. Traditionally it’s done so explicitly through setting standards in global bodies (for example, car safety) or bilateral trade deals, or implicitly through the “Brussels effect” by requiring exporters to the EU to meet regulations that then become international norms (think chemical regulations, data protection). But China is now a rival international rule-setter, and the EU does not necessarily have dominant-market or dominant-producer advantage in digital or green technologies.

The authors argue instead that the EU adopt a philosophy of “legal empathy”, engaging in dialogue with other legal and regulatory systems and seeing if differences between them can be managed and rules recognised as equivalent in effect rather than insisting that they be identical.

Brexit provides simultaneously a pretty good and a really bad jumping-off point for this discussion. Pretty good because the UK exited the EU with the union’s regulations, meaning the substance of mutual recognition ought to be clear even if the process has to be worked out. British regulators are used to talking to their EU counterparts, and the trade and co-operation agreement (TCA) between the two is already set up to deal with regulatory divergence. It’s really bad because any procedure based on negotiation and trust will struggle a great deal to overcome the Johnson government’s habitual double-dealing.

It would nonetheless be a good exercise for the EU try to work out some regime with the UK involving some combination of risk assessment, supply chain monitoring and labelling, which would allow chilled-meat and other agrifood products to be traded between Great Britain and Northern Ireland without London either fully signing up to the EU food safety regime (which will eliminate almost all checks) or Brussels viewing the UK’s regs and enforcement as narrowly equivalent (which will eliminate very few).

But you can entirely see the EU’s reluctance to deal with a government that betrayed its companies about border checks and tries to blame Brussels for following the rules it knew very well were there.

Is the EU at all likely to move towards a more flexible approach, either with the UK or another trading partner? There may be some small compromise over Northern Ireland, but the case in principle has yet to hit home in Brussels. There’s a strong ideology that holds that anything close to single market treatment means coming under the EU legal order, including the European Court of Justice or something that largely takes dictation from it. Partly, this external rigidity reflects an internal fear of weakness: reduce regulatory autonomy, the feeling goes, and the system starts to fray.

That’s unfortunate, because it’s not clear that the status quo is either good for the EU or indeed is indefinitely sustainable. With the Brussels effect probably waning, purity will not necessarily continue to mean strength. The failure of the EU even to countenance having this conversation isn’t a good thing.

Charted waters

Remember the timber craze? When prices for lumber soared off the back of supply chain logjams and a DIY craze in the US? It got so bad that at one stage, US trade representative Katherine Tai was called on to cut duties on wood felled in Canada.

It seems the craze is over, with prices falling like, er, timber. Here’s the full story.

Trade links

There’s a fascinating piece in the Wall Street Journal ($, subscription needed) on the US’s difficulties in increasing domestic rare earth production, which shows that supply chain diversification is harder than it looks. It’s no surprise Washington is trying to challenge China’s dominance in the extraction and processing of rare earths, vital for the production of electric vehicles and smartphones. More on the scale of China’s dominance here.

FT round-up. Margrethe Vestager, the EU’s competition commissioner, defends Brussels tech policy against charges of being anti-American. Armin Laschet backs Germany’s reluctance to get tough on China (or Russia). The new CDU leader and possible Merkel replacement is sounding very like the current chancellor here. We suspect Joe Biden won’t like that one bit.

Some reactions to the G7’s plans, unveiled last week in Cornwall, to challenge China’s Belt and Road Initiative by building its own “green” version. The think-tank CSIS believes any plan to replicate Beijing in building huge amounts of infrastructure across the developing world requires a pipeline of bankable projects. The Merics think-tank looks at previous attempts to challenge the initiative and the lessons learned. 

Nikkei reports ($) that the Thai government is stepping up efforts to regain the country’s position as the world’s biggest rice exporter by lowering export surcharges and improving rice breeds. Alan Beattie and Claire Jones