There has been a lot of hand-wringing about the post-Brexit UK-EU trading relationship as it relates to regulations. Here's an example:
Sigurd Braathen worked for a lifetime to build his family’s industrial company into a profitable venture with sales across Europe. Then an environmental diktat from Brussels threatened to outlaw half of his company’s energy-efficient water heaters, even in his home country of Norway.
To make his products compliant, Mr. Braathen had to revamp his factory at a cost of 5 million euros.
“The worst part was, Norway had no influence over the matter, because we aren’t a member of the E.U.,” said Mr. Braathen. “But Norway still must do whatever Brussels decrees.”
A similarly conflicted future appears to await Britain.
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From his perch in Hokksund, a bucolic industrial town nestled among emerald forests and dark fjords west of Oslo, Mr. Braathen has seen the consequences. Founded by his grandfather in 1932, his company benefited greatly from being able to sell products throughout Europe with little interference.
But three years ago, he learned that a draft directive on energy efficiency would threaten half his product range. The European Union had introduced rules that favor gas water heaters over electric ones, as a way to encourage countries that rely on coal-powered electricity to shift from dirty fuel. Yet Norway’s electricity, generated from hydroelectric power plants, was already among the cleanest in the world.
Mr. Braathen reckoned he would have to invest millions in a new plant to meet the standards. If he did not, he would be barred from selling his products even in Norway, because European Union rules apply to his own country even though it is not a member.
By chance, his company, Oso, won a partial reprieve. France and Finland, bloc members whose interests align with Norway’s because they produce nuclear energy, lobbied to get the final rule watered down. That narrowed the number of products that Oso would no longer be able to sell.
“But that was pure luck,” said Mr. Braathen, who still had to refurbish many of his machines to meet other aspects of the directive. “And if it hadn’t happened, there was nothing we could have done,” he said.
From the UK perspective, there are two aspects to this issue. First, should EU rules continue to apply to products sold in the UK? It may be a little hard to interpret the Brexit result in some respects, but I think it's safe to say the answer to this question is no. So, the UK would not take the Norway approach, under which Norway must apply EU rules.
Second, what should the UK do about EU regulations that force UK producers to make costly production changes in order to sell in the EU market? One answer, of course, is to rely on the WTO. GATT Article III and the TBT Agreement can be useful here. Another answer is to pursue mutual recognition agreements, of some sort. But if I were the UK, I would first try to evaluate the nature and scope of the problem. Which EU regulations are going to be a problem for UK producers? And how extensive will that problem be?
