Triggering Brexit and Slashing EU Regulations

In June 2016, British voters opted to sever the political ties and rule of laws set by the European Union (EU).  Voters chose that direction despite warnings the breakup could damage the British economy by making trade with the European Union’s single market more difficult.  The “Brexit” was to be engineered over a couple of years and in March 2017, Britain will trigger Article 50, starting the dissolution of its ties with the EU.  Major sets of decisions need to be made on which laws from the EU should be retained, changed or jettisoned.  Britain’s choice of which regulations to dump may be instructive to Americans who labor under $1.236 trillion per year in economic regulations as of 2008.

Some of Britain’s decisions must address replacing current trade relationships with the European Union.  That could mean trying to extend the British-American model of trade, or moving to World Trade Organization tariffs, betting on some future variant of the Transatlantic Trade and Investment Partnership, or perhaps something more attractive.  Development of this element of strategy will attract the most media and financial markets coverage.  Replacing the single market may be the most difficult task to do well, because it requires negotiating agreement with many other nations.  Some nations are annoyed by Britain’s rejection of the EU partnership, and some see market opportunity, such as displacing the City of London as the dominant financial center in the European, African and Mediterranean areas.

Britain’s more complex challenge will be continuing its work of reforming regulations and removing onerous European regulations (such as EU procurement regulations) that currently restrain the British economy.  Those regulatory edicts from Brussels govern agriculture, immigration and border transit arrangements, purchasing and contracting, labor laws, privacy law, taxes, and financial and banking arrangements.  There are different perspectives among Britain and EU members that result in laws and regulations being ill-suited for retention in Britain.  For example, Britain operates a far more aggressive foreign intelligence program than the rest of Europe admits to, and Britain seems less aligned with the European Court of Justice’ stance on privacy.  Also in example, British employers resist being forced to confer tenure on employees to the same costly degree as do Greek, French and German employers.

The pan-EU regulations are a 40-year accretion of government-knows-best laws meant to homogenize how workers, profit making institutions, immigrants, visitors and government agencies are required to behave.  The goals were not universally welcomed in Britain or elsewhere.  Through Brexit, the British voters made it clear that they want to “return power and authority to the elected institutions of our country.”  The British public has become weary of the effects of intrusive regulations on their lives and resent paying $7 billion per year for successive waves of unwanted regulations from Brussels.

Recent studies on Britain’s economic advantage from triaging EU regulations show the payoff to be a 0.7% increase in GDP for each 10% reduction in regulations.  During the next two years, Britain has an opportunity to fuel its economy by innovation, as well as light touch regulation and taxation, and to the extent possible, by avoidance of expensive social programs.  Replacing its reliance on the single market trade arrangement will receive most of the news coverage, but in the long term Britain’s choices for the coverage, depth and cost of “replacement” regulations will shape a major part of its future.

Its choices will be worth watching as Americans chafe under the heavy mantle of our own economic regulations.

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