Robotic surgery – state of the art in 2012,at Fort Belvoir Community Hospital, Va. Flickr/US army image. Some rights reserved.In many ways the hi-tech firm just outside Cambridge fits into a vision
of an optimistic future for the British economy sketched out by breezy Brexit
advocates.
In a leafy business park, highly educated workers dart around a lab
fine-tuning the operation of a robot that could soon be performing keyhole
surgery across the globe. A technician wearing 3-D goggles grips a surgeon
console that looks as if it belongs in a virtual-reality arcade, not an
operating theatre, and guides a mechanical arm on his screen so an instrument
plucks a suture. Health industry representatives from the UK and Europe are due
to arrive later that day to cast their eye over the prototype.
Brexit visionaries like Conservative European parliamentarian Daniel
Hannan have argued that when the
economy breaks free from the clutches of the European Union's overbearing
bureaucracy, many such value-adding innovators will explore global markets from
their newly deregulated, low-tax, UK base.
Others, like Chief Executive Officer of Cambridge Medical Robotics
(CMR), Martin Frost, have somewhat more mundane views about impending departure
from the EU. Those centre on what the separation will mean for the medical
devices regulatory system, which ends in products receiving a CE (European
Conformity) mark, allowing them to be sold across the European Single Market without further checks.
"We always built our product to be relevant to Europe and the
United States. And that's when we get concerned about what that regulatory
regime will look like in Europe in 2020," he says.
For a company like CMR, which is developing a complex device, the
uncertainty is a problem, as it needs to know, for example, what safety
features to design almost a decade in advance. A dramatic change in the regulatory
environment could cost the company millions of pounds. Unfortunately for Frost,
and thousands of businesses with similar concerns, certainty about what even
the outlines of Brexit will amount to is in short supply.
The reason for that is primarily because there has been precious little
substantive national debate about the post-separation trade options that the
government can pursue. The referendum was fought on political rather than
economic grounds and the bitter divisions it exacerbated still very much shape media
reporting and public attitudes.
After the referendum, Prime Minister Theresa May's new government could
have decided that, while it had to take the country out of the EU, leaving the
Single Market was an unnecessarily daunting and risky challenge. However, May embraced the idea of a
clean break in order to focus on controlling immigration and reclaiming
sovereignty, which includes ending the jurisdiction of the European Court of
Justice (ECJ).
The Single Market
Since the surprise loss of a Conservative majority in the June election,
that strategy has come under increased scrutiny. But the discussion of Brexit
options in the interests of protecting the economy is poorly defined and ill-informed,
partly because of the complexities of the multi-layered single market.
The resulting lack of clarity from a weakened, divided, and distracted
political class means even staunch Brexit supporters acknowledge the path to a
smooth departure is increasingly strewn with obstacles. And a large proportion
of those come from the ending of painstakingly constructed regulatory unions
that are key to freeing up trade.
The Single Market has been at the core of the European integration
project since its inception. Today's arrangements stem from the creation of the
European
Economic Community (EEC) in 1957 which aimed to build a
common market according to freedom of movement principles. The UK joined
France, Germany and four others in the EEC in 1973 after the existing members had
completed a Customs Union in 1968 to abolish internal tariffs. Successful
efforts to revitalize integration in the 1980s led to the formal declaration of
the Single Market in 1993.
Superficially, the Single Market appears straightforward and finite. It
facilitates borderless trade between member states by creating an economic zone
for Europe as if it is one
country. For example, it gives a printing cartridge manufacturer in Leicester as
much right to set up an office and do business in Lyon as it has to do so in
Liverpool. Crucially, participating countries have to accept in principle the
freedom of movement of goods, people, services and capital.
While that overview is accurate, the Single Market is also an evolving,
fragmented, labyrinthine process to set rules and standards across almost all sectors
in order to regulate economic interactions and thereby try and facilitate
cross-border business in the EU and connected trade blocs. Despite considerable
progress at harmonisation, the effort is continuous. For example, the EU Commission
is trying to improve internal
energy, capital and digital markets and is incorporating international plans to
reduce corporate tax avoidance. Many EU standards stem from the work of other multinational
bodies.
To ensure the market's laws are followed there is an accompanying
apparatus of organisations to inspect, verify and certify, while the ECJ is the
arbitrator of disputes. Leaving means undoing this work and undertaking a
laborious effort to replace it, rather than, for example, pushing ahead to try
and establish common markets in significantly non-integrated service sectors
like healthcare or construction.
Regulatory union
Although CMR's robot surgeon is indeed at the frontier of technological
advances, the market for medical devices is well established, as is the EU
regulatory system for them. The barriers to trade erected by leaving that
system are just one example among thousands of the costly disruption that will
be caused by leaving the Single Market.
For CMR, the path to the CE mark is complying with the UK's Medical
Devices Regulations, which stem from
EU directives with instructions such as: 'the measurement, monitoring and
display scale must be designed in line with ergonomic principles.' As it's a
high-risk product, it would then apply to one of five EU 'notified bodies' in
the UK who assess compliance and issue the CE mark.
If Brexit occurs as planned, the UK will no longer have EU notified
bodies, which means applying to one based in Europe. Frost would therefore like
the status quo maintained, even if the UK exits the Single Market, but that appears
to be impossible: ending membership means rupturing the regulatory union. There
are comparable dilemmas for the valuable chemicals industry and many
other heavily regulated sectors.
One of the organisations responsible for medical devices is the British
Standards Institute (BSI), which said it is confident
a deal can be struck whereby UK assessors would be treated as equivalent to EU notified
bodies. After negotiating trade deals, seven non-EU rich nations have similar arrangements for some
industries. But despite the BSI's bullishness, which echoes the government's
Brexit aspirations, this option has the same downsides as other Single Market alternatives:
regardless of the existing convergence, negotiating and then implementing fresh
regulatory regimes for all industries simultaneously as part of a UK-EU trade
deal will probably take years, and the result will be less smooth trade anyway.
It's also currently unclear what transitional arrangements could be set up in
the meantime, especially without May relaxing her stance on the ECJ.
While the BSI position elicits queries, Frost's notion that medical
device regulations can be dealt with separately from the Single Market, which
he sees as primarily about eliminating tariffs, is, at best, optimistic. Such
views are symptomatic of a muddled debate about Brexit and the global economy,
according to Matthew Bishop, a senior lecturer in international politics at
Sheffield University.
Bishop argues that modern trade deals are less about tariffs on finished
products – it's estimated, for example,
that 80 percent of global trade is within value chains controlled by
multinationals – and much more focused on the arcane regulatory arrangements
that govern market interactions, including associated issues like labour and
environmental rules.
And trade in Europe isn't shaped solely by Single Market rules. Instead it
stems from a "fiendishly complicated cornucopia of bilateral and
multilateral agreements", including the World Trade Organisation (WTO),
Bishop said. The Brexiteer idea that deregulating will boost UK exports is
therefore largely a fallacy, he believes, as market access through trade deals
always means adhering to detailed rules.
Massive risks
Given this messy, precarious reality, Bishop is bewildered by the blasé
approach from nominally pro-business Conservatives to the Single Market, which anchors
the UK's position in the global trading system. "I personally just cannot
believe that a Conservative government especially is taking such massive risks
with the British economy," he said. "I personally just cannot believe
that a Conservative government especially is taking such massive risks with the
British economy," he said
As the onerous realities of separation loomed after the referendum,
there was already uncertainty about the best way forward among Conservatives. Since
the election, Treasury minister Philip Hammond has become prominent in
stressing the need for a Brexit that protects the economy. But, so far, he has
not proposed any tangible deviations from the government's February position
paper.
This lack of clarity among Conservatives is matched by Labour under left-wing
leader Jeremy Corbyn. In its election manifesto the party supported
ending the freedom of movement of people while retaining the benefits of the
Single Market. That is against the principles of the EU project, and nobody is
suggesting Brussels will make a positive exception for the UK. Indeed, many people
think European leaders want the separation deal to serve as a warning for
others tempted to follow the UK's path.
Still, the Labour leadership may maintain its fuzzy stance and let the
Conservatives grapple with Brexit while it focuses on pressing home its
domestic advantage by continuing to oppose austerity. A senior party source said
the emphasis will be on opposing Conservatives’ efforts to use the excuse of
Brexit to slash taxes and regulations in order to maintain competitiveness.
Although Labour attracted many Remain voters, long-term Eurosceptic
Corbyn has concerns about some Single Market rules, such as limiting state aid
to industry and banning government procurement favouring local firms, the
source said. That makes a change in approach unlikely, despite the growing
pressure from other factions in the party. A senior party source said the emphasis
will be on opposing Conservatives’ efforts to use the excuse of Brexit to slash
taxes and regulations in order to maintain competitiveness.
Gradual decoupling
A long-term EU critic who has a clearer strategy is researcher, author and
blogger Richard North.
He has been plotting a practical decoupling for over a decade. North, a UK
Independence Party candidate in northern England for European elections in 2004, exudes
contempt for a London-centric establishment he says is incapable of learning
from outsiders.
He believes this elite's lack of detailed understanding of the EU has
led to misconceptions surrounding Brexit snowballing. Some of his research illustrating
this point is striking. For example, it became received
wisdom that staying in the Customs Union was an option and
that exiting it would mean the reintroduction of border checks. These claims
are misleading, according to North, despite their being underpinned by research
from the Treasury.
Instead, while the Customs Union abolished internal tariffs, it was the
development of other elements of the Single Market that eliminated border checks
as regulations were standardized. So, if the UK left the Single Market,
livestock exports, for example, would need inspecting at the border, unless
regulatory harmonization was re-established. A Customs Union would not prevent
that and, regardless, leaving it is set to occur automatically upon Brexit. US
investment bank J.P. Morgan has arrived at similar conclusions, while the EU
lead negotiator's comments also support this type of view.
Still, despite such confusion, as the process staggers forward, North
has at least planned for it. The thrust of his preferred approach is that because
the current level of integration took 44 years to achieve, separation should be
incremental. For him, this means leaving the EU, but not immediately exiting
the Single Market. That can be done by applying to re-join the European Free
Trade Area (EFTA). EFTA members Iceland, Liechtenstein and Norway are part of
the Single Market through the Agreement
on the European Economic Area. If the EU agreed, the UK could
re-join the EEA through EFTA. Some commentators think this
option could form the basis of a transitional arrangement, but an EFTA source
said that was unlikely.
In North's opinion, other paths are riskier. The government’s plan to
negotiate and implement a comprehensive trade deal is likely to take years,
despite existing regulatory convergence. Trading on WTO terms means another
complex period of haggling as, for
example, the UK's duty-free import quotas are cleaved out of the EU's. And it would,
again, also mean ending regulatory union, which would stifle access to an EU
market that accounts for around 45 percent of UK exports, or £222 billion in
2015. Richard North worries that a failure to follow the EFTA/EEA strategy
risks derailing Brexit entirely as the process gets bogged down in years of
talks. Richard North worries that a failure to follow the EFTA/EEA strategy
risks derailing Brexit entirely as the process gets bogged down in years of
talks.
Negotiating pain
However, deciding to pursue that option, which has been lurking somewhere
on the national agenda since the referendum campaign, would only be a baby
step. The government would still have to sell the deal to Conservatives who
want a clean break. That would be tough, as remaining part of the Single Market
via EFTA/EEA means abiding by relevant EU regulations, contributing to the union's
budget, accepting decisions of a non-British court, and accepting in principle
the freedom of movement of people.
Helping the cause would be the fact that once part of the EEA as an EFTA
member, the agreement allows the
parties to unilaterally take measures that could plausibly be used to control
immigration. Uncontrollable movement from the EU, it should not be forgotten, was
a significant factor in the referendum.
Amid the fallout from the Grenfell fire tragedy, which highlighted the importance
of effective regulation, May's minority government has begun negotiations with
Brussels, but trade is not yet on the table.
Instead, the parties are focusing first on the future rights of UK
citizens living in the EU and vice-versa, agreeing the financial accounting of the
separation, and the plan for the Irish border, which is currently relatively
open, but is set to become the EU and single market frontier. If progress is
made in these tricky initial discussions, talks on trade could occur this year,
but it's unclear how much detail the EU is willing to go into before the UK departs.
Meanwhile, a group of Labour parliamentarians have broken
ranks with Corbyn to say the UK should stay in the Single Market. Included in that
faction was Daniel Zeichner, the member for strongly pro-EU Cambridge, who
resigned from the shadow cabinet in late June over the issue.
On the fringes of this wealthy, liberal city, in the weeks after the
shock election, Frost, an experienced tech entrepreneur, has been hosting
busloads of Chinese health industry types, eager to scrutinize CMR's ground-breaking
surgeon-robot. He's planning to tap into financing to get his device to market
within a year or so and is confident the globally focused venture will succeed,
whatever Brexit brings. Like many in the UK, he hopes that the hung parliament
and a chastened government mean a less economically disruptive deal.
But despite the reassuring noises from ministers and their opposition
counterparts about seeking a separation that is in the interests of jobs and
business, Frost recognizes that there is still a lack of clarity and lots of
unhelpful uncertainty around. "Brexit is just a pain for us," he
said.