Wednesday, 17 July 2013

The EU: Hung up on red tape

By Graeme Leach      

Hung up on red tape

A key part of EU policy over the last 20 years or so has been the completion of what is described as an ‘internal market’. This involves not just the removal of explicit trade barriers between EU countries but also, in many cases, the harmonisation of regulation. I strongly support the four essential elements of a genuine internal market: the free movement of goods, services and capital and labour. I also support trade liberalisation, open markets and the creation of a comprehensive internal market, but the current reality falls well short of a genuine single market, and it is certainly not a free market.

It is obviously true that harmonisation of regulation reduces transaction costs because businesses do not have to adapt to different regulatory regimes. From a static perspective, the removal of these transaction costs through harmonisation of regulation represents an efficiency gain. However, harmonisation also prevents regulatory competition. From a dynamic perspective, the loss of regulatory competition will almost certainly entail large additional costs and inefficiencies. Regulatory competition can both restrain regulatory over-reach and also allow different approaches to regulation to be tried in different countries.

However, at the same time, we should not assume that, without the harmonisation of EU regulation, we would have the perfect regulatory environment here in Britain. In the absence of rules and regulations from Brussels, we would still have rules and regulations imposed from London and many of those rules would be harmful.

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