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Lessons from South Korea: What would a hard Brexit mean for British manufacturers? (LSE Brexit blog)

Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)

Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)

The UK government has proposed maintaining a ‘common rulebook’ with the European Union following Brexit, which would in principle prevent non-tariff trade barriers from developing. But if this proposal fails and the UK leaves without a deal, how would British manufacturers be affected? Robert Basedow draws lessons from the South Korean car industry, noting that manufacturers based outside of major regulatory regimes are not necessarily doomed to failure, but do face the extra costs of complying with different regulatory frameworks.

The highly controversial ‘Chequers Agreement’ of 6 July foresees that the United Kingdom maintains by and large free access to the European Union’s single market for goods after the end of the transition period in 2020 by adhering to a ‘common rulebook’. This common rulebook would encompass common technical standards relating to issues such as product compatibility and quality as well as regulations relating to consumer and environmental protection. Such ‘regulatory alignment’ is supposed to keep so-called non-tariff trade barriers between the United Kingdom and the EU low. In the absence for instance of common safety standards for electronic goods, the EU or the United Kingdom’s customs authorities may refuse the import of certain goods due to concerns over consumer safety. Common rules can avoid such barriers.

Many critics – and most notably former Brexit Minister David Davis and former Foreign Secretary Boris Johnson – warn that the May government is about to trade off British democracy and sovereignty and turn the United Kingdom into a colony of the European Union. They argue that the ‘common rulebook’ would make the British vassals of Brussels. Such concerns seem overstated. It is debatable whether the elaboration of for instance highly technical product compatibility or consumer safety rules form part of the core of national sovereignty and democracy in modern statehood.

State authorities often leave it to private sectorial associations at the national and international level to develop relevant soft law. Where states remain in the lead, rule-setting is typically delegated from parliaments to independent, non-elected and highly specialised regulators and technocrats. What is more, countries like Switzerland, Norway and Iceland adhere to more comprehensive ‘common rulebooks’ than foreseen in the Chequers Agreement and few people would suggest that these countries have turned into authoritarian colonies. The claim that a ‘common rulebook’ would undermine British sovereignty and democracy seems at best slightly exaggerated.

Nonetheless, it remains unclear whether the May government will succeed in seeing off opposition in her own party and agreeing with the EU on a common rulebook and more generally the course of action laid out in the Chequers Agreement. Due to the persistent uncertainty over regulatory alignment, it is illuminating to assess what would happen to British manufacturers in the absence of a ‘common rulebook’.

Lessons from South Korea

One case study from which the UK could draw lessons is the experience of the South Korean car industry. South Korea and its car industry are in many regards comparable to the United Kingdom and its car industry. From a global perspective, the United Kingdom and South Korea qualify as small, open, high-income economies. Both boast important car industries, which are too big for their respective home markets and thus rely on international markets.

A key difference between the United Kingdom and South Korea is that South Korea is not geographically part of one of the two dominant global regulatory regimes for cars – the US American and the European UNECE regime. South Korea’s intermediary position between the two regimes is problematic. Some European and American rules are incompatible. If a car is built to comply with US rules, it violates European rules and vice-versa. So how do South Korean car manufacturers and suppliers operate and compete in this position?

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Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)
Hyundai Kona, Credit: H.B. Kang (CC BY-NC-ND 2.0)
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