Almost exactly six years ago, I shared a column with this video of a member of the European Parliament explaining the principle of mutual recognition.
But that column was mostly about the benefits of jurisdictional competition and I only mentioned mutual recognition as a side issue.
So let’s examine today why mutual recognition is a good principle for cross-border economic relations.
Let’s start with a definition. Mutual recognition happens when two of more jurisdictions agree to have open trade and to respect each other’s laws.
So that means (as noted in the video) that, for example, Brits can buy food and other products from Germany and Germans can buy food and other products from the United Kingdom – regardless of the laws that govern production in the two nations.
For my American readers, here are three very real examples of why mutual recognition is a good idea.
As even AOC recognizes, it would allow Americans to buy superior sunscreens from Europe that our sluggish FDA bureaucrats have not approved.
It would prevented the 2022 baby formula crisis because American families could have purchased safe and nutritious European varieties.
Another reason to support mutual recognition is that it would make trade agreements much simpler. I wrote in 2019 that the ideal free trade agreement is one simple sentence prohibiting trade barriers.
But that’s only possible with a system of mutual recognition. Ryan Young and Kent Lassman of the Competitive Enterprise Institute recently wrote on this issue for National Review.
Here are some excerpts.
The core concept behind a simple FTA is mutual recognition of one another’s regulations. Under mutual recognition, if American regulators approve a product, then it is automatically approved in partner countries, and vice versa. With that sort of regulatory trade barrier lowered, consumers can quickly benefit from wider selection, more affordable prices, and faster access to new innovations. Producers would benefit from faster approval times and lower regulatory costs for pharmaceuticals, appliances, agricultural products, electronics, and countless other industries, while gaining access to new markets and new customers. Regulators would benefit by avoiding redundant approvals in each partner country, saving agency resources. …Mutual recognition is appropriate for strong allies in developed countries… Our regulations may not be identical but will be similar enough for trade purposes. …A mutual-recognition agreement with Switzerland or another close ally could set a precedent that can lead to larger agreements that would boost economies around the world while strengthening alliances against Russia and China.
Amen.
Simple trade agreements with allied nations should be based on mutual recognition.
I quoted Professor Michael Greve many years ago and he’s worth quoting again.
…the origin principle…is commonly called the principle of “mutual recognition.” …it is the only principle that is consistent with both a common economic market and political decentralization. Mutual recognition integrates member states without central intervention. …Mutual recognition, then, liberates commerce by eliminating the cost of complying with different, conflicting, and often incomprehensible rules. Beyond that, mutual recognition institutionalizes jurisdictional competition. …The ability of individuals and firms to vote with their feet, modems, and pocketbooks will liberate markets and discipline politicians. …Trade unions, environmental interests, and any other interest group whose agenda rests on redistribution consistently oppose mutual recognition: they cannot rob Peter to pay Paul if Peter is allowed to escape to more hospitable climes.
By the way, the United Kingdom seems to have some very sensible people with regards to mutual recognition, as illustrated by this Alex Tabarrok article and this tweet.
The UK has announced unilateral recognition for medicines approved overseas.
If Japan or the US approves a drug, you will be able to prescribe it in the UK.
Aiming to create fastest route to market in the world for new medicines.
P.S. The good news is that the European Union was founded in part on the principle of mutual recognition. The bad news is that politicians are increasingly replacing that sensible approach with the dirigiste model of harmonization. Bad globalism in action.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
