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The Progressive Policy Think Tank

Level playing field – IPPR briefing

Last updated 27/02/2020

The UK and the EU are embarking on the next stage of the Brexit negotiations to determine their future trading relationship. Both sides are looking to agree a free trade agreement to guarantee no tariffs or quotas on traded goods. As the quid pro quo for a tariff-free, quota-free deal, the EU has made clear it expects a ‘level playing field’ for trade in order to prevent the UK from gaining an unfair competitive advantage over the EU.

For the UK government, such level playing field measures will prove difficult to accept, given prime minister Boris Johnson’s insistence that the future agreement cannot include any requirement for the UK to continue to follow EU rules or be subject to the jurisdiction of the Court of Justice of the European Union (CJEU). The stage is therefore set for a major stand-off between the UK and the EU on the scope and enforcement of the ‘level playing field’ for post-Brexit trade.

Within the political declaration, the UK and the EU have agreed to make ‘level playing field’ commitments in four areas: competition policy, environmental protections, labour standards, and taxation. The expected opening positions of each side, however, are far apart. Below we summarise the opening positions of both sides and assess the potential for compromise in each area.

State aid and competition policy

The EU has taken the most robust position in the area of state aid and competition policy. Their negotiating directives say that the UK should continue to align with EU state aid rules. The EU wants this to be enforced in the UK by an independent authority (i.e. the UK’s Competition and Markets Authority) with the close oversight of the European Commission. In order to administer the agreement, the EU is likely to propose that disputes on state aid between the two sides should first be dealt with through consultations, and then if necessary be escalated to a formal arbitration panel. This could result in the offending party facing sanctions – such as financial penalties or restrictions in market access. In addition, any questions relating to the interpretation of EU law would have to be decided by the Court of Justice of the European Union.

Based on its opening negotiating position, the UK is taking a very different approach. It has proposed broad commitments on maintaining effective competition laws and on regularly notifying each other on subsidies. It has also proposed setting up a consultation mechanism to discuss subsidies that could have a negative impact on the UK or the EU. But this consultation process is very different from the strict alignment envisaged by the EU’s negotiating position, and it would not be subject to formal arbitration or sanctions.

However, it is important to note that the UK-EU withdrawal agreement includes specific provisions on state aid for Northern Ireland. According to the withdrawal agreement, the UK must continue to follow EU rules on state aid relating to any state aid measure that affects trade between Northern Ireland and the EU. Moreover, these rules will be supervised and enforced directly by the European Commission and the CJEU. The UK has therefore already agreed to follow state aid rules for trade respecting Northern Ireland – a significant concession in the context of the wider level playing field.

Environment and climate change

In the joint political declaration, the UK and the EU provisionally agreed to uphold the level of environmental protection provided by existing common standards – i.e. the current minimum EU standards. However, since then both parties appear to have hardened their stances.

According to its negotiating directives, the EU now wants both sides to maintain the current level of protection and to uphold corresponding high standards over time. The benchmark for upholding “corresponding high standards” is the EU’s own standards. This does not mean that the EU expects that the UK must align to its rules; instead, it means that the UK’s level of environmental protections should not fall too far below the EU’s (and in any event should not fall below current levels).

In practice, this suggests that the EU is likely to seek a non-regression clause that requires the UK to maintain the level of environmental protections provided by minimum EU standards at the end of the transition period (i.e. 31 December 2020), as well as potentially an ‘equivalence’ clause to ensure that the UK’s level of protections does not fall excessively behind the EU’s. The EU wants to precisely specify the relevant areas of environmental policy in scope – including environmental impact assessments, industrial emissions, air quality, nature conservation, waste management, water protection, chemicals, climate change, and food safety. It also wants the UK to create an independent body to monitor and enforce the environmental commitments. Finally, it is likely to expect that any disputes on the enforcement (rather than the substance) of the environmental commitments should if necessary be brought to an arbitration panel and lead to sanctions for non-compliance.

The UK, for its part, has said that it wants to agree reciprocal commitments to not lower the level of protection provided by one’s own environmental laws in order to encourage trade or investment. This is much weaker than the EU’s proposals: it includes no requirement for both sides to maintain corresponding high standards over time, contains no precise list of policy areas, and only applies when either party can demonstrate that any fall in standards encourages trade and investment. Moreover, the UK wants to exclude these commitments from formal dispute resolution and therefore eliminate the possibility of sanctions in the case of non-compliance.

Labour and social standards

As with environmental protections, the UK and the EU at first provisionally agreed to negotiate a commitment to uphold common standards in the area of labour and social policy, but their positions appear to have diverged since then.

The EU now appears to be looking for a non-regression clause that would prevent any backsliding from the level of protection provided by minimum EU labour standards at the end of the transition period, as well as possibly an ‘equivalence’ clause to ensure that the UK’s level of protection does not fall too far below the EU’s over time. The list of areas of labour and social policy specified by the EU covers fundamental rights at work, health and safety, fair working conditions, and information and consultation rights. The EU expects the UK to enforce the equivalence clause through the UK’s own domestic authorities, including an effective system of labour inspections. For disputes relating to how the labour rules are enforced, the EU will probably argue for there to be a role for an arbitration panel where necessary – and therefore sanctions for violating the rules.

On the other hand, the UK is seeking a labour non-regression clause similar to the provision in CETA – ie an agreement to not lower the level of protection provided by one’s own labour laws or standards as a means of encouraging trade and investment. This would be far weaker and less precise than the EU’s proposals. The UK is also unwilling to accept formal arbitration or sanctions in the event of a dispute between the two sides.

Taxation

In the area of taxation, the EU wants to agree commitments to the principles of good governance and curbing harmful tax measures. Alongside these, it is seeking for the UK to maintain a small number of specific areas of EU tax legislation, including legislation on information exchange on tax issues and on tackling tax avoidance practices. It may also seek commitments to ensure that the UK’s taxation rules are updated to reflect changes in EU law over time.

The UK has said it is willing to accept commitments to general principles on good governance. But it appears likely to seek to water down the proposals for the UK to follow specific areas of EU law, given they conflict with the UK’s position of regulatory autonomy.

In summary, the opening positions of the UK and the EU suggest major differences in the area of competition and state aid, where the EU is seeking continued alignment with EU rules and the UK is seeking regulatory divergence. On taxation, there are also likely to be tensions, given the UK is being asked to follow EU rules in certain areas, but this will probably be less contentious given it only applies to a limited area of EU law.

On labour and environmental protections, the UK and the EU have hardened their positions and there now appears to be a significant gap between the two sides. However, there is still scope for compromise. The original version of the withdrawal agreement negotiated by Theresa May’s government included robust non-regression clauses – more stringent than typically used in free trade agreements (i.e. the UK position) but not as demanding as the requirement to maintain corresponding high standards over time (i.e. the EU position). This could therefore be a sensible landing zone for the negotiations.

A summary of the expected UK and EU positions and the potential scope for compromise are below:

Resources and Contact

  1. The 2019 research paper State Aid Rules and Brexit is available to download here: https://www.ippr.org/research/publications/state-aid-rules-and-brexit
  2. IPPR public attitudes polling on Brexit, trade deals and state aid from 2018 is available to download here: https://www.ippr.org/research/publications/have-your-cake-or-eat-it
  3. More information about Marley Morris is available here: https://www.ippr.org/about/people/staff/marley-morris

Briefing author Marley Morris is available for broadcast and print interview on the level playing field, immigration and the UK-EU trade negotiations. To arrange an interview, please contact Digital and Media Officer Robin Harvey [email protected]