LEVEL PLAYING FIELD FOR OPEN AND FREE COMPETITION AND SUSTAINABLE DEVELOPMENT
What is a level playing field and why is it so important?
Given their geographic proximity and economic interdependence, the EU and the UK agreed to robust commitments to ensure a level playing field for open and fair competition and to contribute to sustainable development.
The nature of these commitments reflects the scope and the depth of the wide-ranging and ambitious economic partnership, including in particular the absence of tariffs and quotas for trade in all goods, comprehensive market access commitments and rules on services and investment, as well as very high level of openess for governement procurement. The agreement also foresees unprecedented cooperation on energy and dedicated titles on aviation and road transport, all of which require appropriate level playing field guarantees.
These commitments will prevent distortions to trade and investment, today and tomorrow, and will contribute to sustainable development.
More specifically, these provisions mean that:
- The current high standards applicable in the areas of labour and social standards, environment, and climate can not be lowered in a manner affecting trade or investment between the Parties.
- Robust and comprehensive rules will prevent distortions created by subsidies, anti-competitive practices, or dicriminatory and abusive behaviour by state-owned enterprises.
- Specific standards and rules and the joint political declaration in the area of taxation will contribute towards tax transparency, and will counter tax avoidance and harmful tax regimes and practices.
- A wide-ranging set of commitments building on the EU’s most ambitious precedents will ensure that trade supports sustainable development, including through cooperation at the international level.
What happens if one side unilaterally distorts the level playing field?
The EU and the UK agreed to effective tools and mechanisms for the enforcement of their level playing field commitments, namely:
- Effective implementation domestically, including the control of subsidies by domestic authorities and courts, and a role for an independent authority or body, and appropriate administrative and judicial proceedings in the areas related to labour and social standards, environment and climate;
- Appropriate and effective governance and dispute settlement mechanisms for solving disputes between the EU and the UK over the application of the Agreement, including through the horizontal dispute settlement mechanism or tailored panel of experts;
- Unilateral remedial measures to react quickly where a subsidy creates a significant negative effect on trade or investment between the EU and the UK.
Furthermore, the Agreement provides for the possibility to apply unilateral rebalancing measures in the case of significant divergences in the areas of labour and social, environment or climate protection, or of subsidy control, where such divergences materially impact trade or investment between the Parties. This might be relevant, for example in a situation where one Party would significantly increase its levels of protection related to labour or social standards, the environment or climate above the levels of the other Party. This may entail an increase in the costs of production and hence a competitive disadvantage. Another example would be a situation where one Party would have a system of subsidy control that would systemically fail to prevent the adoption of trade distorting subsidies, which would provide a competitive advantage for that Party.
In such cases, a Party would be able to adopt measures to rebalance the competitive advantage of the other Party.
By addressing the possibility of regulatory divergence at any point in time, this mechanism allows for the future-proofing of level playing field provisions to maintain open and fair competition over time.
Each Party could also, at regular intervals and if rebalancing measures have been taken frequently or for more than 12 months, seek a review of the trade and other economic parts of the Agreeent to ensure an appropriate balance between the commitments in the Agreement on a durable basis. In this case, the Parties could negotiate and amend relevant parts of the Agreement. Any trade or economic part of the Agreement, including aviation, that would remain in place or be renegotiated would retain appropriate level playing field commitments.
What exactly was agreed with regards to subsidies?
The EU and the UK agreed on two elements, which ensure that neither Party uses trade-distorting subsidies, and in this way seek to prevent diversion of investment and jobs losses:
- Substantive rules
1.1 General principles
Subsidies must respect a defined set of binding principles in order to be granted. These principles include
- a contribution to a well-defined objective of public interest (for example the green transition);
- the need for state intervention to remedy a market failure (for example ensuring school bus services to remote villages);
- appropriateness or incentive effect of the subsidy (there is no other measure available that would lead to the same effect);
- the proportionality of the subsidy, taking into account its negative effects on trade between the EU and UK.
1.2 Specific principles
These general principles are complemented by specific binding principles applicable to key sectors (e.g. air transport, energy, financial services) or types of aid (e.g. rescue and restructuring of ailing companies, unlimited guarantees, export subsidies, services of public economic interest, large cross-border projects).
The EU and UK have also agreed to make reference in a Joint Declaration to non-binding principles on other specific subsidies relating to research and development, the development of disadvantaged areas (the so-called regional subsidies) and subsidies to the transport sector (airports, ports, road transport). These principles would guide the two Parties in the implementation and development of their rules on subsidies.
The EU and UK will publish information on an official website or a public database within 6 months of the granting of the subsidy and within 1 year for subsidies in the form of tax measures. In the UK, interested parties, such as competitors, that are considering applying for a review by a court of a subsidy decision, will also have the possibility to request further information to allow them to assess the application of the principles by the granting authority and decide whether to challenge such subsidy in court.
- Enforcement tools
2.1 Guarantees of robust domestic enforcement
The agreement contains guarantees for domestic enforcement. These will ensure that the respect of the general principles can be challenged by competitors and verified by courts in either the EU or the UK. The courts will be empowered to order beneficiaries to pay back the subsidy if the courts found, for instance, that the assessment principles were not correctly applied to that subsidy.
2.2 Effective dispute settlement
The EU and the UK can each submit a conflict regarding the application of relevant provisions on subsidy control to the horizontal dispute settlement mechanism.
Non-compliance by one Party with the arbitral ruling may lead to sanctions authorised by the arbitration tribunal, such as the suspension of commitments (leading for example to the introduction of tariffs or quotas on goods or of other market access barriers).
2.3 Unilateral remedial measures:
Each Party has the right to take unilateral remedial measures (for example reintroduction of tariffs or quotas on certain products) in case the other Party grants a subsidy in a way that leads to significant negative effects on trade or investment between the Parties.
How will you ensure that taxation isn’t used as a means to distort competition?
The Parties agreed on a good governance clause and commitments to uphold the taxation standards on exchange of tax information, anti-tax avoidance, and public tax transparency.
These provisions are based on international standards, including OECD standards, related to the exchange of tax information; rules on interest limitation, controlled foreign companies and hybrid mismatches, as well as on the Party’s domestic standards related to public country-by-country reporting.
In addition to that, the EU and the UK set out, in a separate joint-declaration, specific principles on the countering of harmful tax regimes and affirmed jointly their commitment to apply these principles. They also agreed to hold an annual dialogue on their application of these principles.
How will you ensure that the EU’s high social and labour, as well as environmental and climate levels of protection will be upheld?
Citizens in the EU and in the UK benefit from some of the highest labour and social standards and environmental and climate committments in the world.
The respect of these standards and rules can come with costs for businesses, but since they are followed by the economic actors in the EU’s Single Market, there is no risk of distorted competition.
Since the UK, as a neighbouring third country, gains access to the EU’s market without tariffs or quotas, the Parties have agreed to continue upholding the current high levels of protection to avoid unfair competitive advantages from the lowering of their levels of protection.
To that extent, a binding and enforceable commitment of non-regression was included in the chapters dedicated to labour and social standards as well as environment and climate, ensuring that the current levels of protection in the EU and in the UK will continue to be upheld. Each Party also committed to seek to increase over time its levels of protection in these areas.
In which areas will levels of protection be protected?
The EU and the UK agreed to uphold levels of protection in the areas reated to labour and social standards, and environment and climate.
Labour and social levels of protection cover the following areas:
- fundamental rights at work;
- occupational health and safety standards;
- fair working conditions and employment standards;
- information and consultation rights at company level; or
- restructuring of undertakings.
Environmental levels of protection include the following areas:
- industrial emissions;
- air emissions and air quality;
- nature and biodiversity conservation;
- waste management;
- the protection and preservation of the aquatic environment;
- the protection and preservation of the marine environment;
- the prevention, reduction and elimination of risks to human health or the environment arising from the production, use, release or disposal of chemical substances; or
- the management of impacts on the environment from agricultural or food production, notably through the use of antibiotics and decontaminants.
The climate level of protection applies to:
- emissions and removals of greenhouse gases covering EU’s and the UK’s respective 2030 economy-wide targets including their systems of carbon pricing; and
- the phasing-out of ozone depleting substances.
What does the Agreement foresee with respect to the environment?
As befits a trade agreement between two Parties with ambitious environmental policies, the Agreement contains several guarantees in terms of environmental protection, over and above the non-regression provisions applying to environment, climate and labour and social protection. These include:
- A recognition of the shared biosphere;
- Coverage of future targets that are now in the laws of the parties – the 2030 waste recycling targets, the 2027 water targets and the 2030 air pollution ceilings;
- Full inclusion of the key environment principles, including precautionary principle, polluter pays, and integration principle;
- Full inclusion of the principles of the Aarhus Convention with modernised text, including access to justice, access to information and public participation;
- Effective co-operation mechanism foreseen between the supervisory body or bodies in the UK in terms of protection of the environment, and the Commission;
- The recognition of the relevance of procedures for evaluating the likely impact of a proposed activity on the environment, such as an environmental impact assessment or a strategic environmental assessment.
Does the Agreement cover health and product sanitary quality in the agricultural and food sector?
The broad scope of the commitment on the environment clearly refers to agricultural and food production. In addition, it specifies two of the most important areas for the level playing field with regards to agriculture and food production, namely the use of antibiotics and decontaminants.
Why is there no commitment to an independent body to enforce non-regression in the field of environment?
The Agreement provides for cooperation between the Commission and the relevant UK bodies in preserving a level playing field in the field of environment. We note that the UK intends, as part of its domestic law, to put in place an independent body or bodies that will seek to preserve non-regression, for instance the office of environmental protection and similar devolved bodies.
What was agreed with regards to climate change?
The Agreement establishes an ambitious framework for cooperation in the fight against climate change.
Under the Agreement, both sides agreed that the fight against climate change and in particular the 2015 Paris Agreement on climate constitutes an essential element of their partnership. Any violation of this essential element by one Party gives the other Party the right to terminate or suspend all or parts of the Agreement. The fight against climate change is for the first time on par with other essential elements namely democracy, human rights and the rule of law and non-proliferation of weapons of mass destruction.
The EU and the UK also reaffirm their ambition of achieving economy-wide climate neutrality by 2050.
A principle of non-regression, including carbon pricing, is included in the Agreement, ensuring that the current level of climate protection in the EU and in the UK will continue to be upheld. This means that both sides have agreed to ensure that, at minimum, the level of climate protection in place at the end of the transition period shall be guaranteed also in the future. Moreover, each Party also committed to seek to increase its levels of protection over time.
Both sides have also agreed in the aviation title not to exempt aircraft fuel from taxation.
What about carbon pricing?
The UK also committed to implement a system of carbon pricing as of 1 January 2021. The EU and UK committed to ensure that their carbon pricing systems cover greenhouse gas emissions from electricity generation, heat generation, industry and aviation.
Will the UK continue to participate in the EU Emissions Trading System (ETS)?
The UK will no longer participate in the EU’s Emissions Trading System, but the Parties will give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness. This would be subject to an agreement to be negotiated separately in the future.
Why is there no separate chapter on the fight against climate change?
Climate change represents an existential threat to humanity and both parties have strong commitments to strengthening the global response to this threat.
These objectives are included in the chapter on environment and climate with dedicated commitments on climate change and carbon pricing.
How does the Agreement contribute to trade and sustainable development?
The EU and the UK recognised in the Agreement that their bilateral trade and investment must take place in a manner conducive to sustainable development.
To that end, the EU and the UK agreed to promote the implementation of the United Nations 2030 Agenda and the United Nations’ Sustainable Development Goals, and to adhere to the implementation of relevant internationally agreed principles, rules and agreements, such as:
- Conventions of the International Labour Organisation (ILO) and the European Social Charter of the Council of Europe ratified by the EU and the UK;
- Multilateral environmental agreements, including climate change mitigation-related multilateral initiatives, such as the
- United Nations Framework Conventions on Climate Change, and the Paris Agreement of 2015;
- Combating illegal wildlife trade, illegal logging and illegal, unreported and unregulated (IUU) fishing and related trade.
In addition to that, the EU and the UK agreed to promote trade and investment in green goods, to cooperate bilaterally and at the international level on the sustainability agenda and to encourage responsible business practices.
Does the EU have level playing field provisions in any other of its FTAs?
Each Free Trade Agreement (FTA) is different as it takes into account the particular circumstances of the EU’s exchanges with the third country in question.
The Agreement with the UK is unique as it is an agreement with a former Member State. The UK currently shares the same high standards as the EU in many regulatory areas. Moreover, the two Parties start from a unique level and intensity of trade and investment resulting from their economic integration, and a high level of interconnectedness and geographic proximity. Once the Agreement enters into force, the UK will become the EU’s largest FTA partner in Europe and the world.
Furthermore, the Agreement provides for a high level of market access, including an unprecedented zero tariff, zero quota economic partnership across all goods. That kind of access to the EU Single Market requires clear and credible rules to guarantee fair and open competition, including an effective dispute resolution mechanism and unilateral measures. Open and fair competition will be beneficial for EU and UK consumers and businesses.