General Issues
The European Union is seeking level playing field rules in the EU UK trade/future relationship agreement. They apply to state aid rules which are those which define the extent to which a state may subsidise private industry. They also seek to ensure that one state party to a trade agreement does not reduce its employment health and safety environmental competition rules and standards to gain a competitive advantage over the other.
The European Union has emphasised level playing field conditions as being fundamental to a no tariff no quota trade agreement. The nature of the level playing conditions may be the subject of considerable debate given their undefined nature and the generality of the topics with which they deal.There are open questions in relation to determining equivalence when comparing future regulatory regimes. Equally, the terms on which the commitment to avoid regression from the equivalence may be the subject of disagreement and debate.
The non-regression would apply across the full regime of protection, including substantive rights inspection and access to remedies. The EU has sought enforcement mechanisms, both domestically and internationally, to oversee a level playing field. It suggested in 2018 a joint monitoring and review mechanism to oversee the level playing field. It also highlighted the need for dispute settlement mechanism, from a discussion forum initially and ultimately formal dispute settlement procedure if the matter was not resolved.
The EU has maintained the position that only the Court of Justice of the European Union can interpret concepts of EU law. The Commission has highlighted potential options for sanctions in the event of a breach of the obligations including fines suspension of market access and ultimately the cessation of the whole agreement.
Purpose of LPF
The objective of level playing field provisions is to prevent unfair competitive advantage through undercutting levels of protection. There can be considerable uncertainty and debate as to what would constitute an intention or effect in terms of obtaining an unfair competitive advantage. It is likely to be easier to measure the matter objectively by reference to the reduction in the level of protection the legislation aims to achieve and or a reduction in the effectiveness of the mechanisms to deliver the level of protection. This is sometimes described as non-regression.
Measurement of non-regression would require an assessment of the objectives and outcomes of legislation and the mechanisms by which it is to be achieved. There is both standards and procedural element. Objectively high standards which are not rigorously enforced cannot be considered in isolation from the enforcement regime.
The EU negotiation directives emphasise that due to the geographical proximity and economic interdependence of the EU and UK, the partnership envisaged must ensure open and fair competition with robust commitments to ensure a level playing field. They should reflect the scope and depth of the overall partnership and the economic connectedness of the parties.
The commitment should prevent distortion of trade and unfair competitive advantage. They should uphold common high standards in the area of state aid competition state-owned enterprises social and employment standards environmental standards climate change and relevant tax matters. In doing so, they should rely on appropriate international standards.
There should be adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement, including appropriate remedies. The EU should have the possibility to apply autonomous measures to react quickly to disruptions to the equal level playing field conditions in the relevant areas.
Dynamic Alignment
The most comprehensive level playing field might commit to dynamic alignment. Dynamic alignment refers to EU and UK regulatory standards continuing to be aligned in accordance after Brexit and indefinitely. Without dynamic alignment a commitment to meet EU standards as they existed on the exit date would mean that the UK might gain a competitive advantage over the EU by not adapting future more stringent and exacting requirements for example in the area of environmental labour health and safety taxation or other regulation and standards.
Dynamic Alignment would imply taking the EU’s body of laws as a minimum baseline on an ongoing basis with either of the EU or UK to choose more flexible or ambitious standards. This does not appear likely to be achieved.
UK Response
The EU internal market is underpinned by the EU system of rules and enforcement. They are underpinned by the existence of an independent body, the Commission to oversee monitor and implement EU law, and the fact that EU law overrides domestic law and bind states and state agencies and is enforceable by businesses and individuals directly against each other and against states state agencies and other states.
The EU is seeking that the partnership should commit the EU and UK to improve the respective levels of protection with the goal of ensuring high levels of protection in the areas above. The governing body should be empowered to modify a level playing field commitments to include additional areas or to lay down higher standards over time.
The UK maintains the position that it has to be free to diverge in its regulation. The UK had proposed a common rulebook in relation to standards for goods in its July 2018 White Paper. In other areas, it proposed to rely on non-regression as a demonstration of equivalence. However, the Boris Johnson government has taken a different stance and maintains as its negotiation position that it should have the freedom to diverge should it choose.
If the UK commits to maintaining the existing EU standards might reasonably argue that the EU should make an equivalent commitment. The larger bloc often applies its own rules in trade nrgotiations.
EU Trade Agreements
There are non-regression clauses in relation to regulatory standards in existing EU free trade agreements. However, they do not form a comprehensive precedent as they do not deal with the case of full regulatory alignment at the outset. They deal with states that already have very different regulatory regimes. On the other hand, the commencement with a common regime may make it easier to measure regulatory alignment and diversions.
In EU trade agreements, there are typically specific provisions in the respective level playing field areas such as labour standards, environment and competition. For example, in the area of labour, there would be a commitment to upholding minimum International Labour Organisation standards, an agreement on cooperation and dialogue, an agreement on non-regression of the standards. The first two elements are very common and unlikely to cause much in the way of dispute.
Standard non-regression clauses seek to deal with the scope of the area covered, governance enforcement and future legislation. Thy seeks to prevent the other state or bloc from encouraging trade and investment by lowering protections or failing to enforce existing protections. In this context, the standards are measured by reference to the effect in the starting trade and investment. There is significant scope for discussion and dispute.
The adherence to the standards is usually monitored through a joint committee which may also have other parallel participation by civil society representatives.In some existing EU trade agreements, the labour and trade standards may be non-binding. This is in contrast to other provisions level playing field provisions whereby there is provision for binding arbitration.
Dispute resolution is undertaken first by consultation and ultimately by arbitration to a panel of experts who in some cases issue non-binding recommendations. In some existing EU agreements, there are no sanctions for non-compliance. In more recent agreements the labour non-regression clauses are binding. In the CETA agreement with Canada, there is a relatively light touch monitoring regime with references to non-binding expert panels.
Regression clauses do not usually deal with future standardsn. They are usually limited to the position as at commencement.
Enhanced Clauses
It is argued that non-regression clauses might be made more effective by focusing on outcomes rather than intentions in terms of investment and trade impact. It would be easier to produce objective evidence of trade and investment changes than to judge intention. However, even in this context, it may be difficult to prove that the changes in the standard caused the change in trade and investment.
A more stringent test might be to decouple the change in standards from either outcomes or intention. This would focus only on the legislation and its enforcement rather than the consequence or intent. States would be reluctant to commit to imprecise general rules which might be interpreted in an expansive way by the arbitration body effectively limiting their freedom to regulate.
A more comprehensive form of the non-regression clause might be to include both general standards as well as specific commitments in the areas concerned.
Enhanced Enforcement
NAFTA requires each party to set up national administrative offices within its Labor Department for example. Individuals can make complaints to the office, which can review it and seek to determine the matter. It may consult with the other members, and ultimately the matter may be referred to a ministerial council of the relevant labour ministries. If no agreement is found more serious cases can be referred to a committee of experts which makes non-binding recommendations. In the case of certain very serious infringements such as in relation to child labour, minimum wage or occupational health & safety, there is provision for reference to an arbitration panel which may impose sanctions.
The UK government has legislated for a Trade Remedies Authority to undertake the equivalent role of the European Commission in relation to international trade complaints. It may investigate complaints relating to unfair trade practices, such as dumping. It might also be tasked with complaints regarding broader level playing field commitments in the area of employment, environmental, and social protection legislation.
A furthermore option comprehensive would be to provide for a supranational court which might be permanent. This might allow for individuals to make complaints to a supervisory authority which might make a reference to the court. There might be a provision for state liability by individuals who could be compensated for failure to implement the agreement. It seems unlikely that the EU or the UK would agree to such a mechanism.
A further possibility would be the UK adapting the EFTA Court provisions. This would presuppose a degree of alignment something equivalent to the single market which is unlikely to be achieved.
The standard non-regression clauses are state to state matters. There is the possibility of consultation by the joint committee with a view to resolving a dispute. Ultimately the matter is referred to arbitration for determination and ruling by a panel of experts.
A more ambitious form of the non-regression clause is to allow for direct enforcement by businesses individuals and other stakeholders. A more modest version is to allow such stakeholders to initiate complaints. Some trade agreements allow for third party complaints about enforcement of the non-regression clause.
First Withdrawal Agreement and NI Protocol
The original version of the backstop under which Great Britain was in a customs union with the EU had provided level playing field rules concerning competition state aid environment employment and health and safety rules. When the withdrawal agreement was amended in October 2019, these level playing field rules were removed from the withdrawal agreement, which was binding in international law and moved into the future relationship declaration is not binding.
Northern Ireland effectively remains in the EU customs area single market for goods. There are level playing field rules in relation to competition and state aid whereby Northern Ireland has to apply the EU rules on an ongoing basis. However, in respect of the other rules mentioned above, it is in the same position as Great Britain. There will be level playing field rules in relation to those areas only if they are contained in the UK EU trade agreement.
Political Declaration
The EU UK political declaration on the future trading agreement which accompanied the Withdrawal agreement states that level playing field rules for open and fair competition are intended to be put in place. The purpose of the commitments is to prevent distortion of trade and unfair competitive advantages. The precise nature of the commitments is to be commensurate with the scope and depth of the future relationship. That is to say, the closer the relationship; the more restrictive those rules shall be.
These commitments should combine in particular, maintain a robust and comprehensive framework for
- competition and state aid control that prevents undue
- distortion of trade and competition.
- commit to the principles of good governance in the area of taxation and the curbing of harmful tax practices;
- maintain environmental, social and employment standards at the current high levels provided by the existing common standards.
In so doing, they should rely on appropriate and relevant Union and international standards, adequate and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement.
EU Objectives
Environmental protection
- should reflect the polluter pays
- specific standards
- principle of public participation
- measures to meet climate change commitments
- equivalent standards and effectiveness of carbon pricing
- possible involvement in the EU emissions trading scheme
Labour and social standards including
- fundamental rights of the worker
- occupational Health & Safety
- fair working conditions
- employment standards
- information and consultation rights at company level and on restructuring
- protection and promotion of social dialogue between workers and employers and their organisations
- basic International Labour Organisation conventions
- Effective enforcement of labour laws regulations and practice to adequately resourced independent authorities
- Council of Europe European Social Charter as already accepted
EU competition rules are to apply including
- those in relation to anti-competitive practices
- use of monopolistic type power and
- control of mergers of monopoly
- EU state aid laws to apply enforced by an independent authority
- total agricultural support to be determined as the equivalent
- compliance with good governance in the area of tax including OECD standards against base erosion and profit shifting
- exchanges of information on taxation related matters.
The EU is seeking to ensure that where the parties increase their level of environmental social and labour and climate protection beyond the existing commitments the partnership should prevent them from lowering those additional levels to encourage trade and investment. There should be reviews and mechanisms to enforce, including scrutiny.
There should be general exceptions including in relation to security, balance of payments, prudential supervision and taxation based on the relevant terms in the WTO agreements. There is the possibility of a party activating temporary safeguard measurements that might otherwise be a breach in the case of circumstances of significant economic societal or environmental difficulties. This is subject to strict conditions and the right of the other party to apply rebalancing measures.
