TCA Regulation

The European Union has harmonised the rules on doing business in many areas. This was done with a view to facilitating the EU single market in goods and services. There are common EU prescribed minimum standards in relation to many aspects of employment, occupational health & safety, environmental protection and climate change. They are designed to create a high level of protection for workers and citizens and also to preserve a level playing pitch in EU trade.

EU wide competition rules apply to market actions including abuse of a dominant position, the distortion of competition and certain high-level mergers which affect trade between EU member states. There is a strong system of competition enforcement. Many countries including Ireland and the United Kingdom have replicated the terms of European Union competition law so that it also applies in the same terms to trade within states.

State subsidies and supports for private industry and for public sector monopolies are subject to detailed EU regulation. The effect is that many former state monopolies have been privatised or put at arms-length from the state with independent regulators and strong regulatory standards designed to ensure free and fair competition.

In almost all sectors, the United Kingdom has re-enacted the pre-existing European Union driven legislation as domestic UK law. As of early 2021, UK law remains highly aligned with European Union law. However, the UK as a non-member of the EU will be free to apply different labour, health and safety, environmental and competition rules. It will not be subject to the EU rules on state subsidies including tax-based subsidies.

For this reason, the EU sought to ensure that it was a condition of full customs duty-free access to the EU single market for UK businesses, that there would be some limits and controls on the U.K.’s ability to diverge in standards and rules, to the extent that UK businesses could compete unfairly with those in the EU.

The Agreement allows the UK to diverge from EU regulation subject to the general level playing field provisions. The UK is committed only to maintaining the present high degree of alignment with EU legislation to the extent that changes would result in a material impact on trade and investment in breach of the basis for the Agreement.

Significant changes could occur without this threshold being reached. Even if it was alleged to be breached, the mechanism below would be the only remedy available to the European Union. As with other remedies under the Agreement,  it operates on a state to state level only. Individual businesses in the EU which may be caused damage have no direct recourse.

The EU UK TCA provides for level playing fields with open and fair competition and sustainable development. There is a rebalancing mechanism allowing for relatively speedy adjustment. The rebalancing mechanism may be initiated where the EU or UK authorities believe that a significant divergence is impacting trade or investment between the EU and UK in a manner that changes the circumstances that formed the basis for the Agreement.

Those divergences must be in the area of labour social standards environmental or  sustainable development. In other areas, other  more general dispute resolution procedures in the agreement would apply.

The complainant party may take appropriate rebalancing measures. They must be proportionate. They may request a panel of experts to consider the matter. If they take unilateral measures to remedy the imbalance alleged by reason of the regulatory divergences, those measures may be challenged with reference to a panel of arbitrators. In this event, the EU or UK (as the case might be invoking such measures) would be obliged to demonstrate that there was  significant imbalance and that the unilateral measures taken in response were proportionate to remedy that imbalance.

In relation to goods regulations and standards,  the EU and UK commit to using international standards as a basis for regulation, except where this would be inappropriate or ineffective for fulfilment of a legitimate objective. They are to ensure transparency.

The TCA provides an improved version of the World Trade Organisation technical barriers to trade system. Measures which may be a barrier to trade must be notified through the system and other countries may review comments and  potentially object to the proposed measure. There are dispute resolution mechanisms by which the EU or UK can object to propose measures.

There are commitments not to discriminate. They are commitments to exchange information on product safety through the equivalent of the EU RAPEX system on dangerous products.

There is minimal easing of the burden in relation to cooperation on sanitary and phytosanitary matters. There is a Trade Specialised Committee on sanitary and phytosanitary measures which may adapt measures. There are some measures for cooperation in relation to animal health, sustainable food systems and antimicrobial resistance.

Broadly, the agreement does little more than build on the WTO SPS (sanitary and phytosanitary) agreement. The EU and UK commit to applying measures for achieving the appropriate level of protection based on risk assessment. They must not use SPS measures to create unjustified barriers to trade.

SPS measures and approvals are where applicable to be initiated and completed without due delay. They are not to be unduly burdensome or constitute arbitrary unjustifiable discrimination. They must be proportionate to the risks identified.

Environmental levels of protection covered include

• industrial emissions
• air emissions and air quality
• nature and biodiversity conservation
• waste management
• protection and preservation of the aquatic and marine environment
• risks to human health and the environment from chemical substances
• management of impact of antibiotics and decontaminants

The EU and UK commit to the maintenance of certain international standards in relation to environmental protection and sustainable development. They commit to non-regression i.e., not weakening or reducing the overall the levels of protection in place as at the end of 2021. There is no obligation to follow each other’s policies or standards in the area of environment.

There is no obligation to keep pace with the others environmental standards. If one side believes a significant gap has opened, the level playing field rebalancing mechanism may be invoked. There must be significant divergence which is impacting trade or investment between the EU and UK in a manner that changes the circumstances that formed the basis for the agreement.

The UK intends to put in place an independent environmental body which is intended to preserve non- regression. The Agreement provides for cooperation between the EU Commission and the relevant UK bodies in preserving the level playing field in relation to the environment.

The EU and UK Trade and Cooperation Agreement commits to sustainable development. They EU and UK agree that the fight against climate change and in particular the 2015 Paris Agreement is an essential element of their partnership. Breach of this element by either gives the other the right to terminate or suspend all parts of the agreement.

The EU and UK agree to have an effective system of carbon pricing and maintain it as an effective tool in the fight against climate change. The climate level of protection agreed applies to emissions and removal of greenhouse gases covering the EU and UK is respective 2030 economy wide targets. This includes the systems of carbon pricing and the phasing out of ozone-depleting substances. The EU and UK confirmed their ambition to achieve economy wide climate neutrality by 2050.

Regression including regarding carbon pricing is agreed and each side commits to seek to increase its levels of protection over time. The UK agrees to cement a system of carbon pricing. The UK is not part of the EU’s emissions trading system but the EU and UK agreed to give consideration to linking their respective carbon pricing systems.

The parties commit to adhering to the relevant internationally agreed principles such as multilateral environmental agreements.

The Agreement contains guarantees over and above the non-regression revisions that apply generally to environment climate labour and social protection. They include

• the recognition of a shared biosphere
• coverage of future targets that are set in law including 2030 waste recycling targets 2027 water targets and 2030 pollution ceilings
• full inclusion of the key environmental principles including the precautionary principle polluter pays and integration principles
• full inclusion of the Convention on access to information justice and participation on environmental matters
• effective cooperation mechanism between the supervisory bodies in the UK and the EU Commission in relation to environmental protection
• the recognition of the relevance of procedures for evaluating impact of proposed activity on the environment along the lines of environmental impact assessment and strategic environmental assessment

The EU and UK agree to maintain and improve their high standards of employment law rights. They commit not to reduce the level employment rights in a manner which has an effect on trade or investment. The areas covered include

• fundamental rights of work
• occupational health and safety standards
• fair working conditions and employment standards
• information and consultation rights at company level
• restructuring of businesses

The Trade and Cooperation Agreement requires the UK to put in place and maintain a system of effective domestic enforcement. This must include effective an system of labour inspection. There must be appropriate and effective remedies including interim relief for breaches. There must be proportionate and dissuasive sanctions.

The EU and UK commit to adherence to the relevant international principles including in particular the conventions of the International Labour Organisation and the European social Charter of the Council of Europe.

The EU UK Trade and Cooperation Agreement recognises the importance of free and undistorted competition in their trade and investment relationships. They acknowledge that anti-competitive business practices may distort markets and undermine the benefit of trade liberalisation.

The UK is not obliged to maintain the same system of competition law which it has at present. Its obligation is to have an effective competition regime. As of January 2021 it is not clear to what extent the UK will maintain or diverge from the current competition regime which largely mirrors that which existed before 2021.

Each of the EU and UK agree to maintain competition rules which address anti-competitive agreements and concerted practices abuse of dominant positions and mergers and acquisitions which may have a significant anti-competitive effect. They agree o establish and maintain independent authorities for enforcement of these provisions. The European Commission will undertake the role in the European Union. The UK Competitions and Markets Authority will undertake this role in the United Kingdom.

The UK’s basic competition domestic rules are in identical terms to the EU rules at present. There is a prohibition on anti-competitive behaviour and on abuse of a dominant position. The various exemptions in the EU rules such as in relation to vertical agreements (e.g. distribution research and developments and technology transfer agreements) have been restated in UK law.

The single system of merger control for large-scale mergers which impact at  EU wide level no longer applies to the United Kingdom. This means that separate approval would now be required in the EU and UK in such cases. The EU is no longer part of the European Competition Network comprising the EU Commission and member states’ competition authorities.

The EU and UK agree to guarantee the right of domestic enforcement of competition laws. Breach of competition law can be challenged before courts. There are to be rights of access to court and effective methods of recovery for breach.

The EU state aid rules no longer apply to the United Kingdom. They apply to Northern Ireland to a significant extent under the terms of the Northern Ireland Protocol. 

The United Kingdom must implement a subsidy control system under the EU UK TCA. The must be an independent authority with an appropriate role. Interested parties such as competitors must have rights of recourse against breach of the legislation in the UK courts.

The subsidy rules in the TCA  cover  trade and investment  between the United Kingdom and European Union. Each of the EU and UK is to be subject to its own independent agency. The EU Commission plays the role in the European Union. The UK will establish its own agency.

The EU system of subsidies/state aid requires prior consent other than which fit into a limited categories of generally permitted subsidies (e.g. low level “de minimis” subsidies). The UK system need not have prior consent requirement.

Each of the EU and UK commit to maintain an effective system of subsidy control. Subsidies may be granted only in accordance with defined sets of principles including their contribution to certain public interest objectives. There are specific principles and subsidies applicable to key sectors such as energy and transport. There are specific provisions on certain types of aid, in particular, the restructure of ailing companies, guarantees and export subsidies. There may be exemptions below certain levels as before.

The EU and UK are  to publish an official website public database with information on subsidies granted. The EU and UK are to consult on distortive or potentially distortive subsidies. There is a commitment that taxation is not to be used to distort competition.

The EU and UK agree to guarantee the right of domestic enforcement of competition laws. Breach of competition law can be challenged before courts. There are to be rights of access to court and effective methods of recovery for breach.

Where there is a breach of the principles on competition and subsidies either party may take unilateral measures. This may include the reintroduction of tariffs or quotas on certain products in response to a subsidy of the other party which creates a significant negative effect on trade and investment.

There may be unilateral rebalancing in the case of significant divergence. This may arise where one party (EU or UK) systematically fails to prevent trade distorting subsidies giving a competitive advantage to traders of that party.

There are special provisions in relation to state-owned enterprises, designated monopolies and enterprises granted special rights and privileges. A designated monopoly is one designated as sole supplier or purchaser of a particular good or service. Those with special rights include those designated as one of an very small number of enterprises authorised in the area concerned.

There are limitations on the application of the provisions to these kinds of bodies. Various exclusions apply. Each of the EU and UK commit that the entities concerned, when engaging in commercial activities act in accordance with commercial considerations except to fulfil the terms of public service mandate in accordance with certain principles. They must not discriminate against businesses in the other’s territory.

Each of the EU and UK are to implement a regulatory framework in accordance with OECD guidelines on the corporate governance of state-owned enterprises. There must be an independent regulator which acts impartially.

There are provisions by which either the EU or the UK may request information from the other where it believes it is being adversely affected by the commercial activities of the other’s entity. Information can be required in relation to the organisation and structure of the entity, particulars of the regulation and monitoring, financial protections exemptions and immunities granted and other relevant information.

The EU UK Trade and Cooperation Agreement contains relatively little on direct taxation. Direct taxation i.e. income tax corporation tax and capital gains tax is largely outside the powers of the European Union. International Cooperation on tax policies takes place in the context of the Organisation for Economic Co-operation and Development (OECD) of which both the EU and its members and the UK remain part.

The level playing field measures contain some provisions relating to  taxation. This applies only where the tax could comprise a subsidy that benefits businesses in the EU or UK over those in the other territory in relation to production of goods or services. There are obligations to publicise subsidies including those in the form of tax measures.

So that tax does not distort competition the EU and UK commit to implementing principles of good governance in the area of taxation. In particular they commit to following world standards on tax transparency, exchange of information and unfair tax competition. They agree and confirm agreement to implement OECD minimum measures in certain areas including.

• OECD standards on exchange of information regarding financial accounts
• country by country reporting between tax authorities and
• arrangements on cross-border tax planning

The UK has departed from the EU rules on DA6 in line with OECD provisions.

The EU and UK commit to measures countering harmful tax regimes which would affect the location of businesses. They include in particular those which facilitate base erosion and profit shifting in line with the OECD principles and action plan. The trigger point for potentially harmful tax regime is at a level significantly lower that generally applicable in the EU or UK under their tax systems.

There are measures protecting Social Security rights in relation to posted workers. Only one set of Social Security rules is apply to the worker and the employer at a given time so as to ensure that there is no double taxation in the area of Social Security.

Workers who are sent to the other territory temporarily (posted workers) remain liable to contributions in the home state for a period. Benefits under social security/national insurance scheme are to take account of contributions paid in both the EU and UK as the case may be.

The level playing field provisions in the EU UK Trade and Cooperation Agreement were the subject of contentious negotiation. The UK as a non-member of the EU will be free to apply different labour, health and safety, environmental and competition rules. It will not be subject to the EU rules on state subsidies including tax based subsidies.

For this reason, the EU sought to ensure that it was a condition of full customs duty free access to the EU single market for UK businesses, that there would be some limits and controls on the U.K.’s ability to diverge in standards and rules, to the extent that UK businesses could compete unfairly with those in the EU.

The EU UK TCA level playing field provisions cover competition, subsidies, state owned enterprises, aspects of taxation, labour and social standards environment and climate as well as certain other trade and sustainable development objectives.

The strictest rules apply in relation to employment and social standards and certain environmental objectives. The special enforcement mechanisms do not apply to competition and tax subsidies. In this case the emphasis on domestic enforcement by an independent authority.

The EU and UK are not to weaken or reduce in a manner affecting trade or investment between the their territories, the high levels of protection in place as on the date 1 January 2021. These are the non-regression obligations.

There is a special dispute mechanism in relation to the level playing field provisions. This allows for remedial measures and rebalancing. In the case of breaches of the provisions on employment social rights and environmental policies, there is the possibility of review by a panel of experts. The arbitration panel panel are likely to be experts in the field.

In addition the EU and UK commit to certain international conventions, which provide a floor of standards, which the EU and UK commit to comply with and develop. These latter commitments are general in nature and do not constitute dynamic ongoing alignment.

In the case of  employment, social, environmental and climate issues, the TCA allows for rebalancing where there is divergence.  If the EU or the UK is of the view that the other has reduced rights or protections in a way that impacts trade and investment, they must consult with a view to reaching a mutually satisfactory resolution of the matter.

If not resolved, the matter may be  referred to a panel of experts. If the panel decides that material impacts on trade and investment have arisen because of significant divergence in the laws and standards, the other party (EU or UK) may take appropriate rebalancing measures to address the situation.

There is no requirement to use other dispute settlement mechanisms in this case, because there would not necessarily be a breach of the Agreement. This could include circumstances where one party has improved its regulation and the other has not done so.

The permitted rebalancing may be decided by the arbitration panel. If it does not decide on rebalancing within 30 days of establishment, the side complaining (EU or UK) may undertake unilateral rebalancing. This may be subject to further rebalancing once the arbitration panel determines the matter.

Outside of the level playing field rebalancing provisions, the general dispute resolution provisions would apply. The dispute provisions provide for reference to a panel of arbitrators. If the panel decides that one or either the EU UK has breached its obligations and fails to comply the other party (EU UK may suspend some of its obligations, effectively withdrawing benefits of the agreement.

There is a special dispute resolution procedure for breaches of the state aid/subsidy provisions.  Where the EU or UK considers the subsidy granted by the other causes or there is a serious risk that it will cause, a significant negative effect on trade or investment between the EU and UK, either may initiate a process. 

The complaining side (EU or UK )  must first consult with the other about the measure. Notice must be given to the other side and an opportunity to comment must be afforded. The must be reliable evidence of damage or harm to specific goods and services or businesses. If there is no satisfactory response within a relatively short period it may take appropriate remedial measures unilaterally. They may be challenged through arbitration and can be nullified if improperly imposed.

The process allows for unilateral remedial measures after a 60 day period. The measures must be proportionate. One or other side may act unilaterally at first, but there is the possibility of a special speedy arbitration process to decide whether there has in fact a significant negative effect , whether the measures are proportionate and on whether the correct procedures have been followed.

The special enforcement mechanisms do not apply to competition and tax subsidies. In this case the emphasis on domestic enforcement by an independent authority.

The requirement to have an adequate state aid mechanism is subject to the general dispute resolution as opposed to the special dispute resolution.

The safeguard provisions provide for suspension unilaterally of provisions of the Agreement in response to serious economic societal  or environmental difficulties of a sectoral or regional nature (including in relation to fishing) that are liable to persist. 

The EU or UK as the case may be may unilaterally take appropriate safeguard measures. They shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority must be given to those which will least disturb the functioning of the Agreement.

The side concerned must notify the other to the partnership Council and provide all relevant information. The EU and UK shall consult in the council with a view to finding a mutually agreeable solution. The EU or UK must not take measures of the one month has elapsed or the Partnership Council consultations have concluded. In exceptional circumstances immediate action may be taken where it is strictly necessary to remedy the situation.

If the safeguard measure taken create an imbalance of rights under the Agreement or supplemental agreement, the other side may take  proportionate rebalancing measures as are strictly necessary to remedy the imbalance. Priority must be given to measures which causes least disturbance.

The measures may be challenged by reference to arbitration. The independent tribunal is constituted if necessary by drawing from pre-agreed list of potential arbitrators. The tribunal is to deliver a binding ruling within a set timeframe. If one side does not comply with an arbitration ruling the other party may take countermeasures.

There is also provision by which the EU UK consider that there has been a serious and substantial failure by the other to fulfil any of the essential elements of the agreement it may decide to terminate or suspend the operations of the agreement in whole or in part.

These provisions are particularly serious and must involve breach of very fundamental principles such as human rights democracy Paris agreement targets and certain other very limited matters.In order to constitute a serious and substantial failure to fulfil the essential elements of the agreement its gravity and nature be such that it is of an exceptional sort that threatens peace and security or has internationa.