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UK–EU future relationship: level playing field

A level playing field is a trade policy term that refers to a set of common rules and standards that are used primarily to prevent businesses in one c

UK and EU flag, Brexit

For detail on what was agreed on the level playing field in the UK–EU Trade and Cooperation Agreement, please read our analysis of the deal.

A level playing field is a trade policy term that refers to a set of common rules and standards that are used primarily to prevent businesses in one country undercutting their rivals in other countries, in areas such as workers' rights and environmental protections.

Beyond ensuring fair and open trade, level playing field provisions can support other objectives such as sustainable development or meeting climate change commitments.

The EU’s single market is the most developed example of a level playing field agreed between different countries. The European Commission and the European Court of Justice are responsible for overseeing and enforcing these rules.

Why are the EU27 keen to ensure a level playing field between the EU and the UK?

The EU has consistently made clear that it wants to ensure that trade with the UK is fair and competitive. The EU believes that, given the UK is a large economy that is geographically close to the single market, a level playing field is a prerequisite to avoiding tariffs.

In 2017, the EU’s guidelines mentioned that an “ambitious and wide-ranging trade agreement” would be dependent on “sufficient guarantees for a level playing field”. The EU’s draft mandate on the future relationship, published in 2020, restates this point. This sets the UK apart from Canada or Japan, with whom the EU has trade deals, where the agreements feature relatively limited provisions on the level playing field.

What is the EU concerned about?

The areas the EU is particularly worried about are:

  • workers’ rights
  • competition and state aid (or subsidies for business)
  • taxation
  • social and environmental protection.

Competition and state aid

The EU has a state aid and competition regime, which the European Commission actively enforces. The EU is concerned that the UK, in a close trading relationship, could undercut European businesses by providing greater subsides to British industry – or introducing a more relaxed competition regime.

There are already concerns in the Commission and some member states about the assurances the government gave to Nissan after Brexit (though the Commission did not launch a formal investigation) and the support the government gave the then struggling airline Flybe. The UK could also introduce looser rules making mergers and acquisitions of businesses easier.

Taxation

On tax, the Commission seems concerned about corporation tax, where the UK might cut its already relatively low rate further (there is no common EU approach in this area). This could make the UK a more attractive place to base a business while still being able to trade with the EU on preferential terms.

The EU is also worried about the loss of transparency and information sharing to combat tax avoidance. 

Social and environmental protection

Social and environmental protection are two areas where the EU has legislated to raise standards across Europe. Those standards can impose costs on business and the EU is concerned that lower standards in the UK would give UK-based business a competitive edge – or force the EU to reduce its own standards to be able to compete.

The EU is also worried that lower environmental standards could impose “costs on EU citizens” through cross-border pollution. Environmental protection was the area over which the UK ended up most often before the European Court of Justice.

What have the two sides already agreed on the level playing field?

The level playing field featured extensively in the withdrawal negotiations. In 2018, Theresa May’s government and the EU agreed a draft withdrawal agreement that included significant level playing field provisions as part of the Northern Ireland and Ireland Protocol.

These included:

  • Following EU rules for state aid and competition
  • Not lowering existing environment and labour commitments (using a ‘non-regression’ clause).

UK bodies would be responsible for monitoring compliance though the EU could be involved in some of their operations.

In October 2019, Prime Minister Boris Johnson renegotiated the Northern Ireland and Ireland Protocol. But as part of that he also made commitments to the level playing field. In order to avoid the need for regulatory checks in Ireland, Northern Ireland will have to stay in line with some single market rules for goods, including the level playing field.

This has implications for the rest of Great Britain. Johnson’s deal means the government is limited in how it can subsidise British industries if those subsidies could affect trade with Northern Ireland. The UK–EU Joint Committee recently decided that EU state aid will apply to measures that ‘affect trade’ between Northern Ireland and the EU, but only where there ‘genuine and direct link to NI’. Agricultural and fisheries support will be exempt, subject to annual limits.

The Northern Ireland protocol also means there will be customs and regulatory checks on goods moving from Great Britain to Northern Ireland, although the recent UK–EU Joint Committee agreement means some of these have now been streamlined or are subject to temporary mitigations.

How has the UK reacted to the EU’s position?

The EU’s draft mandate suggests that the EU is seeking similar commitments on respecting a level playing field.

The UK’s written statement on the future relationship rejects the need for strong legal commitments on the level playing field, and the UK does not want to agree to measures which go beyond a typical trade agreement. It wishes to avoid EU law being the basis of establishing common standards and does not want to be subject to the jurisdiction of EU institutions.

The prime minister gave a speech following the publication of the EU’s draft mandate setting out further arguments for why the UK does not see the need for such obligations. He makes the case that the UK has higher standards than EU member states and the reason for this is not due to EU law.  For example, the prime minister pointed out that the EU has enforced state aid rules against the UK only four times in the last 21 years, compared with 29 enforcement actions against France, 45 against Italy and 67 against Germany.

Are the two sides positions irreconcilable?

It is possible to see how a deal on the level playing field could be struck if one or both sides moderated their demands. The UK government could agree to stronger level playing field provisions beyond what is agreed in normal free trade agreements without accepting the oversight of EU institutions. The EU may be persuaded that the UK’s domestic enforcement will be sufficient to maintain fair competition.

How to deal with changes in level playing field standards over time has proved a key stumbling block during negotiations, with both sides disagreeing over how this should be addressed and the consequences of divergence.

There have been reports that both sides have moved from their opening positions, and speculation about what a compromise might look like. Although the level playing field remains a key sticking point in reaching an agreement.

Topic
Brexit

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