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A bumpy level playing field awaits the next round of Brexit talks

The UK government needs clearer arguments and a better strategy going into the next phase of Brexit talks

With the next phase of Brexit talks set to be dominated by disagreements over how much the UK will diverge from EU rules, Alex Stojanovic says the UK government needs clearer arguments and a better strategy.

There will be less than a year to negotiate the terms of on the UK’s future relationship with the EU. Of the many complicated issues that will arise, the so-called “level-playing field” will be one of the most controversial.

Level playing field provisions, which ensure that companies engage in fair competition by establishing similar rules on the environment, social rights, state aid and competition, are a key part of the EU’s internal market.  

Most trade deals include some provisions for level playing fields. By removing market protection in the form of tariffs, this ensures that neither side is put at an unfair disadvantage. The EU has recently released slides arguing that UK’s geography and economic interdependence means that it poses a big risk to the EU – more so than countries like Canada or South Korea – if it undermines the level-playing field.

Ursula Von Der Leyen, the European Commission president, has already restated the EU’s fears that, after Brexit ,the UK could water down existing rules or, due to the loss of oversight from EU institutions, enforce them inadequately. On the other hand, the UK government is wary of signing up to EU-imposed obligations – and answering to EU institutions.

The level playing field will continue to influence the next phase of Brexit talks

While the government removed the level playing field conditions in its renegotiated withdrawal agreement, it featured heavily in the version agreed by Theresa May. Her deal committed the UK to significant level playing field conditions with special arrangements for Northern Ireland – as a price for the UK-wide customs union. The two approaches used in that deal are likely to inform the future relationship negotiations.

The first is “non-regression”: the UK (minus Northern Ireland) would commit to stick to current standards but would not need to update its law in line with new EU legislation. EU institutions would have had no jurisdiction over the UK, with UK public bodies enforcing UK commitments. The second key approach (mainly applying to state aid) would have required the UK to align to EU law and gave the European Commission a role in overseeing the decisions of the UK’s Competition and Markets authority (CMA).

At a minimum the EU will want some form of non-regression. But how broad its scope is in binding the UK to EU regulations, such as the precautionary principle, is up for negotiation. In addition, the role of EU institutions, and whether there is any commitment to continue aligning as EU law changes, may also be part of the next round of talks.

State aid is the issue causing major disagreement between the EU and the UK

The EU is especially concerned about the UK’s future use of state aid – a broad concept covering any financial aid granted by a member state government which distorts, or threatens to distort, competition. In practice, over 95% of state aid measures in the EU are covered by exemptions and so are automatically allowed – but the Commission has the discretion to adjudicate on particular cases.

This matters greatly to the EU, with the previous withdrawal agreement giving the Commission a greater role in the UK’s state aid regime than in the EEA/EFTA states or Ukraine. It aligned the UK to EU law and gave the Commission the power to sign off decisions by the CMA. The EU fears that without such this oversight there would be greater scope for successful lobbying on areas like tax reductions and sectoral exemptions.

The UK has already made commitments on state aid through the Irish Protocol, which could affect more than just Northern Ireland. However, it has little interest in allowing the Commission to have the final say on whether future UK government subsidies or investment breaks rules or unfairly harms other member states. Without a voice in the Commission and as a non-member, the UK would have little recourse in comparison to member states if their interests diverged.

The UK government needs better answers on why it wants to diverge from EU rules

The UK is unlikely to suddenly attempt a race to the bottom after Brexit. But there is a risk that talking up the freedoms of Brexit at home will simply encourage the EU to adopt a more hard-line negotiating stance. The government needs to make clear that the regulatory freedom it wants after Brexit will not pose a threat to the EU, and it should:

  • Demonstrate the UK’s credibility. The government has already set up new watchdogs, or has given more powers to existing ones, to enforce the level playing field after Brexit. These bodies must be given real power to act.

  • Stay on message. Negotiations have seen ministers sending mixed messages to domestic and EU audiences. When it comes to the level playing field, it is no good saying we don’t want “Mad Max” – in the words of former Brexit secretary David Davis – while at the same time implying that the UK won’t stick to obligations.

  • Provide examples of different approaches to regulation. Some proposals, such as on farming regulation proposals, are only moderate deviations in regulatory approach, but there are rumblings of some changes that could be more problematic – for example changes to public procurement.

  • Submit a preferred text – If the government wants to do more than accept the conditions in May’s withdrawal agreement then it has to present some of its own. Allow the EU to make proposals first would weaken the UK’s negotiating position.

The UK will leave the EU on 31 January, but there is a lot of negotiating ground still to cover – not least on the difficult terrain of the level playing field.

Topic
Brexit
Publisher
Institute for Government

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