The authoritative source for independent research on UK-EU relations

15 Dec 2020

Politics and Society

Relationship with the EU

With just over two weeks to go until the end of the transition period, the UK and the EU remain at loggerheads on how to resolve one of the knottiest issues of the negotiations: the so-called level playing field.

But signs of movement in recent days suggest that, with a good dose of creativity, not all is lost.

Based on IPPR’s previous work with the European Policy Centre’s ‘Level Playing Field’ working group, here is a proposal which could satisfy both sides.

The nub of the problem is a disagreement over fair competition on the one hand and sovereignty on the other.

The EU is calling for a way to ensure that the UK broadly keeps pace with its levels of protection in labour and environmental standards (a ‘ratchet clause’).

It fears that the UK could have both tariff-free access to its market and at the same time gain an unfair competitive advantage through a more relaxed approach to regulation.

If, say, the UK falls behind the EU on holiday pay or rights for workers on zero-hour contracts, or if it does not keep pace with EU ambitions on climate change or energy efficiency, then this could be used as an opportunity for UK businesses to out-compete their counterparts in the EU.

The UK, for its part, wants to be able to ‘take back control’ of its own laws and standards. While it has apparently agreed to the principle of non-regression – the idea that it should not reduce current levels of protection – it opposes the idea of having to ‘copy and paste’ new EU laws as part of the agreement.

For the UK Government, the whole point of Brexit is to be able to freely diverge from EU rules in future.

But despite these philosophical differences, there is still scope for a solution to be found. After all, the UK Government has repeatedly committed to maintaining high standards after Brexit.

And the EU is not simply asking for the UK to fully align with EU rules on workers’ rights or the environment; instead, it seeks a mechanism to avoid too large a gap in the level of protections between the UK and the EU developing over time, thereby giving the UK an unfair competitive advantage.

Moreover, Brussels-based journalists have reported some concessions on both sides in recent days.

The UK now appears to have accepted the basic principle of a ‘ratchet clause’. The EU appears to have shifted on its demand to unilaterally impose tariffs if the ‘ratchet clause’ is broken. The stage is set for a compromise.

Looking on from outside the negotiating room, it seems that there are still three main areas to be addressed. First, there needs to be clarification over what it means for the UK to keep pace with EU levels of protection.

The EU is not expecting the UK to simply copy EU laws. So how else to understand what the EU is looking for?

The relevant concept here is ‘equivalence’: the UK and the EU would have the same level of labour and environmental protections if their laws and practices are ‘equivalent’ – that is, if they achieve the same outcomes, even if by different means.

This would give the UK the flexibility to do things differently after Brexit, while also ensuring it upholds high levels of protection.

Second, there needs to be agreement on when any divergence in the level of protections would be a problem.

After all, a small difference in the level of labour or environmental protections would not typically have much impact on the UK’s relative competitiveness and so would unlikely to be a concern for the EU.

At the same time, the wording of the agreement should not make it so hard to prove a threat to competition that the ratchet clause becomes toothless.

One potential compromise is that both sides agree that there is only a problem if differences in the level of protection ‘risk affecting trade or investment’ between the two parties.

Third, the UK and the EU need to agree on what the consequences are of a large gap in their level of labour or environmental protections.

The UK doesn’t want to feel like it is bound to future rules which it cannot control, while the EU wants the option to retaliate if it feels it is being unfairly disadvantaged.

In IPPR’s ‘Shared Market’ report from 2017, we have a ready-made response to this problem: any disagreement over a divergence in standards could ultimately be resolved by an independent arbitration panel, made up of a balanced group of experts proposed by the UK and the EU.

This panel could issue a ‘declaration of divergence’ if it finds evidence of a difference in the levels of protection which risks affecting trade or investment.

The declaration would not record a breach of the agreement, but it would nevertheless give the EU (or the UK) the power to impose temporary and proportionate tariffs.

These could be reviewed on a regular basis, depending on whether the divergence in the levels of protection between the UK and the EU changes over time.

There is therefore scope for a potential compromise on the vexed question of the level playing field which could satisfy both sides: one that allows either the UK or the EU to raise a complaint – and ultimately impose tariffs – if they believe their labour or environmental protections are no longer equivalent and if this risks affecting trade or investment between the two parties.

Of course, the Brexit UK-EU discussions are taking place behind closed doors and no-one but the negotiators precisely know the evolving positions of the two sides.

But this proposed compromise suggests that, even at this late hour, a resolution over a Brexit deal between the UK and the EU can still be found.

By Marley Morris, Associate Director on immigration, trade and EU relations at Institute Public Policy Research.

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