Level playing field rules and labour protection

level playing field

Even before the UK-EU negotiations on the future relationship began, the positions of both sides were deadlocked.

The UK government made clear that it was ready to reject alignment with EU labour laws after 2020, invoking its determination to set its own social and labour legislation after the end of the transition period.

While seeking to recover regulatory autonomy is a legitimate policy objective, it is unfortunately premised on a misconception of what the (economic) benefits of breaking free from the EU employment laws could be.

In its turn, the EU’s negotiating mandate has set up its own red line. The EU negotiators stand their ground on high standards of protection of workers’ rights.

In other words, the EU proposes level playing field conditions are designed to ensure that neither side undercuts the other. By doing so, the EU pursues its own legitimate policy objective.

Level playing field rules and practices in international trade invariably refer to a certain idea of fairness, and fair competition in particular. There has been an early recognition that certain labour practices can provide an unfair competitive advantage, creating difficulties in international trade.

The classic example is the export of goods made by (undernourished and unpaid) prison labour, which can lead to the suspension of market access under international trade rules.

The scope of labour standards that countries are required to uphold to ensure fair competition has grown over time, reflecting increased international commitments and deepening globalisation.

These are set out in the core conventions of the International Labour Organisation, while the principle of ‘Decent Work for All’, including health and safety at work and acceptable minimum employment standards, is written into the UN’s Agenda 2030, particularly sustainable development goal eight.

Standard labour provisions in EU trade deals include commitments to uphold the fundamental labour rights and, domestically, to not derogate from existing labour laws to boost exports or attract investment, and to effectively enforce domestic laws.

These commitments are legally binding and covered by dispute settlement, including governmental consultations and the recourse to independent arbitrators that make findings of fact and recommendations regarding non-compliance.

However, existing EU agreements exclude the possibility of imposing unilateral trade sanctions.

In addition, the EU approach emphasises institutionalized cooperation based on social dialogue and capacity building to address shortcomings.

EU trade agreements establish a separate body in charge of monitoring and implementation of labour-related commitments, which, importantly, draws in civil society organizations (social partners, NGOs). They also include a compulsory review mechanism, requiring states to prepare a labour impact assessment.

Additional provisions are nothing new in the EU trade agreements.

The Canada-EU trade agreement, which the UK sees as the template to follow, has additional commitments regarding the promotion of health and safety at work and minimum standards of employment, which are not only legally binding but also covered by dispute settlement.

Furthermore, provisions on access to domestic courts provide guarantees concerning the right of workers and employers to fair, equitable and transparent domestic procedures under which their rights can be enforced.

How does the EU’s proposed approach to negotiations with the UK go beyond the provisions typically included in existing EU trade agreements? Additional provisions the UK must meet to get frictionless trade with the EU are information and consultation rights at company level and the protection and promotion of social dialogue.

Moreover, provisions on occupational health and safety as well as on decent working conditions are likely to be reinforced to reflect extensive EU legislation in these areas.

Finally, voluntary commitments on corporate social responsibility might be rendered binding and enforceable, just like in the EU trade agreements with Georgia and Moldova.

Why does the EU insist on those level playing field conditions? To borrow from Jeremy Cliffe, the very essence of the European Union is a quest for the quiet life. Needless to say, high social and labour standards (short working hours, long holidays, universal healthcare) are the backbone of this vision.

The EU will fight tooth and nail to preserve its standards, and this becomes particularly relevant given a perceived risk that UK competition based on low standards will (further) undermine the European social model.

If anything, the UK government wants to retain its ability to lower standards in order to gain a competitive edge, boost exports and economic growth.

Despite any seeming potential benefits for the UK to escape EU employment rules, the real chances of such benefits rest on a misunderstanding of how international (and domestic) labour standards relate to trade.

A study I co-authored shows that the introduction of labour clauses in trade agreements as among states in the global north (as opposed to north-south agreements) has no impact on bilateral trade flows among trade partners.

Accordingly, it is unlikely that by reducing or eliminating altogether labour provisions in its trade agreement with the EU, the UK will increase its exports.

This may come as bad news for proponents of the crash-out Brexit, but it is not surprising given that advanced economies are ‘knowledge’ economies that do not compete based on cheap labour but rather on investment in human capital.

Academic literature increasingly points towards a business case for treating workers well and performing in compliance with social standards. In short, while the potential benefits of regulatory divergence are unlikely to materialize, its drawbacks are clear: the end of frictionless trade and further impetus to rising inequality.

The UK government advocates a policy based on a simplistic view of sovereignty that ignores the reality of a globalized economy.

Even if the EU did not seek to maintain high standards for British workers through a trade agreement, it could reach the same objective by other means. It could introduce domestic safeguard-like procedures against social dumping (just like for prison labour) to maintain high standards for European workers.

Another possibility, based on market mechanisms, is that consumer and firm preferences for goods produced under high labour standards in European markets may lead to the upgrading of standards in the UK.

In any case, the slogan ‘taking back control’ does not do justice to the intricacies of social and labour policymaking in the context of deep trade interdependence.

By Dr Damian Raess, SNSF Assistant Professor, at the World Trade Institute, University of Bern.

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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