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15 Dec 2020

Economy

Policies

What’s this level playing field, I hear you cry? Well, the EU is highly protective of access to its internal market.

It’s deeply worried that if it gives tariff-free access to third countries (i.e: non-member States) to the Single Market, they take advantage by subsidising business or by reducing production costs through lower environmental or labour standards.

Those third country goods would then have a competitive advantage over goods produced in the EU.

How does the EU address this problem? By inserting level playing field (LPF) provisions into its free trade agreements.

You can see this in the EU-Canada ‘CETA’ deal. For example, Article 23.2 says that that the EU and Canada must ‘encourage high levels of labour protection and shall strive to continue to improve such laws and policies with the goal of providing high levels of labour protection’.

If there is a dispute it is to be sorted out via consultation, failing which a Panel of Experts is established which shall ‘engage in discussions and shall endeavour … to identify appropriate measures or, if appropriate, to decide upon a mutually satisfactory action plan’.

So what’s going on with the UK-EU trade negotiations? The EU has long prioritised LPF matters.

The European Council Guidelines of 29 April 2017 said that ‘any agreement with the UK must ensure a ‘level playing field, notably in terms of competition and state aid, and in this regard encompass safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices.’

The UK, on the other hand, is determined to have the freedom to change its rules. This is one of the main reasons for Brexit: to be able to diverge from EU rules.

LPF was included in the Commission’s negotiating mandate: ‘The envisaged partnership should ensure that the level of labour and social protection … is not reduced below the level provided by the common standards applicable within the Union and the United Kingdom at the end of the transition’ in a number of areas including fair working conditions and employment standards. Similar provisions apply in respect of the environment.

Crucially, the mandate is based on a non-regression clause (i.e. the standards should not be worse on either side than on Brexit day).

And this non-regression provision made its way into the EU’s draft version of the trade agreement; the UK responded in its version of a trade agreement with a proposal that looked rather like the considerably softer provisions of Article 23 of the CETA. The battle lines were already drawn.

So why the fuss? It seems that the UK had, in the meantime, agreed to non-regression and thus a level playing field.

However, according to reports, the EU wanted the UK to go further. Earlier this month, the Guardian reported that Angela Merkel is keen on an ‘evolution clause’ to ensure that ‘as one side raises their environmental, labour and social standards, the other is not able to sit tight and enjoy a competitive advantage’.

In other words, the EU wanted dynamic alignment – something which it had previously only asked for in respect of state aid.

The Guardian also reported that the EU negotiators want a forum for discussion when the current minimum standards become outdated owing to developments on one side.

There would then be arbitration, and the potential for one side to hit back with tariffs or other corrective measures if the other drags its feet on agreeing a new “level playing field” of minimum standards.

The reports then suggested that when the UK rejected this bilateral evolution clause (i.e: it will be triggered when either the UK or the EU improve their standards), the EU insisted on a unilateral approach (i.e: it will be triggered when the EU improved its standards); this was unacceptable to the Government.

As Michael Gove said in the Commons on 9 December: ‘one thing we cannot accept in the course of the level playing field negotiations is the demand from some in the EU that if the EU adopts new laws, we would automatically have to follow those laws or face penalties.

We are not afraid to say that our standards are high and we will uphold them, but we are also not afraid to say that the people of this country voted to take back control, and that is what this Government will do.’

And this seems to have been the cause of the bust-up: a wonky level playing field which the UK cannot sign up to. The problem is that no one has seen the clauses, and so it is not clear what the text actually says.

But will the evolution clause make a difference? In the field of labour law, the EU does have plans to improve its labour law in order to implement the European Social Pillar – most notably by proposing a Directive on the Minimum Wage.

This Directive requires countries to put in place the conditions for minimum wages, which are to be set at adequate levels.

The UK already has a minimum wage that is reviewed regularly. Improvement of EU labour standards is not such a threat to the UK in practice.

So it may be that an UK-EU trade deal flounders over provisions which the UK can, in fact, accept in practice.

And, if there is a deal and the ratchet clause is applied, the UK can diverge, but pay the price through tariffs. That is a sovereign decision.

There is one final puzzle. The EU is proud of its Single Market – the largest in the world.

But this desire to protect it at all costs – even at the cost of a no-deal Brexit – suggests that the EU is more worried about the fragility of its Single Market than it cares to admit.

By Professor Catherine Barnard, senior fellow at the UK in a Changing Europe. This piece originally featured ConservativeHome.

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