The level playing field

28 May 2020

In the seventh instalment in this series, Roger Liddle reflects on the prospects of an EU-UK free trade agreement

Roger Liddle

For the previous instalment in this series, please click here.

The Political Declaration, that Boris Johnson signed with the EU last October, is not legally binding, but as an attachment to an international treaty, is much more than a worthless piece of paper. It committed the UK and the EU to an “ambitious, wide-ranging and well balanced” economic partnership, and it guaranteed “a level playing field for open and fair competition”, while ensuring that both parties retain their autonomy to achieve “legitimate public policy objectives”. Yet the British government has now dropped any specific reference in its published objectives to “open and fair competition” or a “level playing field”.  David Frost, Britain’s chief negotiator[1], went further in a provocative speech in February, by decrying any Brussels-imposed rules to create level playing field as challenging “the fundamentals of what it means to be an independent country”. As David Hannay pointed out in the Lords debate, Frost’s analysis is in contradiction to the fact that “all the EU’s agreements with its neighbours – Norway, Switzerland, Ukraine – contain elaborate level playing field provisions.”

The British government claims that the EU is now asking something it never asked of Canada in negotiating their Free Trade Agreement (FTA). Yet paragraph 77 of the Political Declaration (which to reiterate, Boris Johnson signed on behalf of the UK last October) underlined the differences between the UK’s situation and Canada’s. “Given the Union’s and the United Kingdom’s geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitment to ensure a level playing field”. The British government gives every impression of trying to renege on a principle that six months ago it was content to sign up for.

Not all the hardening of positions has been on the British side, it must be said. On these issues, perhaps in response to suspicions of bad faith on the part of the UK, the EU, (particularly, but not only, at the insistence of France) has toughened the language of the mandate that the Commission originally proposed to the Council. Paragraph 91 of the Council Decision states that as part of the future partnership EU state aid rules should continue to apply “to and in” the UK. This proposal is anathema to the present British government because it requires UK acceptance of two principles that challenge their notion of the country regaining its independence as a sovereign nation. The first is the concept of so-called ‘dynamic alignment’ that would see the UK automatically adopting EU laws for the future whenever the EU adapts its rules or raises its standards. The second is that EU jurisdiction would continue to apply to the UK on level playing field issues. This relates not just to the harder economic end of state aid and competition rules, but also to the social dimension of consumer protection, environmental regulations and a floor of minimum labour standards. The EU has as its aim the elimination of the possibility of a ‘race to the bottom’ on standards by a sovereign country on its doorstep. It is less specific that the UK should automatically ‘dynamically align’ with EU labour and environmental standards, requiring only that “EU standards (should become) a reference point”.

But here the arguments take on a surreal air. The British government insists it has no intention of weakening existing EU standards, what in the language of the negotiators is called a non-regression commitment. It will not however commit to automatic future (‘dynamic’) alignment, nor to any common system of legal enforcement or sanctions for non-compliance with the non-regression commitments it is prepared to make. Instead the EU should rely on taking Britain at its word on pledges it makes in an international agreement. The EU’s confidence in the UK’s good faith has however been badly scarred by the manner in which Boris Johnson continues to deny the reality of what he agreed to in the Northern Ireland Protocol.

To the general public these arguments probably come across as pointless arguments over words. There are though, important principles behind them which go to the heart of what Leavers imagine Brexit is supposed to be about, and that Remainers most fear. For years the Brexiteers have made the argument that one of the ‘opportunities’ of Brexit, as they see it, is to escape the incubus of EU regulation. The government now denies that its motivation for Brexit is to indulge in any ‘race to the bottom’ on consumer, environmental and labour standards. Boris Johnson has departed from many essentials of Theresa May’s approach, but significantly not her insistence that outside the EU, the British government intends to maintain and build on the EU’s high standards. This is despite the consistent record of many Brexiteers in making the case for Brexit as a deregulatory project designed to liberate British business from burdensome EU rules that would in Nigel Lawson’s words “complete the Thatcher revolution”.

One has to take May and Johnson at their word. Their position must partly reflect a political calculation that many working-class voters who supported Brexit did not do so because they wanted to lower Britain standards of environmental, consumer and labour protection. However, given the government’s disavowal of any intention to initiate a deregulatory race to the bottom, it strikes the EU side as odd that Britain refuses to make a binding commitment to continued regulatory alignment. In the Lords debate, David Hannay pointed to the strangeness of the government’s position: “why are we insisting on the principle of regulatory divergence before we have even worked out in what sectors divergence might be to our advantage?” The British government says this is a basic question of sovereignty. But why get so exercised about sovereignty if one has no intention of using it to change and/or weaken EU laws? The argument has become one of theoretical not practical significance, but nonetheless intense and potentially bitter.

The same holds true of the debate over state aid rules. There are few long-term winners in a race between nations to sustain loss making private corporations or to bribe them to locate in particular locations. The UK Treasury shares a common interest with the finance ministries of other EU member states in the enforcement of rules that forbid a bidding war on subsidies. Also, in the past, the Commission has generally adopted a pragmatic approach to assistance packages for businesses in industrial crises, if a good case can be argued. So why all the fuss about avoiding an element of common EU action and supervision in this area? Are we really to believe that the British government, particularly a Conservative government, (Jeremy Corbyn might well have given a different answer), wants to out-compete EU member states on subsidies to the private sector?  The British government’s position has mutated into something that sounds ideological, rather than pragmatic.

The ‘force majeure’ of the Covid crisis will of course bring these issues to the fore. We can expect far more government intervention in industry. Take one large example: Airbus is as important to Britain’s industrial future as it is to France and Germany’s – and will remain so despite the UK leaving the EU. But any UK assistance to Airbus would in practice have to be acceptable to our European partners, including the possibility that national governments might be forced to take an equity stake.

The government protests that the EU is going back on its word when Michel Barnier held out the possibility in 2018 of a Canada style FTA. However, these level playing field conditions are not new demands the EU has suddenly made. The Commission’s Article 50 Task Force produced a detailed paper on the “Level Playing Field” on January 31st, 2018, more than two years ago. This paper[2] made clear that the EU side would expect any comprehensive agreement to include governance arrangements for ongoing management and supervision; dispute settlement; and enforcement (sanctions). It also made clear that “international rules do not adequately address the (potential) distortive effects of subsidies on investment, trade and competition and the close integration of the UK in the EU economy and its value chains, the longstanding and deep trading relations, and the geographical proximity of the UK to the EU. [This all] means the EU-UK agreement will have to include robust provisions on State aid to ensure a level playing field with the Member States”.

As Gavin Barwell explained in the Lords, in all the meetings he attended between Theresa May and European leaders, insistence on a level playing field was “always and consistently the EU’s position”. The EU was always clear that the UK was in a different situation to Canada and that the scale of market access that any FTA allows would depend on UK acceptance of these principles. He warned the government that it “appears they are rejecting not just dynamic alignment but any enforceable non-regression clause” and “asking the EU to trust us to keep our word”! The implication of the Barwell argument was that if the UK sticks to its hard line on these issues, our access to the single market will be much more limited than it could otherwise be.

The EU accepts that the UK will need to establish its own domestic state aid authority which “should work in close cooperation with the Commission” in enforcing the rules. It would like to see similar independent monitoring of the UK’s adherence to social and environmental standards.

Non-acceptance of the principle of a level playing field could have huge implications for jobs and people’s livelihoods. If Britain refuses to make these commitments in a proper enforceable way, we could well face the constant threat of trade sanctions from the Commission. Tariffs could be imposed in sectors such as car manufacturing (on which hundreds of thousands of jobs depend) if the UK seeks to introduce any significant measure of what the EU unilaterally judges to be unfair competition. Even the threat that such tariffs might be imposed in short order by the EU would have seriously disruptive effects. This would create a highly unstable business environment, especially for future inward investment for companies based overseas. Britain’s dogmatic adherence to what many will think is an outdated view of sovereignty, will come at a high economic price.

The prospect of deadlock on fishing

The other major obstacle to a quick agreement on a limited FTA is fishing. The EU has taken a political decision to put fishing at the front of the queue of difficult issues that need to be resolved. They insist on an agreement by June this year prior to the detailed completion of the FTA deal, effectively making a push for the protection of the status quo on EU fishing rights in British waters a pre-condition of reaching a wider FTA. Fishing is an issue of marginal economic significance but extreme political sensitivity, and not just for the UK. It is battle for the survival of a traditional way of life in often isolated fishing communities. Fishing rights are seen as a zero-sum game. The emotion fishing arouses largely explains why twice in referendums the Norwegian people have defied the wishes of their political establishment to join the EU.

UK fishing communities have, from the start of Britain’s EU membership, complained of a rotten deal from the EU – and they are right. The Common Fisheries Policy was instituted at the last moment before the UK joined in 1973, when the UK had virtually no say in how it would work. As Sheila Noakes, one of the House of Lords’ most committed Brexiteers put it, the escape from the CFP is “symbolic of what it means to be a free nation”.  In the House of Commons, Michael Gove, from his elevated potion in the Cabinet Office supervising the Brexit negotiating strategy, promised that, with the demise of the CFP’s control of UK fishing, there would be a renaissance of “tens of thousands” of new jobs in the sector. As a committed environmentalist, Gove also believes rightly in strict controls on total catches for conservation reasons. The new jobs in the UK would therefore come at the expense of jobs in France, Spain and other coastal EU states: not a happy prospect for example for President Macron facing re-election in France in May 2022.

It is also the case that some of the facts of life in fishing limit the scope for simplistic assertions of sovereignty. Half the fish landed in UK ports is not consumed in the UK, as most of it is exported to the EU, while we import lots of fish landed on the Continent. This mutually beneficial trade is to a considerable extent, in different species of fish. If the EU imposed tariffs on UK fish exports, as they would do in the absence of an FTA, the UK could be forced to do the same for EU imports which would raise prices for consumers. The interests of UK fishing communities are in conflict. In Scotland, the West Coast’s salmon, lobster and shellfish exporters take a different view to East Coast deep sea fishing industry.

The legal reality post-Brexit is that the UK becomes an “independent coastal state”, like Norway and Iceland, outside the jurisdiction of the EU’s Common Fisheries Policy. As Gavin Barwell put it in the Lords debate, the position the EU has adopted that there should be no change in existing rights as a result of Brexit is “not reasonable”. Regarding everything else the EU emphasised in talks with Mrs May, who wanted as little change in the status quo as possible, that with Brexit, it was not possible that nothing would change. The EU has to accept that.

Politics demands that any change in the status quo should be cautiously phased and measured. Continental fishers demand firm guarantees of their existing rights and are alarmed by UK proposals only to allow access to UK fishing grounds on a system of quotas, agreed on a year by year basis, in negotiation with the UK as a fully sovereign entity making its own autonomous decisions outside any form of treaty-based EU jurisdiction. A compromise would be to guarantee Continental fishers a high but declining proportion of their existing catch as time unfolds. Michael Gove does not sound as though he is in the mood for such flexibility.

In the Political Declaration the UK had accepted the June deadline for a fisheries deal, but this was accompanied by a similar deadline for the EU to reach its own autonomous ‘adequacy’ decisions on the UK’s regulation of financial services and data transfers, which are potentially of enormous significance to important sectors of the UK economy. The Council Decision makes no reference to these EU ‘autonomous’ decisions. Clearly a trade could be done here involving real economic benefits to Britain. But it will be a hard sell in our fishing communities after the extravagant promises that are still being made. As David Hannay put it in the Lords debate, it is “not too late to achieve mutually beneficial arrangements on fisheries which give our fishers a better deal than they had in the past, so long as we do not take an all or nothing approach”.

[1] Speech at ULB Brussels University, February 18th, 2020.

[2] TF50(2018) 27. 31 January 2018,