The so-called level playing field - rules on competition, state aid, taxation, labour and environmental standards, and climate change - are one of the main causes of disagreement between the UK and EU in the negotiations on their future relationship. This paper explains the commitments that both parties are proposing in these areas in order to come to a deal.
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Following the UK’s withdrawal from the EU on 31 January 2020, the UK and EU adopted negotiating objectives for their future relationship in February and began negotiations in March with the aim of securing agreement on their new partnership by the end of the year. Alongside the Withdrawal Agreement, the UK and EU agreed a Political Declaration (PD) which set out their joint commitment to an ambitious and wide-ranging economic partnership. This would include a free trade agreement, as well as wider sectoral cooperation.
The PD included a commitment to a “level playing field” to ensure “open and fair” competition, but the precise nature of commitments would be “commensurate with the scope and depth of the future relationship”. One of the central issues in the future relationship negotiations will be finding an agreement on commitments which could secure a level playing field in trade relations between both parties. This is viewed as an issue that could make or break the negotiations.
The purpose of level playing field commitments in trade agreements is to ensure that competition is open and fair and that businesses in one trading partner do not gain a competitive advantage and undercut their rivals from the other by avoiding the costs of more stringent regulations.
The EU and UK have begun the negotiations with fundamentally different approaches to the level playing field. The EU has said that it will only agree a free trade deal with zero tariffs and zero quotas if the UK agrees to level playing field commitments in the areas of state aid, competition, tax, workers’ rights, environmental protection and climate change. It is seeking legally binding commitments, with EU standards as a reference point, subject to strong enforcement mechanisms domestically and within the treaty governance framework.
The UK Government says it will maintain the highest standards in these areas but that it will not agree to obligations that go further than commitments the EU has agreed with countries like Canada, Japan and South Korea. But the EU says that the UK’s geographic proximity and the volume of UK-EU trade means that deeper commitments are required.
Commentators have suggested that some level playing field areas could be less controversial than others. For example, at this point there is no indication that it will be difficult to find an agreement on matters of taxation and limiting anti-competitive behaviours of businesses. The Government has also said that its policy is not to lower labour, social and environmental standards or change regulations. In these areas, the EU is not asking the UK to adopt new EU rules but to maintain the current level of protection.
On state aid, where the EU is asking the UK to stay aligned with EU rules, a compromise seems more difficult to achieve at this stage as the EU wants the UK to follow both existing and future rules.
This paper provides an overview of the issue and negotiations (section one) before examining each of the level playing field areas in turn: the rules on state aid, business competition and state-owned enterprises, taxation, labour standards, environmental protection and climate change. It discusses the background developments and the respective UK or EU negotiating positions in each area. It also takes stock of various views on the scope for a “landing zone” of potential compromise in each area. These include views on the potential for the UK to further its own global trading interest through its deal with the EU.