9 September 2020

Just who is moving the goalposts on a ‘level playing field’?

By Martin Davison

Michel Barnier, the EU’s chief Brexit negotiator, constantly complains that the UK is trying to wriggle out of the ‘level playing field’ commitments it made in the joint Political Declaration of October 2019.  “Since the start of these negotiations, the UK has refused to engage on credible guarantees for open and fair competition,” Barnier lamented recently. “Where the EU has shown openness to possible solutions, the UK has shunned our offers.”

This week’s manoeuvres from Boris Johnson’s government to override aspects of the Northern Ireland Protocol will have surely banished any remaining doubt in his mind that he is dealing with la perfide Albion.

Of course, Barnier’s complaints may be no more than a political power play, reflecting the EU’s confident perception of the strength of its negotiating position. It does not, after all, require a cynic to recognise that these kind of negotiations always come down to politics and power in the end, as evidenced by Johnson’s Northern Irish démarche. The widening rhetorical gulf between Barnier and his opposite number, David Frost, also make it clear that an eventual agreement is going to need the intervention of their political masters.

But how fair is Barnier’s accusation of British perfidy, specifically in the conduct of the trade negotiations? 

That depends on a number of things: Did the UK actually commit to guarantee ‘open and fair competition’ when it signed the Political Declaration? What exactly is a ‘level playing field’ anyway? And how much wiggle room was left for this phase of negotiation?

How to level a playing field

Certainly, the Political Declaration talks about ‘an ambitious, wide-ranging and balanced economic partnership’ that will be ‘underpinned by a level playing field for open and fair competition’. To that extent, Barnier is clearly justified in seeking his ‘credible guarantees’, as the thrust of the Declaration is clearly that openness and fairness require ‘robust commitments’ to a level playing field.

The Declaration tries to restrict the scope for disagreement by effectively defining ‘open and fair’ competition as  competition conducted on a level playing field. In short, if the playing field is level, the competition will ipso facto be open and fair.

So, how is a playing field kept level? What are ‘robust commitments’? Well, that apparently depends. The Declaration says merely that the commitments should be ‘commensurate with the scope and depth of the future relationship and the economic connectedness of the parties’.

The precise phrase ‘economic connectedness’ does not feature elsewhere in the Political Declaration, though the introduction refers to a ‘high level of integration between the Union’s and the United Kingdom’s economies, and an interwoven past and future of the Union’s and the United Kingdom’s people and priorities’. So, ‘economic interdependence’ seems to be a fundamental, if somewhat tendentious, assumption of the parties for the future as much as the past.

A question of ambition

On the face of it, therefore, the commitments will not only need to be robust but also substantial. However, it is important to note that this entirely depends on the parties’ ambitions. If in the course of negotiations a much looser relationship should emerge, the commitments would be commensurately less significant.

In spite of the current tension, there is no reason to believe that the parties have abandoned the ambition set out in the Political Declaration for ‘no tariffs, fees, charges or quantitative restrictions across all sectors….’.

Zero tariffs would naturally deliver significant benefits to both parties. However, such a regime would also seriously constrain the EU’s options in counteracting any competitive advantage it felt UK businesses were enjoying as a result of a more relaxed regulatory environment.  It would seem, therefore, that unless the UK is prepared to forego the advantages of a zero-tariff regime, it must accept the demand for ‘credible guarantees for open and fair competition’.

‘Robust commitments’

So what are the ‘robust commitments’ necessary to ensure a level playing field?

The Political Declaration specifies that ‘….the Parties should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters’.

Prima facie, therefore, a level playing field is maintained by sharing ‘common high standards’ – or at least, importantly, those applicable at the end of the transition period.

It has to be said that there is ample scope for disagreement over the interpretation of the wording of the Declaration. And it is highly likely that in the end, as is frequently the way in international diplomacy, the issue will be resolved by political compromise rather than legal exegesis. There would, after all, seem to be two very different ways of interpreting the language adopted.

Standard deviation

The EU’s stance seems clear enough: the Declaration was clear on the sharing of high standards and the obligation to maintain similarly high standards in future. So, if one party sees a need to raise relevant standards in future, the other party is obliged to follow suit, in order that common high standards continue to be upheld. 

How that obligation would be monitored and enforced would be part of negotiations on the future partnership. The EU would, of course, have known that the UK would take a dim view of the Commission imposing new rules on the UK, to be overseen by the European Court of Justice. 

For its part, the UK is almost certainly arguing that it has never agreed to be subject to, or even align with, EU regulations beyond December of this year. What our government did in the Political Declaration was commit not to let standards fall below their level at the end of the transition period. If the EU changes its standards in future, the UK may or may not decide to match them, but the important thing is that standards will never fall below the benchmark set at 31 December 2020.

Over the past couple of months of negotiations, the most fiercely contested area of the ‘level playing field’ debate has been competition and state aid. The Political Declaration requires the parties to “maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition”. Note, incidentally, that some distortion of trade and competition is apparently acceptable, provided it is not ‘undue’.

The EU’s position is that the UK is not any old ‘third country’; its proximity and shared history mean that competition and state aid have to be addressed more clearly and rigorously than in other FTAs. Moreover, it is impossible to make any progress in this area until the British Government devises and publishes its post-Brexit policy on state aid.

State aid is, of course, seen as a critical area for Boris Johnson’s much-touted ‘levelling up’ agenda – both to dole out cash to businesses in ‘Red Wall’ seats and, apparently, to encourage new tech enterprises. Would state aid dispensed in either of these circumstances cause justifiable alarm and consternation in Brussels? Could it plausibly be said to distort trade or unfairly affect the competitiveness of EU enterprises?

The British position on state aid was made clear in a rather terse letter from David Frost to M. Barnier in May, in which he underlined the UK’s right to “decide our own rules to support our own industries in our own Parliament”. On standards, he was similarly blunt, asserting that “we cannot accept any alignment with EU rules, the appearance of EU law concepts, or commitments around internal monitoring and enforcement that are inappropriate for an FTA”.

In the three and a half months since then, hardly any progress has been made. Various EU figures have lined up to support Barnier’s stance on the level playing field, while the Johnson government has shown no sign of giving ground on standards or coming up with its promised state aid policy. Moreover, Frost has now declared that the UK would rather have no deal than hand over control of state aid to the EU.

Time for compromise?

So, if the terms of the future relationship are to be finalised within the next few months, the parties are quite plainly going to have to give some ground. The FTA logjam will have to be broken by some sort of decisive political action like that taken by Johnson and Leo Varadkar last year in the case of the Withdrawal Agreement.

The UK is going to have to go beyond the simple assurance that its proposals prevent distortions of trade and unfair competitive advantages. The FTA will somehow have to be rigorous and unambiguous in committing the UK to the current (or higher) standards in all the relevant areas, in line with its interpretation of the Political Declaration. And it will have to accept arbitration, including on state aid, by a joint committee or an independent body.

It is in fact impossible to see how the UK could offer anything less than this, unless Barnier is right and the UK is indeed seeking to resile from the Political Declaration and negotiate an entirely different economic relationship with the EU. But would the Government really sacrifice tariff-free, low-friction trade for the sovereign right to subsidise British industries?

For its part the EU will have to accept that the UK will not allow ongoing alignment with EU rules. Brussels’ view that the text binds the UK to match EU standards in perpetuity is understandable, but so is the British view that this goes beyond what was agreed in the Political Declaration.

Ultimately, Johnson and his team need to assess the true value of a free hand on state aid, and the EU must decide whether letting future standards diverge would really have that big an impact on its own competitiveness. Whether a compromise can be reached without severely diluting the future relationship remains to be seen. The best that can be said at the moment is that both sides still appear to want a deal – but that’s by no means a guarantee they will get one.

Of course the precise implications of abstract trade theories and intricately constructed legal language are always important but international negotiations, as we have acknowledged, come down to power and politics. Throughout negotiations, the EU has clearly been convinced that it held the better cards and confident that it could play its hand with greater skill than the UK. But does that skill extend to knowing when your opponent is bluffing?

It is because of the EU’s confidence that, to switch the metaphor from the card-table to the world of sport, it is now employing the heavy roller on its playing field. It believes it has the power to double down on the level playing field to its decisive advantage. The British Government would seem to believe otherwise, given its willingness to reopen the Northern Irish can of worms.

Two centuries ago, a battle was purportedly won on the playing fields of Eton. Down the road from Waterloo, an Etonian is now engaged in another battle to be won or lost on the playing field of Brussels. In trying to surmise their opponents’ strategy, the EU should perhaps take note that in his schooldays Boris Johnson was an enthusiastic player of the Eton Wall Game, a sporting contest notoriously unconstrained by many rules.

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Martin Davison is a retired tax consultant, who now studies independently and writes on a wide variety of issues.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.