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Blog: UK as level playing field or geo-economic playground?

Member states of the European Union formally endorsed a mandate for the Commission to start treaty negotiations with the United Kingdom to seal their long-term post-Brexit relationship. These will start as soon as next week. The United States is eager to start its own talks with Britain as soon as possible.

The 46-page EU mandate covers a wide range of policy areas, from fisheries to security cooperation. The formal deal will be an EU ‘association agreement’, with various strands or strands plugged into it. A trade agreement will be the central pillar of the arrangement.

Dynamic alignment

EU capitals, prodded by France but also other member states, had the initial draft mandate submitted by the Commission tweaked, in order to reinforce so-called ‘level playing field’ provisions. These aim at ensuring Britain maintains structural costs at the same level as the EU’s over time.

The central level playing field provisions are a request that the UK continue to abide by the EU state aid regime even having formally left the EU’s legal order after the current status-quo transition period ends in December. The final level playing field provisions in other areas cover competition, state-owned enterprises, taxation, environmental standards, social and employment standards “and other regulatory measures and practices in these areas.”

The new language calls for what experts have called ‘dynamic alignment’: “The envisaged agreement should uphold common high standards, and corresponding high standards over time with Union standards as a reference point.”

The mandate states that the future agreement “should include for each of those areas adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement, including appropriate remedies”.

Also: “The Union should also have the possibility to apply autonomous, including interim, measures to react quickly to disruptions of the equal conditions of competition in relevant areas, with Union standards as a reference point.”

The EU’s approach on these level playing field themes is much more demanding on the UK than on other traditional free trade agreement partners. The ‘prize’ for this would be duty-free quota free goods trade with the EU, something no trading partner has ever achieved. Note however that – except Russia – all direct EU neighbours are in some form of trade arrangement with the EU that involves almost full (EEA) or at least partial (Ukraine) adoption of specified EU directives and regulations.

The level playing field provisions are a high price for the UK to pay to continue to enjoy duty free exports of meat, dairy and other foods to the EU. The reintroduction of quotas in those areas would likely badly hurt the relevant British sectors, which are among those that are the most dependent on exports to the rest of the EU.

London is predictably reluctant to go down the level playing field path.

The Prime Minister’s office tweeted: “The EU mandate stresses (reasonably) the importance of its own legal autonomy. We are equally determined to protect ours. That is the key point of Brexit”. Further: “The EU has respected the autonomy of other major economies around the world such as Canada and Japan when signing trade deals with them. We just want the same”.

UK too expected to ask for more than a ‘plain’ FTA

In reality, the UK does not “want the same”.

The UK has also prepared its own negotiating directives with the EU. These will be released on Thursday and debated in parliament on that day.

Insiders in London say that the UK will ask for provisions in the trade talks with the EU to which the equivalents of Canada or Japan would never have had access to. One of these is continued mutual recognition of qualifications for professional services, according to sources close to the file.

Mutual recognition in this field is a centrepiece of the EU single market – even if it is imperfectly applied.  The British government has envisaged ‘enhanced equivalence’. This is something the EU has never countenanced – and does not appear to want to countenance with Britain at least at this stage.

Equivalence refers to unilateral decisions by the EU to recognise the regulatory framework for certain services of a trading partner as ‘equivalent’ or ‘adequate’ in the levels of consumer and other protections after a vetting process, following which specific products may be sold across the border into the EU. Equivalence may be revoked at short notice.

US, China positioning themselves

With Britain now on the way out of the EU single market, commercial partners – which are also commercial rivals – are positioning themselves in the UK market.

The United States, for example, is pushing for an early start to negotiations towards a free trade agreement with the UK. Ten Downing Street is set to approve negotiating directives for trade talks with Washington next week.

Insiders in London say that the original plan was to release the US directives on the same day as the EU directives, but that the Prime Minister’s office has hesitated. There are signs that the UK government wants to go slow on talks with Washington – which it knows would be divisive with the British public.

The US is expected to ask for concessions that would be considered a violation of some UK ‘holy cows’ – such as low drug prices resulting from centralised medicines purchasing by the National Health Service or a ban of hormone treated beef or chicken cleaned with US washing methods. On the latter topics, Britons, have exactly the same views as other Europeans.

Nonetheless, to mark the point, USTR Robert Lighthizer is expected to be in London on Thursday and meet his counterpart Liz Truss.

China itself appears to hope to benefit from potentially lower levels of defiance against its infrastructure state-owned enterprises in Britain than in the rest of the EU. China has offered to build the recently approved high-speed rail line ‘HS2’ at a lower cost and in a much shorter time frame than envisaged so far. Such a deal in an EU member state would now raise questions as to market distortions due to China’s state involvement in the China Railway Construction Corporation. Britain is considering involve CRCC in the project, though likely not on a large scale.

With Brexit being ‘done’, the question is now what the UK is: playing field, or playground for big economic powers?


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