Out-Law Analysis 3 min. read

Brexit: UK and EU can reconcile 'level playing field' differences

It is possible for the UK to secure its aims of sovereignty and for the EU to protect against the potential harm of unfair competition in their talks over a future UK-EU free trade agreement, with a little compromise on both sides.

The EU is insisting on 'level playing field' (LPF) provisions being written into the agreement, which would require the UK to maintain regulatory convergence in areas such as state aid, competition, social and environmental standards. However, the UK is adamant it will not to be a rule-taker and the government's negotiators are equally insistent about UK regulatory autonomy.

The respective positions appear poles apart but they can be reconciled with a unique agreement that would commit both the UK and the EU to meeting common high standards in certain regulatory areas but crucially, without the two sides being obliged to maintain the same legislation. This would give the freedom the UK seeks to write its own rulebook, while the commitments can be underpinned by a robust dispute resolution mechanism that would give the EU27 confidence that acts on the UK side that are harmful to open and fair competition can be fairly redressed.

Inspiration for how the dispute resolution system might work could be drawn from the Ireland/Northern Ireland Protocol to the Withdrawal Agreement of November 2018, which was never ratified – if either side believed the other had relaxed their rules in a way which breached their commitment, they would have scope to request a consultation within a Joint Committee with a view to finding a commonly acceptable, binding solution.

Alongside this option, the agreement could provide the side alleging a breach of commitments with a right to unilaterally adopt "appropriate remedial measures" pending resolution of the dispute via arbitration should the Joint Committee be unable to resolve the issue. The agreement could include safeguards to protect the interests of the party accused of breaching their LPF commitments should they experience harmful effects of the other side's unilateral interim measures and it is later found that they were not responsible for a breach at all.

Although it would mean that the system of dispute resolution becomes more complex, consideration could also be given to the possibility of the arbitration panel rulings being advisory rather than binding in cases where the panel finds in favour of the complainant party. This would provide each party with freedom to decide what action to take next.

In this situation, the party that succeeds in arbitration would be able to apply countervailing measures, such as tariffs or restrictions on access to markets, if the other party disregards the advisory ruling. Both sides would retain their regulatory autonomy, with the party that loses in arbitration free to choose to accept the ruling or the consequences of disregarding it. A role could be found for the Joint Committee or an arbitration panel to rule on the appropriateness of the other side’s retaliatory countervailing measures before they are fully put into effect.

The agreement could also make provision for determining whether new regulatory policy measures or changes introduced by either side are harmful to open and fair competition and in breach of the commitment to maintain common high standards. Economic benchmarks and forecasting could be used for making such assessments.

In this respect, the assessment of whether a regulatory measure by either side distorts or threatens to distort competition would have to take into account the fact that the UK would no longer be part of the EU’s single market. Accordingly, this would involve a higher evidential threshold to demonstrate distortions of competition, or the threat of such distortions, than it is currently required in relation to such an assessment within the single market. A central consequence of this approach would be that the case law of the Court of Justice of the EU should not be relevant to a dispute resolution mechanism concerned with the effects of a particular regulatory policy on open and fair competition between the two sides. 

Finally, the agreement would also need to address circumstances where one side updated their regulations to make them stricter, impacting LPF commitments. One option might be for the two sides to agree that such cases would give rise to an automatic obligation for the other side to ensure the same effects, or accept countervailing measures instead. Alternatively, LPF commitments could apply only to set rules and standards as they apply at the end of the transition period.

It is clear that this solution requires compromise, could be complex and might require novel approaches. However, it could provide a route to a comprehensive free trade agreement that promises benefits for both sides.

Dr Totis Kotsonis is an expert in competition, EU and trade law at Pinsent Masons, the law firm behind Out-Law. This is an abridged version of an article published previously by the LSE Brexit Blog

The LSE Brexit Blog (PDF version)

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