Brexit: What is a level playing field?

“Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world’s largest single market.”

In a speech in London in January, shortly before the United Kingdom formally left the European Union, the European Commission President Ursula von der Leyen set the tone for months of post-Brexit trade negotiations.

She was talking about the kind of access the UK might have to the European single market after Brexit.

It is a question which has dominated negotiations ever since and gets to the heart of Brexit.

How closely aligned with the EU’s economic structures will the UK be in future? The answer depends, to a large extent, on what’s known as the level playing field.

What does it mean?

The level playing field is a trade-policy term for a set of common rules and standards that prevent businesses in one country gaining a competitive advantage over those operating in other countries.

It’s about fair and open competition and it’s an important part of the EU single market (in which member countries allow the free movement of people, goods, services and capital).

The UK is leaving the single market at the end of this year and an important part of the current trade negotiations is working out how widespread level playing field provisions should be in the future.

The EU is insisting they must be maintained when it comes to regulations involving workers’ rights, environmental protection, and – in particular – state aid (or government subsidies for business).

It refuses to guarantee the UK the best access to the single market if there is a possibility that companies based in the UK could be given state support to undercut their rivals elsewhere in Europe.

Is the EU trying to make the UK a special case?

Yes and no.

On one hand, almost all trade agreements involve level playing field provisions, because all parties are keen to ensure their businesses aren’t operating at a commercial disadvantage.

And the closer a trading relationship is, the stricter those rules become.

But the EU also says other factors have to be taken into account – notably, that the UK is one of the world’s largest economies, already deeply integrated with European markets, and it is right next door.

The political declaration that sets out the framework for the future relationship between the EU and the UK makes this link explicit.

Given the “geographic proximity and economic interdependence” of the two sides, it says, the future relationship must include “robust commitments to ensure a level playing field”.

The UK says it is not asking for any special treatment. It just wants a basic free trade deal along the lines of deals the EU has done with other friendly countries.

But the EU insists the wording of the political declaration – agreed with Boris Johnson’s government – must be adhered to, even though it is not a legally binding document.

What this means in practice is if the UK wants a trade deal that involves zero tariffs (no taxes on goods crossing borders) and zero quotas (no limits on the amount of goods that can be traded), the EU will expect it to sign up to stricter rules than those set out in other recent EU trade agreements with countries such as Canada or Japan.

It’s because there is far more trade involved and the stakes are higher.

What are the options?

Prime Minister Boris Johnson wants a zero-tariff, zero-quota deal but also insists on the UK’s right to diverge or move away from EU rules and regulations.

That freedom to choose was partly what Brexit was all about. It could mean sticking close to EU rules in some areas but not in others.

But the EU insists freedom comes at a price and it adds a third zero to the equation – “zero dumping”, which means the strictest level playing field rules it can negotiate.

One option is to have what are known as non-regression clauses, which means the two sides would agree not to water down the shared rules they currently have.

Another, tougher, option is to insist on what’s called dynamic alignment, which would mean if the EU changed its rules in the future, the UK would automatically make the same changes.

And that’s partly what the trade negotiations have come down to?

Yes – and both sides are, predictably, digging in a bit.

The EU has relaxed its initial demand that the UK should copy and paste its rules on state aid but it is still pushing for something close to dynamic alignment. It basically wants the UK to agree a legal framework for competition rules that mirrors its own with a strong independent regulator.

The UK isn’t willing to do that and hasn’t set out what its competition policy will be in the future. And that’s where the talks are stuck.

When UK negotiators tried proposing a draft text for a free trade agreement during a round of talks in August, the EU said there was no point doing that until the issue of the level playing field was resolved.

So, if there is to be progress, one side or the other (and probably both) is going to have to compromise on some pretty fundamental principles.

Not only is there disagreement on what the rules should be, there is also no meeting of minds yet on how any future disputes should be resolved.

It’s another reminder that while the UK will remain a friend and partner of the EU after Brexit, it will also become an economic rival.

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