Tilting the playing field? The asymmetry in the UK and EU’s regulatory ‘ask’

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27 July 2018

Dr Emily Lydgate is a lecturer in Law at the University of Sussex and a fellow of the UK Trade Policy Observatory.

The July UK White Paper on the future relationship with the EU calls for a ‘common rule-book’ for goods. This has sometimes been shorthanded as a proposal for a Single Market for goods (in contrast to services, which departs more dramatically from the status quo).[1]

But the scope of regulation the UK proposes should fall within this ‘common rulebook’ is narrower than what would be covered in a Single Market for goods – as the EEA Agreement demonstrates. It’s narrower even than that covered by the EU-Ukraine DCFTA Agreement.

So what does the common rule-book cover – and how might this match up with the EU’s regulatory ‘ask’ of the UK? Two distinct issues arise here: first, what is the minimum common rule-book necessary for frictionless trade? Second, what is the minimum common rule-book necessary to secure a ‘level playing field’, an objective the EU has established, but not fully elucidated. This issue has received less attention in the press than the Irish border issue but will take on increasing importance in negotiations on our ‘future relationship’ with the EU.

What does the UK propose?

The White Paper makes clear that the common rule-book will *not* include environment and labour rules and taxation.  It does, however, include State Aid and continued close cooperation in Competition law.

It also covers manufactured goods and agri-foods, but only applies to regulations ‘necessary to provide for frictionless trade at the border’. With respect to agri-food, the UK states that, alongside the ‘common rule book’ in animal and plant health (Sanitary and Phytosanitary ‘SPS’) regulation, it wants to maintain ‘equivalence’ (rather than harmonization) on ‘wider food policy rules’. Areas for ‘equivalence’ include marketing and labelling requirements (Section 1.2.4).  Areas for divergence include the Common Agricultural Policy and Common Fisheries Policy.

Oddly, despite mentioning other EU agencies,[2] the UK does not state that it will seek to participate in the European Food Safety Authority (EFSA), which plays a key role in developing EU SPS regulation. Barnier recently stated that

‘the United Kingdom … would not align itself to our agri-food standards, for example, on GMOs or pesticides, because these are not checked at the border. This was confirmed to us this week in the negotiations.’

Barnier’s comment, in combination with conspicuous silence on European Free Trade Association (EFTA), might suggest that the UK seeks to harmonize only selectively and in a way that would enable it to strike deep trade deals with third countries, like the US, who have pressured the EU to move toward its approach in these areas. But even if we disregard this rather extreme interpretation of the UK’s intent, the question of what regulation is necessary for frictionless trade at the border is an ambiguous – and existential – one.

What regulation is border-relevant?

Interestingly, this question also arises in the context of the Northern Irish ‘backstop’. In the draft Withdrawal Agreement, the EU calls for a ‘common regulatory area’ to allow for ‘free movement of goods’. The UK and EU have yet to complete the Annex listing the actual contents of covered EU regulation. The EU’s draft does, however, state that ‘the provisions of Union law on the production and marketing of agricultural and fisheries products’ shall apply (Article 5.2), revealing that it does not recognize the UK’s proposed distinctions outlined above. But in a different context – the potential Irish sea border – Barnier has downplayed what border checks between the EU and the UK as a third country would entail:

‘…ultimately these are only technical checks on goods. No more, no less.’

The level playing field

So how much harmonization is necessary to avoid border checks? Is it just a few regulations to avoid ‘a handful of technical checks’ – or does it effectively require EU Membership and acceptance of its sacred ‘four freedoms’, as Barnier has suggested elsewhere?

In some sense, the UK’s proposal harkens back to a more instrumentalist understanding of regulatory integration as a means to achieve frictionless borders evident in the early days of the EU (see this entertaining account). However, the EU has increasingly become concerned about the need to ensure that market opening does not create unequal conditions of competition for EU producers stemming from non-traded inputs, which include cheaper labour, worse environmental standards and tax breaks.

This desire to create equal competitive conditions, or a ‘level playing field’, is a driving force for EU integration. The EU-Ukraine DCTFA, for example, requires Ukraine to align not only with regulations that we might narrowly identify as affecting trade in goods – such as SPS rules – but also with regulations covering air quality, climate change and environmental impact assessment, among others. And even this does not eliminate the need for border checks.

Even after concluding that the UK-EU trade relationship was likely to look more like CETA (a relatively basic Free Trade Agreement) than the EEA (which creates broad regulatory harmonization), the Commission still made clear it would push for a ‘level playing field’ between the EU and the UK.

The implication is that the EU also seems to be proposing a hybrid model that grafts some deeper regulatory integration onto the frame of a tariff-free FTA (one wonders how this squares with the indivisible four freedoms). Another implication is that there is likely to be quite a lot of asymmetry between what the UK proposes in the White Paper – which carves out environmental and labour standards and taxation – and what the EU seeks. The EU has not yet formulated its position on the future relationship, but Barnier also forecasts that this will likely be a major sticking point for Member States:

The mechanics of divergence should not lead to unfair competition, because if we do not answer this question…I can tell you that there will be major difficulties in obtaining ratification of any future agreement in all countries, because there will be campaigns against the negotiations. It will be said that Brussels is conducting negotiations with the UK to downgrade environmental and social standards, for example, which will lead to more tax competition. If that happens, everything is over. I do not want that. I want us to make progress. (response to Q 8).

The Northern Irish question complicates things further still. But the UK’s proposals on the common rulebook are clearly not going to fly with the EU. The EU for its part is making things more difficult by not clarifying what it would find acceptable. What degree of regulatory harmonization is necessary, and why, will be a central axis of disagreement in the next stage of negotiations.

References

[1] See eg J Blitz, ‘Why is Britain leaving the single market for services?’ Financial Times, 11 July 2018: “The central feature of the PM’s ‘Chequers’ plan is to keep the UK in the single market for goods.”

[2] For manufactured goods, the UK indicates it will seek to participate in: the European Medicines Agency (EMA), the European Chemicals Agency (ECHA) and the European Aviation Safety Agency (EASA).

 

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The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

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