Compromise that pleases no one: What we can learn about the future UK-EU trade relationship from the ‘level playing field’ commitments in the Withdrawal Agreement

Share this article:

11 March 2019

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

On Tuesday Theresa May will again bring before Parliament the EU deal for which she suffered a defeat of 230 votes – the worst ever. Whilst the scale of the defeat suggests that the deal is an affront to the will of MPs, the rejected Withdrawal Agreement, with its Northern Irish ‘backstop’, accomplished two things that many support – or at least are moving toward by default. The first is a trade agreement that respects the outcome of the Referendum yet provides a measure of frictionless trade. The second is to avoid leaving the EU with no deal.

No matter what the outcome of this week’s vote, we shouldn’t miss its lessons for the future UK-EU trade relationship. Chief among these is that, to arrive at a negotiated solution to the problem of the intra-Irish border, both the UK and EU have softened their ‘red lines’ and revealed the capacity to arrive at a compromise between market access and autonomy of UK regulation, trade policy and immigration.

Indeed, in some respects, the Withdrawal Agreement provides a middle path between continued broad regulatory alignment with the EU and a simple, arm’s length Free Trade Agreement (FTA). An interesting example is the backstop’s innovative environmental commitments for a ‘Level Playing Field’. While a middle path seems desirable on paper, no amount of clever drafting will overcome the divide between those in the UK who argue for the benefits of EU environmental regulation, monitoring and enforcement and those who are eager to cast it off. The Agreement calibrates well between these two positions, but the challenge facing the UK is that such compromises seem to please no one.

1. The capacity for compromise

The UK Government established red lines that included leaving the Single Market and Customs Union. But EU negotiators’ frequent repetition of the phrase ‘no cherry picking’ and the Commission’s infamous ‘steps’ slide showed that it had red lines of its own, which seemingly narrowed the UK’s options down to basic Free Trade Agreement. In this context, the Northern Irish backstop comes as a surprise.

The backstop establishes a UK-EU customs union, which goes beyond an FTA in that it harmonises external tariffs, but does not require regulatory alignment, except in narrow areas to achieve a competitive Level Playing Field, discussed further below. Northern Ireland, by contrast, aligns virtually all of its product-related regulation with that of the EU. The arrangement is novel; it most closely resembles, but still differs substantially from, the EU-Turkey relationship, in which Turkey is obligated to align its regulation with that of the EU in a wide variety of areas.

The customs union requires giving up much UK autonomy over trade policy, a bitter pill for many to swallow, but on the upside cuts down on the need for border checks. Indeed, including a customs union in the backstop was a negotiating objective of the UK. At the same time, outside of Northern Ireland, the UK preserves its ability to diverge its regulations from those of the EU, an important objective for many in the Leave campaign.

The backstop is designed as an insurance policy to keep open the intra-Irish border if no agreement on the future relationship has been reached by the end of the transition period. Yet neither party would negotiate an arrangement it would not implement. More importantly, it achieves what may be the ultimate landing ground for UK politicians: a compromise between going it alone and remaining as close to the EU as possible.

2. Putting compromise into practice

At the moment it’s hard to imagine what the UK’s relationship with the EU will look like in a few months – let alone a few years. However, the Withdrawal Agreement provides interesting food for thought. Nowhere is its innovative nature more evident than in its environmental commitments, part of the requirements for varying degrees of regulatory alignment to bring about a ‘Level Playing Field’.[1] The political declaration on the future relationship states that it will build on these arrangements.

Both Parties commit to maintaining current ‘common standards’ of environmental protection in a virtually comprehensive list of areas, but the backstop also obligates the UK – and not the EU – to monitor and enforce its environmental regulation in order to achieve this. The obligations are less demanding on the UK than the full alignment with EU environmental legislation required in, for example, EU Association Agreements and the EEA Agreement. The UK can diverge its environmental laws, as long as it maintains an equivalent level of protection. This particular requirement is not enforceable, meaning that there can be no sanctions for non-compliance. However, the EU can utilise the Withdrawal Agreement’s enforcement mechanism of arbitration if it feels there are shortcomings in UK domestic environmental enforcement. (For a more detailed summary, see here.) This contrasts with the arm’s length – and unenforced – environmental requirements that the EU has negotiated in its trade agreements with countries such as Canada and Korea.

The approach splits the difference between Single Market-style and FTA-style environmental governance, but in so doing, will likely please few. On the one hand, advocates of a more distant relationship will be infuriated that the EU can unilaterally scrutinise whether UK domestic monitoring and enforcement in virtually every area of environmental protection lives up to its expectations.

On the other, environmental advocates have expressed concern about how effectively the UK will overcome the so-called environmental governance gap when it leaves the EU. Indeed, it is possible to argue that the UK has already fallen short of the requirements in the backstop. It states that the UK body should be able to initiate inquiries of a breach by the Government and bring legal action with a view toward an ‘adequate remedy’ (Annex 4, Article 3:2). It further commits the UK to provide effective remedies including sanctions that ‘…are effective, proportionate and dissuasive and have a real and deterrent effect’. Yet the UK’s draft Environment Bill’s enforcement process (Sections 18-29) does not allow the proposed Office of Environmental Protection to initiate investigations or make binding recommendations, even if it finds that a UK public body has seriously failed to enforce environmental law. In contrast, the EU Commission is required to ensure enforcement of EU rules, which has often resulted in the UK facing the ECJ for environmental non-compliance, a process that can ultimately result in fines. The draft UK Environment Bill only allows for judicial review, a more limited form of scrutiny which does not typically include fines as a deterrent.

How likely is it that the EU would try to enforce this requirement? My guess would be that for many environmental advocates, the answer will be disappointing. Despite its broad scope, it still seems most likely that the EU would pursue such a claim to the point of arbitration only if its competitive interests were clearly at stake. The Commission has estimated, for example, that if the UK lowers EU industrial emissions requirements, it could provide UK industry with a €4.7 billion per year gain. [2] The deregulation concerns about industrial emissions and pollution that motivated these provisions are also most likely to prompt a contentious dispute. In other words, unlike the EU now, it will not function as a broad environmental protection mechanism.

The question has larger implications. In our future relationship, can we achieve both deep cooperation and also autonomy? The Withdrawal Agreement has hardly been greeted with celebration, but in fact, it’s good news for both sides that there is openness to creative approaches that try and achieve an elusive middle path between these goals.

Footnotes

[1] Protocol on Ireland/Northern Ireland, Article 6(1), and Annex 4.

[2] European Commission, ‘Slides on a Level Playing Field,’ p. 37.

Disclaimer:
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.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.