The main sticking point in the EU-UK talks on a trade deal — a so-called level playing field to ensure fair competition between companies — is resolvable so long as neither side treats the matter as a question of high principle, experts said on Thursday.
The EU and UK are mired in disagreements over European demands for guarantees of fair treatment for its companies, with German chancellor Angela Merkel warning on Wednesday that a trade deal must ensure a “level playing field, not only for today, but also for tomorrow and the day after tomorrow”.
But UK prime minister Boris Johnson reiterated during talks over dinner with European Commission president Ursula von der Leyen on Wednesday evening that Britain would never sign up to “automatically” having to apply future EU rules in areas such as environmental regulations and labour standards in order to retain the benefits of a trade deal.
Nonetheless experts said there was the potential for compromise between Britain’s position — a willingness to pledge not to water down regulatory standards as they stand at the end of its Brexit transition period — and the EU’s quest to future-proof any trade deal.
The “landing zone” for any deal would probably ensure that the UK was not able to undercut European regulations and retain the advantages of zero tariffs and quotas in goods: the main feature of the proposed UK-EU free trade agreement.
David Henig, UK director of the European Centre For International Political Economy, a think-tank, said it “shouldn’t be that difficult” to imagine mechanisms that could provide reassurance to both sides.
What needed to be agreed were the specific subjects the level playing field covered, the process for instigating arbitration if a dispute arose, the potential penalties and the level of automaticity in the process, he added.
The only reason this should scupper the trade deal talks, said Mr Henig, was if one or both sides dug themselves in on a matter of principle rather than the outcome of divergent regulations.
Since the start of the talks, the EU’s concern has been to avoid having an aggressive competitor close to the bloc’s single market, which would seize an advantage through lax environmental regulations, labour standards or state subsidies.
The EU has already moved considerably on state aid. Brussels entered the negotiations saying the UK should continue to effectively operate under the bloc’s state aid regime with oversight by the European Court of Justice, but it has since agreed to a different approach based around agreeing common principles with Britain.
While the state aid talks have advanced, work on other areas of the level playing field have become increasingly bogged down.
The debate is focused on trying to find an acceptable compromise between “dynamic alignment”, where UK labour and environmental standards would be automatically adjusted as the EU changes its own, and “non-regression”, where both sides merely commit to not loosening their rules below the levels when the Brexit transition period ends.
Other ideas discussed during the talks on the level playing field have included a “ratchet clause” where, if both sides have raised their standards, they agree not to cut them below the new higher level.
But experts following the talks said the UK seems to have disliked that solution because it would allow British governments to bind their successors by locking in tougher regulations by agreement with Brussels.
The latest disagreements revolve around the EU’s attempt to find a solution called an “evolution mechanism” to ensure shared minimum standards in place at the end of the Brexit transition period in areas such as labour and environmental regulations do not become obsolete over time.
Brussels has suggested that if standards diverge, the side with the tougher rules can impose tariffs to equalise competitiveness, the measures perhaps being decided by an independent dispute settlement panel of the type typical of many trade agreements.
But Britain has pushed back in the negotiations, saying the proposal is an attempt to force the UK to continue to follow EU rules.
Sam Lowe of the Centre for European Reform, a think-tank, said a possible solution would be an agreement where UK regulations would only have to be “equivalent”, or equal in effect to those in the EU, rather than having precisely the same text.
“Focusing on the actual competitive advantage to businesses rather than the formal regulations would allow Britain to claim victory in the negotiations while also reassuring the EU about its core concern,” he added.
Such a system would place a lot of weight on the dispute settlement process, which would have to make technical judgments about the relative impact of different labour and environmental regulations, said Mr Lowe.
But he added it was the most likely possible landing zone for the two sides to avoid a no-deal Brexit.
Source: Economy - ft.com
