Optimism for shift on ‘level playing field’ in Brexit trade talks

Michel Barnier’s claim on Monday that fishing may now be the toughest obstacle to a UK-EU trade deal suggested both sides were inching towards an agreement on the most intractable element of the talks: the so-called “level playing field”.

The issue has dogged negotiations, spawning its own lexicon of “ratchet clauses”, “evolution mechanisms” and “punishment beatings” to describe attempts by the EU to stop Britain undercutting its regulatory model in future and gaining an unfair competitive advantage.

Both sides claim the other has given ground in recent days, fuelling optimism over a deal. Mr Barnier, the EU chief negotiator, has even coined an unthreatening new name for the compromise taking shape: “the rebalancing mechanism”.

Boris Johnson, the UK prime minister, conceded the need for a set of principles for fair competition between the UK and EU as far back as October 2019, in a joint political declaration which confirmed that Britain was in a different situation to Canada when it came to securing a trade deal with the bloc.

“Given the [European] Union and the United Kingdom’s geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field,” the declaration said.

Both sides could agree in principle to “non-regression” — the idea that Britain and the EU would not go backwards from the standards they will have in common on January 1, when the post-Brexit transition period ends.

But the EU sought during the future-relationship negotiations to go further and stop the UK stealing an unfair competitive advantage on the 27 member states by having less stringent regulations in the future.

Mr Barnier, under instruction from EU member states, sought a system to ensure that if Brussels strengthened its regulations in areas like environmental protections, pressure would be brought to bear on the UK to do the same.

Both sides have made concessions, but one of the biggest came from the EU in July when Mr Barnier accepted Mr Johnson’s “red lines” and said there was no need to build the level playing field around EU law and the European Court of Justice, so helping Mr Johnson honour his promise that Brexit would free the UK from the bloc’s oversight.

The EU side was disappointed that Mr Johnson did not immediately reciprocate with big concessions of his own, but one British official said this week: “That move alone by [Mr] Barnier would allow the PM to claim a stunning victory — they have moved a long way.”

However over the following months there were bitter disagreements about what the level playing field should really mean.

During the summer, Brussels pushed for an “evolution clause” — branded a “ratchet clause” by the UK.

This would have established a system where, when one side was planning to toughen its regulations, there would have been a discussion with the other about moving forward together. The idea was to raise the joint floor for standards to a new level below which they could not then be cut, with fallback measures in the absence of an agreement.

Mr Johnson opposed that idea, fearing a future Labour government could work with the EU to introduce “anti-business” regulations, making it impossible for a future Tory government to cut them without incurring sanctions.

In the face of that opposition, the EU pivoted in recent weeks to a new approach. It proposed a “mechanism” that would be reactive rather than proactive — allowing either side to sound the alarm bell if it felt regulations had diverged to a point where its businesses were placed at a disadvantage.

Under this plan, as a last resort, the disadvantaged side could impose tariffs on imports to defend its companies and re-establish the level playing field.

In the first week of December the issue threatened to blow up the talks, as Mr Barnier tabled what Mr Johnson claimed were “new” demands — driven, according to Downing Street officials, by French president Emmanuel Macron. The UK side claimed the issue had derailed talks that were making promising headway.

The EU insisted there were no new demands, but Mr Johnson complained Brussels wanted the “automatic” right to impose sanctions on Britain if it deviated from Brussels regulations.

Britain also claimed that the EU plan would allow sanctions to be imposed even if there was scant evidence of serious harm being caused by divergence. “They were setting the bar very low,” said a British official.

The breakthrough came this weekend. Mr Barnier told EU ambassadors on Monday that Britain had accepted the principle of having the mechanism if enough safeguards were built in to prevent abuse — removing the threat of “lightning tariffs” imposed by the EU

EU officials said that talks were now centred on the tests for working out if the level playing field is in jeopardy, on the processes for using the mechanism — including the role of independent arbitration — and on the remedies that the disadvantaged side could take.

The progress means the two sides are no longer arguing about big
political questions of British sovereignty versus the integrity of the
EU single market: now they are debating ways to manage regulatory
divergence in the future.

Dominic Raab, the UK’s foreign secretary, archly said on Sunday that there were “always creative contours” in the drafting of any agreement to paper over cracks.

Mr Johnson’s allies are already branding the proposed new mechanism a “freedom clause” — a title aimed at reassuring Tory Eurosceptic MPs that Britain would retain the right to set its own regulatory course, albeit with an orderly system of “rebalancing” tariffs if divergence was too great.

For the EU’s 27 member states, the new mechanism would be hailed as a guarantee against the danger that a red-blooded deregulatory Tory government might in future unfairly undermine the EU single market. A potential deal which allows for two rival definitions of “victory” appears to be taking shape.

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