What is a level playing field and why is it so important?
Given their geographic proximity and economic interdependence, the EU and the UK agreed to robust commitments to ensure a level playing field for open and fair competition and to contribute to sustainable development.
The nature of these commitments reflects the scope and the depth of the wide-ranging and ambitious economic partnership, including in particular the absence of tariffs and quotas for trade in all goods, comprehensive market access commitments and rules on services and investment, as well as very high level of openess for governement procurement. The agreement also foresees unprecedented cooperation on energy and dedicated titles on aviation and road transport, all of which require appropriate level playing field guarantees.
These commitments will prevent distortions to trade and investment, today and tomorrow, and will contribute to sustainable development.
More specifically, these provisions mean that:
- The current high standards applicable in the areas of labour and social standards, environment, and climate can not be lowered in a manner affecting trade or investment between the Parties.
- Robust and comprehensive rules will prevent distortions created by subsidies, anti-competitive practices, or dicriminatory and abusive behaviour by state-owned enterprises.
- Specific standards and rules and the joint political declaration in the area of taxation will contribute towards tax transparency, and will counter tax avoidance and harmful tax regimes and practices.
- A wide-ranging set of commitments building on the EU’s most ambitious precedents will ensure that trade supports sustainable development, including through cooperation at the international level.
What happens if one side unilaterally distorts the level playing field?
The EU and the UK agreed to effective tools and mechanisms for the enforcement of their level playing field commitments, namely:
- Effective implementation domestically, including the control of subsidies by domestic authorities and courts, and a role for an independent authority or body, and appropriate administrative and judicial proceedings in the areas related to labour and social standards, environment and climate;
- Appropriate and effective governance and dispute settlement mechanisms for solving disputes between the EU and the UK over the application of the Agreement, including through the horizontal dispute settlement mechanism or tailored panel of experts;
- Unilateral remedial measures to react quickly where a subsidy creates a significant negative effect on trade or investment between the EU and the UK.
Furthermore, the Agreement provides for the possibility to apply unilateral rebalancing measures in the case of significant divergences in the areas of labour and social, environment or climate protection, or of subsidy control, where such divergences materially impact trade or investment between the Parties. This might be relevant, for example in a situation where one Party would significantly increase its levels of protection related to labour or social standards, the environment or climate above the levels of the other Party. This may entail an increase in the costs of production and hence a competitive disadvantage. Another example would be a situation where one Party would have a system of subsidy control that would systemically fail to prevent the adoption of trade distorting subsidies, which would provide a competitive advantage for that Party.
In such cases, a Party would be able to adopt measures to rebalance the competitive advantage of the other Party.
By addressing the possibility of regulatory divergence at any point in time, this mechanism allows for the future-proofing of level playing field provisions to maintain open and fair competition over time.
Each Party could also, at regular intervals and if rebalancing measures have been taken frequently or for more than 12 months, seek a review of the trade and other economic parts of the Agreeent to ensure an appropriate balance between the commitments in the Agreement on a durable basis. In this case, the Parties could negotiate and amend relevant parts of the Agreement. Any trade or economic part of the Agreement, including aviation, that would remain in place or be renegotiated would retain appropriate level playing field commitments.
What exactly was agreed with regards to subsidies?
The EU and the UK agreed on two elements, which ensure that neither Party uses trade-distorting subsidies, and in this way seek to prevent diversion of investment and jobs losses:
- Substantive rules
1.1 General principles
Subsidies must respect a defined set of binding principles in order to be granted. These principles include
- a contribution to a well-defined objective of public interest (for example the green transition);
- the need for state intervention to remedy a market failure (for example ensuring school bus services to remote villages);
- appropriateness or incentive effect of the subsidy (there is no other measure available that would lead to the same effect);
- the proportionality of the subsidy, taking into account its negative effects on trade between the EU and UK.
1.2 Specific principles
These general principles are complemented by specific binding principles applicable to key sectors (e.g. air transport, energy, financial services) or types of aid (e.g. rescue and restructuring of ailing companies, unlimited guarantees, export subsidies, services of public economic interest, large cross-border projects).
The EU and UK have also agreed to make reference in a Joint Declaration to non-binding principles on other specific subsidies relating to research and development, the development of disadvantaged areas (the so-called regional subsidies) and subsidies to the transport sector (airports, ports, road transport). These principles would guide the two Parties in the implementation and development of their rules on subsidies.
1.3 Transparency
The EU and UK will publish information on an official website or a public database within 6 months of the granting of the subsidy and within 1 year for subsidies in the form of tax measures. In the UK, interested parties, such as competitors, that are considering applying for a review by a court of a subsidy decision, will also have the possibility to request further information to allow them to assess the application of the principles by the granting authority and decide whether to challenge such subsidy in court.
- Enforcement tools
2.1 Guarantees of robust domestic enforcement
The agreement contains guarantees for domestic enforcement. These will ensure that the respect of the general principles can be challenged by competitors and verified by courts in either the EU or the UK. The courts will be empowered to order beneficiaries to pay back the subsidy if the courts found, for instance, that the assessment principles were not correctly applied to that subsidy.
2.2 Effective dispute settlement
The EU and the UK can each submit a conflict regarding the application of relevant provisions on subsidy control to the horizontal dispute settlement mechanism.
Non-compliance by one Party with the arbitral ruling may lead to sanctions authorised by the arbitration tribunal, such as the suspension of commitments (leading for example to the introduction of tariffs or quotas on goods or of other market access barriers).
2.3 Unilateral remedial measures:
Each Party has the right to take unilateral remedial measures (for example reintroduction of tariffs or quotas on certain products) in case the other Party grants a subsidy in a way that leads to significant negative effects on trade or investment between the Parties.
Source:https://europa.eu/european-union/index_en