This EU Won't Work

A close look at the EU’s intended approach on its Level Playing Field demands in the coming negotiations.

The EU uses many expressions to represent its high moral purpose and standards to the world, one of its favourites is ‘a level playing field‘. This has been taken from sport where the rules and conditions for play are the same for all competitors, the alternative would be ‘handicapped’ where the capabilities, skill or experience of the participants differ. In either case the intention is to make the match fair. The analogy is perfect when the EU’s purpose is to show that all it wants is a chance for its own members and their industries to compete with others as equals (no handicaps thank you; for example, lower corporate taxes).

The EU’s negotiators will do their level best in the coming trade negotiations to ensure there is a level playing field on which they and the UK both play; they’ve made this very clear and it sounds very reasonable to the innocent ear. It follows that carbon emission mandates, employment legislation, financial regulations, taxation, pesticides, fishing quotas, clinical trials and much more must follow the same rules. As the EU sees it, they must be able to change and the UK will have to follow or the playing field would be unlevelled. In other words the UK must play the same game by the same rules on the field the EU lays out.

The ‘level playing field‘ mantra disguises the EU’s protectionist agenda, as is clear from its previous uses. For example, in 2009 the German government, supported by the EU, required Emirates Airlines to increase its business class prices by 20% in order to ensure a ‘level playing field‘ for Lufthansa.

The UK has a severe balance of trade deficit in goods with the EU, so perhaps a handicap system would be justified after all. Clearly the Eurocrats are preparing to fight for their survival in the post-Brexit trade negotiations. If the UK becomes a successful competitor outside the Union why should other members remain and accept rules that may not suit them?

There is much in recent EU documents concerning the implementation of a ‘level playing field’. In this post we focus mainly on this notion as it refers to taxation, which is a significant field in which the EU fears competition from an ‘independent’ United Kingdom. We can assume that the material quoted below will be incorporated into the EU’s ‘negotiating mandate’, to be published in late February or early March 2020. Our interpretation is based on our understanding of the nature and practices of the European Union.

We quote many examples of the use of the term ‘level playing field’ and draw the conclusion that this shows the EU’s fear of having a successful economic competitor on its doorstep; they will make every effort to ensure that the UK conforms to the EU’s requirement to remain uncompetitive. Other words and phrases we highlight that confirm our interpretation include: ‘unfair, ‘competition’, ‘advantage’, ‘dispute settlement’, ‘harmful tax practices’ and ‘Union autonomous remedies’.

From the EU’s Internal EU27 preparatory discussions on the future relationship: “Level playing field“ (Seminar-200114-lpf.pdf 14/01/2020); a set of slides that can be accessed here:
https://ec.europa.eu/commission/sites/beta-political/files/seminar-20200114-lpf_en.pdf

General approach:

[A]ny agreement with the UK will have to be based on a balance of rights and obligations, and ensure a level playing field

Given the UK’s geographic proximity and economic interdependence with the EU27, the future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field.

The aim should be to prevent unfair competitive advantage that the UK could enjoy through undercutting of levels of protection with respect to, inter alia, competition and state aid, tax, social, environment and regulatory measures and practices.

(It doesn’t take three guesses as to who will decide what is “unfair competitive advantage”.)

This will require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as Union autonomous remedies…

(For the EU it all has to be rules-based, so that they can call on the ECJ to adjudicate, using their mandated dispute settlement arrangements.)

(Slide 9): Ensure open and fair competition, encompassing robust commitments to ensure a level playing field across the economic partnership

Prevent distortions of trade and unfair competitive advantages

(Again it will be the EU that decides what are “distortions of trade”.)

(Slide 10): Robust commitments, to ensure a level playing field

Uphold high EU and international standards in certain areas of horizontal nature:

Horizontal: competition including state aid, state-owned enterprises, taxation, labour and social…

Effective enforcement and dispute settlement between the EU and the UK

(“Effective” will mean what the EU chooses it to mean. See Mind Your Language.)

EU autonomous remedies – interim measures to react quickly to disruptions of the equal conditions of competition in relevant areas

(“Autonomous remedies” will be those decided unilaterally by the EU, as they firm up their attempt to suppress competition that they decide is unfair.)

Empowerment of Joint Committee to modify commitments over time to lay down higher standards or include additional areas

(This is particularly worrying as the Withdrawal Agreement makes it clear (Article 164) that the Joint Committee can overrule the decisions of the elected UK parliament and government.)

(See Slide 11 on Competition, Slide 13 on Labour and social protection, Slides 14/15 on Environment, Slide 16 on Fight against climate change, Slide 17 on Other instruments)

(Slide 12 on Taxation):

Implementation of the principles of good governance in taxation

(And who will define what is good governance?)

Application by the UK of the common standards in place at the end of the transition period…

Curb harmful tax measures, notably by ensuring the UK reaffirms its commitment to the Code of Conduct for Business Taxation

(For example, the EU will consider a reduction in the rates of corporate tax as “harmful” to their interests.)

Conclusion (Slide 18)

Economic partnership must be underpinned by robust safeguards ensuring a level playing field

A free trade agreement requires robust horizontal level playing field commitments…

Effective enforcement domestically and through dispute settlement

Autonomous interim measures to react quickly

From the revised Political Declaration (17/10/2019), which can be downloaded from here:
https://ec.europa.eu/commission/publications/revised-political-declaration_en

[T]he Parties agree to develop an ambitious, wide-ranging and balanced economic partnership. […] It will be underpinned by provisions ensuring a level playing field for open and fair competition…

These commitments should prevent distortions of trade and unfair competitive advantages.
• commit to the principles of good governance in the area of taxation and to the curbing of harmful tax practices;

(Note: “curbing” is the key word here; the EU will require the UK to avoid engaging in “harmful tax practices” but if it does then the EU expects to have a mechanism to curb such practices, autonomously.)

In so doing, they should rely on appropriate and relevant Union and international standards, and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement.

Next from the European Parliament’s draft recommendations on the draft Council decision on the conclusion of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union, published on 14/01/2020, which can be found here: http://www.europarl.europa.eu/doceo/document/A-9-2020-0004_EN.html

As regards the level playing field, the text now refers to ‘robust commitments to ensure a level playing field…commensurate with the scope and depth of the future relationship and the economic connectedness of the Parties’.

A level playing field is an essential issue for the EU in general, and for Parliament in particular. In this context, it is worth recalling the European Council (Art. 50) Guidelines of 23 March 2018, which confirmed the readiness of the European Council to achieve ‘a balanced, ambitious and wide-ranging free trade agreement (FTA) insofar as there are sufficient guarantees for a level playing field’, and that the ‘future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field’.

Likewise, Parliament stated clearly, in its resolution of 18 September 2019, that negotiations on future EU-UK relations would require strong safeguards and level playing field provisions with a view to safeguarding the EU’s internal market and avoiding placing EU firms at a potential unfair competitive disadvantage, and that any free trade agreement that fails to respect such levels of protection would not be ratified by Parliament. (Our emphasis)

(The EU intends to mandate non-competition, and thus to bind the UK to non-independence.)

[Guy Verhofstadt (Rappoteur): “The withdrawal of the UK is a regrettable moment for the European Union and for our integration process…”]

(This confirms that the EU is still determined to continue its “integration process”, or ever closer union.)

And from the Recommendation for a COUNCIL DECISION authorising the opening of negotiations for a new partnership with the United Kingdom (03/02/2020), which can be downloaded from here:
https://ec.europa.eu/info/sites/info/files/communication-annex-negotiating-directives.pdf

The European Council reiterated in particular that the future relationship with the United Kingdom will have to be based on a balance of rights and obligations and ensure a level playing field. The European Council invited the Commission to submit to the Council ‘a draft comprehensive mandate for a future relationship with the United Kingdom immediately after its withdrawal’.

(We can expect the “comprehensive mandate” to include demands on what the EU considers to be a level playing field.)

The envisaged partnership between the Union and the United Kingdom, should be based on and refer, inter alia, to the following underlying principles and key objectives:

• ensure a balance of rights and obligations, and a level playing field. This balance must ensure the autonomy of the Union’s decision-making and legal order, ensure the protection of the Union’s financial interests and be consistent with the other Union principles…

The envisaged partnership should…be underpinned by robust commitments ensuring a level playing field for open and fair competition…

The envisaged partnership…requires robust level playing field commitments…

The Union should also have the possibility to apply autonomous interim measures to react quickly to disruptions of the equal conditions of competition in relevant areas.

(The most favourable interpretation we can think of for this one is that it was included to be ‘sacrificed’ in the negotiations, otherwise it means that when the EU believes that ‘fair’ competition has been disrupted they will use their own (ECJ?) measures to curb this.)

The envisaged partnership…should be based on the conditions agreed within the Union, ensure…a level playing field…

The EU trades on uneven grounds with other countries, including those with free trade agreements like Japan and Canada. Some less-developed nations, in Africa say, may have relatively lax environmental regulations; others may have different labour standards, rules on state aid or lower taxes. It is unlikely that the EU will ever level with the UK by admitting its real agenda.