Level playing field commitments—the next Brexit frontier

The latest phrase to break out of wonkish obscurity into the mainstream thanks to Brexit is “level playing field.” Obviously the broad definition is well understood, as in making sure of a fair contest, but the relevance to international trade less so. We in the UK should perhaps know better, given that fair competition was at the heart of many of the social measures of the EU that we didn’t like, and which were accompaniments to the single market, which we did. Like many things, now outside the EU we’re going to have to learn quickly.

Put simply, in trade policy terms, virtually all agreements, from WTO rules to a Free Trade Agreement to a Customs Union, are subject to level playing field rules to ensure no party is able to gain unfair advantage. The closer the relationship, removing more barriers to trade, the more rigorous the terms of these rules. In the last few weeks we’ve seen evidence of this from a perhaps unexpected source, with the US insisting on stringent conditions that Mexico must follow in the US-Mexico-Canada agreement that will replace NAFTA, the North American Free Trade Agreement.

The UK will therefore be signing up to level playing field provisions in its future trade agreements. Indeed we already have signed up to some, both in our continuity agreements replacing EU trade agreements with third countries, and in the Withdrawal Agreement. For example in the latter we have agreed that measures on EU state aid, which is defined by government as “using taxpayer-funded resources to provide assistance to one or more organisations in a way that gives an advantage over others,” apply to the UK in respect of trade between Northern Ireland and the EU.

Restrictions on such state aid are one of the most common level playing field items included in a trade deal. Boris Johnson’s campaign suggestion of a more lax regime is likely to come to nothing if he wants trade agreements.

But there is no fixed definition of what constitutes a level playing field in trade terms, and typically the negotiating partner with the larger market will be the one most concerned about fair access to that market, and therefore the one to insist on a strong set of rules. Indeed, with trade deals having become more controversial in recent years, due to the concern that they undermine domestic economies, the number of topics covered has been growing.

Both the US and EU insist on trade agreement partners signing up to minimum labour and environmental standards, though their definitions and mechanisms for enforcement differ. In the EU-Canada CETA agreement one eye-catching clause states that “The Parties recognise that it is inappropriate to encourage trade or investment by weakening or reducing the levels of protection afforded in their labour law and standards,” which makes one wonder if trade union laws passed by Conservative governments in the 1980s would not be in contravention. But just in case you think this is typical EU protection, you’ll find almost identical wording in the US-Mexico-Canada agreement. Even given different labour law regimes in the US and EU, their approach in trade agreements has been similar. And though there are important differences on climate change policy between the US and EU, and the former does not mention it in trade agreements, both insist on basic levels of environmental protection.

Traditionally such provisions were not terribly easy to enforce, such that trade preferences are rarely withdrawn for failure to comply. But in both US and EU this is starting to change and enforcement of these chapters is becoming more important. It is widely felt that trade must be seen to be fair to be popular, and job losses caused by a competitor with lax laws has undermined this popularity.

Other common level playing field chapters concern subsidies, fair competition, state enterprises and intellectual property. Much of this should be well known in government, given that Brexiteer trade advisor Shanker Singham actually wrote a book covering some of this ground. In general the UK has long been a supporter of fair global markets, fearing unfair competition from other countries and the undermining of global trade, so rejecting all level playing field provisions would represent a considerable change of direction.

Many in the US and EU would want to go further than this in their definition of a level playing field. For example, the US has an explicit negotiating objective to “Ensure that the UK avoids manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.” The same list of objectives shows the US would also seek an anti-corruption chapter and to “discourage actions that directly or indirectly prejudice or otherwise discourage commercial activity solely between the United States and Israel.”

The EU meanwhile will currently be considering whether adherence to various sanitary and phytosanitary (animal and plant) regulations is a part of its definition of a level playing field. This would be on the grounds that if the UK were able to lower standards and therefore produce at a lower cost, it would have the potential to damage the EU market if produce was then allowed in at tariff-free rates. At the very least, if there are concerns in any agricultural sector about unfair competition we can expect the retention of tariffs and strict checks on UK exports to the EU.

Level playing field provisions are thus not some EU plot against the UK, rather they are an entirely normal part of trade agreements. Exactly what they cover, and whether some of this is in fact disguised protectionism, is entirely open to debate within negotiations. Perhaps before we all get too concerned with the new phrase we would be better off asking what the UK actually wants to see in trade agreements, in these areas and others.