Title XI of Part Two of the Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, on the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part (“TCA”) is entitled “LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT”. The Title occupies 38 pages of the TCA (pages 179-217) and is in addition to the trade defense measures of antidumping, countervailing duty and safeguard investigations which are part of Title I of Part Two (Article GOODS.17, Trade Remedies, page 24). The inclusion of Title XI was very important for the EU if it was going to agree to tariff free/quota free access to the United Kingdom and to agree to U.K. freedom from EU laws and regulations and European Court of Justice review in areas like environment, climate, labor and subsidies. The Title is discussed in an article in today’s Financial Times, Keeping a level head about Brexit’s level playing field, December 29, 2020, https://www.ft.com/content/77bed4ae-0f8c-40bb-9f8f-a355e6f865a1.
In a press release from the European Commission entitled EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual
interest, Brussels, 24 December 2020, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531, the following was said about the level playing field provisions:
“Both parties have committed to ensuring a robust level playing field by maintaining high levels of protection in areas such as environmental protection, the fight against climate change and carbon pricing, social and labour rights, tax transparency and State aid, with effective, domestic enforcement, a binding dispute settlement mechanism and the possibility for both parties to take remedial measures.”
The U.K.’s summary of the Trade and Cooperation Agreement includes the following lengthy description of Title XI and how the Title meets U.K. negotiating objectives. See UK-EU Trade and Cooperation Agreement, Summary, December 2020, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948093/TCA_SUMMARY_PDF.pdf.
“Title XI: Level playing field for open and fair competition and sustainable development
“81. The Agreement’s provisions in this area, implementing commitments made in the 2019 Political Declaration, were the subject of considerable controversy during the negotiations. The EU was forced to drop its ambitious demands for dynamic alignment and for the UK to be legally required to maintain equivalent legislative systems to the EU’s in some areas. The system that has been agreed upon does not compromise the UK’s sovereignty in any area, does not involve the European Court of Justice in any way, and is reciprocal.
Both sides have the right to set their own laws, subject to the broad constraints of this Agreement in this area as in any other. And both sides have the right, in certain constrained ways, and subject to arbitration, to take
countermeasures if they believe they are being damaged by measures taken by the other Party in subsidy policy, labour and social policy, or climate and environment policy. If such measures are used too frequently either side can trigger a review of these provisions and the trade aspects of the Treaty more broadly, aiming to end with a different balance of rights and obligations.
“Chapter 1: General Provisions
“82. The Chapter sets out some principles and objectives for this title. It recognises the right of each Party to set its own policies and priorities and determine the levels of protection it deems appropriate in its laws.
“Chapter 2: Competition
“83. The Agreement commits both Parties to maintain their high standards of competition law, including enforcing these laws, maintaining their independent competition authorities, and applying competition law on a procedurally fair, transparent and non-discriminatory basis. The Chapter enables further cooperation between the UK and EU competition authorities.
“Chapter 3: Subsidies
“84. The Agreement ensures that each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other. It includes some broad principles which shape
the design of both sides’ systems, aiming to ensure that the granting of subsidy does not have detrimental effects on trade between the Parties. It also includes some specific principles on subsidies that are particularly
distortive, such as those prohibited by the WTO. The Agreement makes clear that it is for each Party to determine how these principles will be implemented in its domestic law. There is a separate joint declaration that provides nonbinding guidance on additional sectors which either side may take into consideration in their respective systems of subsidy control.
“85. he Agreement requires both sides to be transparent about the subsidies they grant and to establish or maintain an independent body with an appropriate role in their respective subsidy systems, while retaining full discretion over any functions that body may have. The Agreement includes provisions on the role of domestic courts in reviewing domestic subsidy decisions. For the UK, this reflects existing practice under the UK’s system of judicial review. The UK and EU have also agreed that, in certain circumstances, domestic courts should have the power to order recovery of subsidies that have been granted illegally under domestic law.
“86. Finally, the UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid action where a subsidy granted by the other Party is causing or is at serious risk of causing significant harm to its industries. These measures can be challenged using an accelerated arbitration procedure and there is the possibility of compensation if a Party has used these measures in an unnecessary or disproportionate manner.
“Chapter 4: State owned enterprises, enterprises granted special rights or privileges and designated monopolies
“87. The Chapter commits both parties to additional disciplines on their State owned enterprises, designated monopolies and enterprises granted special rights or privileges and to make best use of international standards when regulating them, in line with provisions in other FTAs.
“Chapter 5: Taxation
“88. The Agreement commits both Parties to uphold global standards on tax transparency and fighting tax avoidance (which the UK has played a leading role in developing and implementing through the G20 and OECD). It contains commitments to specific tax standards as they stand at the end of the transition period, including the international standards on exchange of information, anti-tax avoidance, as well as relevant standards in legislation on public country by country reporting by credit-institutions and investment firms.
“89. The commitments on tax between the UK and the EU are also captured in a stand-alone Joint Political Declaration on Countering Harmful Tax Regimes. This is a political commitment to the principles of countering harmful tax regimes, and reflects the work done by the OECD in this area.
“90. There are no provisions constraining our domestic tax regime or tax rates.
“Chapter 6: Labour and social standards
“91. The Agreement includes reciprocal commitments not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade. This is very much in line with similar ‘non-regression’ clauses in other FTAs and with international norms. The provisions are clear that both Parties have the freedom and ability to make their own decisions on how they regulate – meaning that retained EU law will not have a special place on the UK’s statute books. This Chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.
“Chapter 7: Environment and climate
“92. In a similar way, the Agreement includes reciprocal commitments not to reduce the level of environmental or climate protection or fail to enforce its laws in a manner that has an effect on trade. This includes reciprocal commitments to cross-economy greenhouse gas emission reduction targets. The Agreement gives both Parties the freedom to set their own climate and environmental policies in the way most appropriate to achieve our world leading domestic aims. The domestic supervisory bodies of the UK and EU will cooperate to ensure effective enforcement of their respective environmental and climate laws. Once again, this chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.
“93. The Agreement makes clear both parties will have their own effective systems of carbon pricing in place to help fulfil our respective climate goals. The Parties have agreed to cooperate on carbon pricing in future and consider linking their respective systems, although they are not under any obligation to do so.
“Chapter 8: Other instruments for trade and sustainable development
“94. The Agreement affirms the Parties’ existing commitments to a range of international conventions and other commitments in the area of labour, environment, and climate, in a way that is standard in FTAs. This includes committing the Parties to the effective implementation of the Paris Agreement.
“Chapter 9: Institutional provisions
“95. The Agreement sets out tailored provisions for dispute settlement for Chapters 6-8 involving a Panel of Experts. Any recommendations made by the Panel of Experts are not binding on the Parties.
“96. The Agreement provides for a rebalancing mechanism which allows the Parties to formally review the balance of the Agreement over time and enter into a negotiation on amendments to the economic provisions of the Agreement at the request of one Party. It also provides for Parties to take strictly limited and proportionate rebalancing measures on a more short-term basis, subject to the approval of an independent arbitration panel.”
Will WTO reform efforts see some or many of these areas of interest for “leveling the playing field” become plurilateral or multilateral approaches?
There have been deep concerns among many WTO Members about the lack of disciplines on industrial subsidies for countries like China which have used massive subsidies to state-champions to flood markets and create massive global excess capacity. The EU, Japan and the United States have been working on possible proposals to address some of these issues. See, e.g., European Commission, Directorate-General for Trade, Washington, DC; 14 January 2020, EU, U.S. and Japan agree on new ways to strengthen global rules on industrial subsidies, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2101.
The United States has spent a great deal of time during 2018-2020 identifying areas where it believes the WTO and Member obligations do not address distortions that exist and don’t establish conditions of fair trade. Convergence vs. coexistence of differing economic systems, obsolete provisions permitting self-selection of developing country status regardless of economic development and “entitlement” to permanent special and differential treatment, and others. In a recent post, I reviewed the U.S. draft Ministerial Decision which if adopted would permit Members to treat weak and unenforced environmental laws and regulations as a countervailable subsidy. See December 26, 2020, U.S. proposed draft Ministerial Decision – making weak or unenforced environmental standards potentially countervailable, https://currentthoughtsontrade.com/2020/12/26/u-s-proposed-draft-ministerial-decision-making-weak-or-unenforced-environmental-standards-potentially-countervailable/.
An increasing number of free trade agreements include labor and environment chapters, some with enforcement provisions. See, e.g., Congressional Research Service, updated December 18, 2020, Worker Rights Provisions in Free Trade Agreements (FTAs), https://fas.org/sgp/crs/misc/IF10046.pdf.
A number of WTO Members are pressing for greater focus on sustainable development as part of WTO negotiations, using the UN Sustainable Development Goals as the objectives. And, of course, the WTO has been struggling to complete multilateral negotiations on fisheries subsidies to fulfill UN SDG 14.6.
While the shape, breadth and direction of WTO reform is unknown at the present time, it is clear that at least some major trading nations are pushing ahead with their own plans for promoting sustainable development and addressing the climate crisis. Carbon taxes are one tool being used or developed. Using FTAs to broaden sustainable development objectives and ensure a “level playing field” for producers living with higher environmental, labor and other standards is already happening in some FTAs. And certainly we will see a major effort to have WTO rules better address the distortions to competition from current economic systems and policies.
The EU and U.K. TCA’s Part Two Title XI may go no broader than the unique circumstances of the split of the United Kingdom from the European Union. However, the historic champions of liberalized trade have longstanding and growing interests in ensuring the trading system works on a “level playing field” basis. From my perspective, there is a fair amount of the Title XI concepts that could be expanded in application to other trading nations and that should be of interest in the WTO if, as hoped, the organization is able to regain relevance through greater “like mindedness”. Thus, how Title XI works in practice and what lessons are learned for improving or expanding its application will be of great interest not only to the EU and the U.K. but also to other WTO Members.