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Following reports the EU is pursuing "level playing field" commitments as part of the Irish backstop, Open Europe's Aarti Shankar considers what the UK government might accept to obtain a UK-wide customs arrangement.
9 November 2018
According to a leaked letter seen by The Times, the EU’s original Northern Ireland-specific backstop is still in play. This proposal would see Northern Ireland alone remain part of the EU’s customs territory and regulatory area in the event no future UK-EU deal is reached. The Prime Minister firmly rejected this when it was first published in February, and has since sought to push the EU to shift its position. The most important revision the UK government wants to secure is transforming the customs aspect of this backstop into a UK-wide arrangement.
It has been interesting to watch the EU’s position on this evolve. Initially, a UK-wide customs backstop was not up for discussion – it was considered a “future relationship” issue and Article 50 does not provide the legal basis to determine the future agreement. The EU later accepted the principle of a UK-wide customs element, and suggested it would commit to negotiate this in the future. It then took a significant step forward, accepting that the UK-wide proposal could be included within the legally binding Withdrawal Agreement – but it raised concerns about whether this could be fully negotiated in time, meaning a Northern Irish “backstop to the backstop” could remain in place. Open Europe examined the possibility of such a model in our recent paper, Resetting the Backstop.
One of the many aspects of a UK-wide customs backstop to be negotiated is what the European Commission refers to as “level playing field” commitments – these relate to cross-cutting issues such as state aid, taxation, social and environmental policy. The EU places high importance on the need for a level playing field because it is concerned about the potential development of a regulatory competitor on its doorstep. It would not want to grant the UK tariff-free and burden-free to the EU market via a customs union if British businesses are free to deregulate to gain a competitive advantage and undercut European companies.
While some form of level playing field obligations will likely be included, the UK should be careful what it signs up to – these are not simply issues that relate to market access, they establish key rules that govern the wider domestic economy. Reports suggest the cabinet is concerned it will be asked to follow EU rules in lockstep, amounting to what one minister described as “a single market through the backdoor.” It is worth noting that even organisations that support a highly integrated economic relationship with the EU have expressed caution here – the CBI for instance has urged the government not to agree simply to follow EU social and employment law without any influence.
Some have argued that deep commitments to remain aligned with EU cross-cutting regulations should not pose a significant obstacle for the UK government, as it “already signed up to EU level playing field commitments” in the Chequers White Paper. This isn’t entirely true. The government made a significant offer as part of its proposals on the future relationship – going much further than a traditional FTA – but it only proposed a “common rulebook” on state aid. This would mean agreeing binding commitments to remain aligned with EU state aid policy. As Open Europe pointed out in our paper, Striking a Balance, this is broadly in line with UK interests, given UK state aid expenditure is traditionally much lower than the EU average.
However, on environmental and employment policy, the government only offered to include “non-regression” clauses in a UK-EU agreement. In essence, the UK would retain current EU policy in domestic law, and commit to continued high standards in the future. But the government did not propose dynamic alignment with EU rules in these politically sensitive areas – agreeing to do so in order to obtain a UK-wide customs backstop would therefore be a significant step.
It is not fully clear what level and depth of commitment the EU wants to secure as part of the backstop arrangement. The proposals the government set forward in its White Paper are unlikely to have gone far enough, and the EU may look to extract further concessions from the UK at this crunch moment in negotiations. But there is little indication so far that the government is prepared to follow EU rules in all areas. Pursuing this would be a high-risk strategy for the EU, given the path to a deal is now dependent entirely on agreeing the Irish backstop.