The Trade and Cooperation agreement between the EU and the UK post Brexit – what happened to "a level playing field"?

| Insight

Interestingly, in particular for the EFTA states party to the EEA-Agreement, the UK seems to have in large part been able to secure central issues of sovereignty in the new TCA. However, compliance in substance of large parts of EU competition- and state aid law will continue post Brexit.

At Christmas, the Trade and Cooperation Agreement (TCA) consisting of 1256 pages was finally agreed between the EU and the UK.  Crucially, the Agreement is between the EU and UK only and not the EU and its member states and the UK. The TCA establishes a free trade area for goods and services, in accordance with the WTO law. Both sides can apply trade remedies as is usual for free trade agreements such as on condition anti-dumping duties, anti-subsidy duties, and economic safeguards.

The TCA is complex and will clearly be the subject of detailed analysis in the time to come. Here, we aim to follow up on SVW’s previously published piece to create «a level playing field» post-Brexit, see the previous discussion here.

The concept of a level playing field is designed to ensure fair competition between the two sides, see TCA part 2, title XI, p 181. A level playing field concerns not only the substance of the obligations but also enforcement mechanisms. The provisions of the TCA include different approaches to this end. Save for the special clauses on Northern Ireland; the competition provisions seem a bit like both sides both gained and lost as compared to their previously stated positions. Unsurprisingly, a compromise was reached. The issue of Northern Ireland raises separate and distinct sovereignty questions of a different nature that seems better analysed elsewhere.

For competition law, there is an obligation in the TCA to have and enforce a system, but no dispute settlement mechanism; see part 2, title XI, section 2, p 182, in particular article 2.3 referring to national competition authorities. The familiar concepts from both EU and national competition law of anticompetitive agreements, abuse of dominant position, and merger control are all included; see section 2.2 in particular.

The TCA is governed by the basic principles of international law characterised by, in principle, no rights for individuals. For instance, there is no involvement of the Court of Justice of the EU (CJEU), either directly or via references asking the court questions of EU law interpretation. Hence, the TCA is quite different in nature from the withdrawal agreement.

On state aid/subsidies there is another compromise. The EU wanted the full application of EU state aid regulation, including references to the CJEU. The UK wanted brief statements based on WTO rules on subsidies based on the general idea of trade agreements, usually including a system to control the award of subsidies and similar measures.

The EU state aid regime is integration by law with competent and forceful institutional control entailing a rather strong limitation on national discretion to award subsidies. Through the EU state aid regime, states have given up on their sovereignty to decide for themselves on the allocation of public means to motivate private entities in the interest of the society.  This is further illustrated by the fact that in the EU/EEA it is ultimately, for the CJEU and the EFTA Court in the EEA (related to EFTA states) to have the ‘final word’ and decide on the application of the state aid regulation and to decide what is in the interest of the community.

The basic principles on state aid/subsidies in the TCA have clear parallels to the substance of EU state aid regulation even if the basic concepts are named differently, see part 2, title XI, section 3 p 184. Much of the EU acquis has in fact been codified.

The notion of aid/subsidy is defined around four familiar conditions: a) state resources, b) economic advantage, c) specificity and d) effect on trade or investment between the parties. Interestingly, reference is made to the three-step procedure known for assessing national tax-measures to identify specificity of aid/subsidies. And there is, for instance, a claw-back mechanism.

On enforcement, there must be access to the courts and an independent enforcement body. However, crucially for the UK, the TCA does not foresee a role for the CJEU. Hence, on the issue of enforcement, there are significant differences between being subject to EU/EEA state aid law and the subsidy clauses in the TCA. In EU/EEA state aid law there is also the concept of private enforcement which is of course also significant. The possibilities of any private enforcement under the TCA is still unclear and seems to be subject to national law.

The general provisions of the TCA on dispute settlement basically refers to consultation and arbitration, see part 6, title I p 383. If a party is found to have breached its obligations, it has a period of time to comply. If there is no compliance, the parties can agree on compensation, or the parties can suspend some obligations. There can also be retaliation under the TCA. This reflects the TCA’s character of being an international agreement without specific individual rights.

Hence, a compromise was reached where both sides gained and lost compared to negotiation positions. How the system of competition law and state aid/subsidy control in the TCA to achieve the goal of «a level playing field» in the future relationship between the UK and the EU (and ultimately the EEA) will operate in practice remains to be seen.