So, some tough messaging on level playing field (LPF) provisions coming out of a preparatory meeting between the European Commission and member states today, which I'll try to explain in a thread. Take home message: in the EU-UK trade talks LPF is going to get very dirty...
1/ First big eye-opener is that the European Commission believes that big British firms with subsidiaries in NI will be caught under the ambit of the Irish Protocol if there is no free trade agreement by the end of the year...
2/ Under the Protocol, Northern Ireland remains subject to EU state aid rules. However, the Commission believes that a big British firm with subsidiaries in NI, which might get a bail out by the UK govt, would be subject to EU state aid rules by virtue of the Irish Protocol
3/ The Commission believes that such firms are integrated into the Northern Ireland economy so the shadow of the Protocol would fall on them too, which it comes to state aid.
4/ Of course, if an FTA is concluded by the end of the year, and one that includes a level playing field provision on state aid, then any UK firm with NI subsidiaries would fall under that arrangement, not the Protocol
5/ But in general, it looks like the Commission and member states are going to take a very tough line on LPF.
6/ EU sources have said that Brussels is going to take Theresa May's Withdrawal Agreement as their baseline approach to the level playing field. As a reminder, the EU wants LPF provisions in case the UK changes its economic model and undercuts the EU economy
7/ As another reminder, Theresa May's Withdrawal Agreement included detailed level playing field provisions. Why? Because the UK had insisted on a temporary UK-customs union as a way to get around the Irish border problem
8/ When the EU Task Force eventually agreed to London's demand for a UK-wide customs union, member states said the UK would have to sign up to level playing field provisions because it was suddenly getting tariff, quota-free and rules of origin-free access to the single mkt
7/ Theresa May then agreed relatively generous level playing field provisions: ie, non-regression clauses on taxation, labour and social standards, environmental protection - and dynamic alignment on state aid.
8/ Member states and the Commission want to take May's commitments as the starting point when it comes to level playing field - ie, at the very least, non-regression clauses for labour and social standards, environment, climate change, taxation and dynamic alignment for state aid
9/ As a reminder, non-regression clauses roughly mean that both sides agree not to lower the standards they currently maintain (which in the UK's case would be the EU's standards); dynamic alignment means the UK would remain in lockstep with EU rules into the future
10/ However, sources have said that France and a number of other member states want to go further, ie, dynamic alignment not just for state aid, but also for the environment, especially since the EU is embarking on much tougher carbon emissions standards by 2050.
11/ In other words, some member states believe that Theresa May's 2018 promises will be soon be out of date and that the UK will have to sign up to something tougher.
12/ Needless to say, all this will go down very badly in London. British sources have said Boris Johnson accepts the need for some form of level playing field provisions, but that he was a sliding scale:
13/ ie, the UK accepts non-regression clauses in some areas and gets high access in those areas, not not in others, and accepts the trade friction that that will bring about.
14/ What is absolutely certain is that the UK will not accept dynamic alignment in any field.
15/ A UK official told @RTENews last week: "Some talk about dynamic alignment as if this is the only way we can achieve fair and open competition. The UK has high standards. We have led the argument within the EU for a lot of these high standards.
16/ "But ministers are not going to accept dynamic alignment. There has to be a balance."
17/ All told both sides are very far apart on this even before the trade negotiations get underway. Also, just imagine the political backlash if Boris Johnson signs up (yet again) to something Theresa May had agreed.
18/ UK sources insist that post-Brexit it is not going to "go rogue" on state aid, and that as a member state the UK was much less inclined to face state aid infringement proceedings than France or Germany
19/ One EU diplomat acknowledges this, but points to the fact that Boris Johnson has promised to radically reform the UK economic model. In other words, the EU will say it needs to be sure it's not going to be under cut, so the UK will have to make some binding promises.
20/ Stay tuned...
