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Roderick Crawford works on conflict resolution in countries such as Yemen, South Sudan and Iraq, and on Brexit-related matters. He is a former editor of Parliamentary Brief.

This week sees the fourth round of negotiations on the future UK-EU relationship. At the close of the last round, both sides were still far apart on key areas that require agreement if talks are to progress. On the conclusion of the last round, David Frost, the UK’s chief negotiator, wrote formally to Michel Barnier, his opposite number. A key point he took up in his letter is the application of EU state aid rules to and in the UK:

‘To take a particularly egregious example, your text would require the UK simply to accept EU state aid rules; would enable the EU, and only the EU, to put tariffs on trade with the UK if we breached those rules; and would require us to accept an enforcement mechanism which gives a specific role to the European Court of Justice.’

Barnier had previously voiced his own disappointment at what he saw as the UK’s lack of engagement on the economic and ‘fair play’ rules “that we agreed to with Boris Johnson in the Political Declaration”.

In his interview in The Sunday Times yesterday, he insisted that the Political Declaration was “an essential text”. He went on to say: “And we, the 27 heads of state and the European Parliament, we entered into commitments on the basis of the text, in the text, to translate it into a legal text, and that’s what it is…. So this is a question of translating political commitments, which were negotiated by Boris Johnson, translating them into a legal text — no more, no less.”

However, the Political Declaration does not mention the application of EU state aid rules – presumably Articles 107-109 of the Treaty on the Functioning of the European Union, plus relevant case law. Rather, it sets out a very different framework.

First, let us look at the relevant text that sets out the framework for the level playing field in the ‘Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom’ (the Political Declaration).

‘XIV. Level playing field for open and fair competition

77. Given the Union and the United Kingdom’s geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field. The precise nature of commitments should be commensurate with the scope and depth of the future relationship and the economic connectedness of the Parties. These commitments should prevent distortions of trade and unfair competitive advantages. To that end, the Parties should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters. The Parties should in particular maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition; commit to the principles of good governance in the area of taxation and to the curbing of harmful tax practices; and maintain environmental, social and employment standards at the current high levels provided by the existing common standards. In so doing, they should rely on appropriate and relevant Union and international standards, and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement. The future relationship should also promote adherence to and effective implementation of relevant internationally agreed principles and rules in these domains, including the Paris Agreement.’

This provides a clear framework for the two parties to ensure an open and fair competition through a level playing field.

This framework will “encompass[ing] robust commitments”; the parties should “uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of state aid…” and “should in particular maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition”.

This is not the language of EU state aid rules being enforced by the Court of Justice on and in the UK.

So the Political Declaration does not support Michel Barnier’s claim that Boris Johnson agreed to EU state aid rules — only ‘common high standards’, and these as they applied on 31 December 2020.

Moreover, the re-negotiation of that text removed all mention of the Court of Justice except in reference to its role as sole interpreter of EU law — a statement of the constitutional reality of the EU legal order. Barnier’s authoritative text is based instead on the annexes to a European Council decision from this February, itself adopted word for word from the Commission’s “recommendation”. That text reads as follows:

‘The envisaged partnership should ensure the application of Union State aid rules to and in the United Kingdom. For aid granted by the United Kingdom affecting trade between Great Britain and the Union, the United Kingdom should set up an independent and adequately resourced enforcement authority with effective powers to enforce the applicable rules, which should work in close cooperation with the Commission. Disputes about the application of State aid rules in the United Kingdom should be subject to dispute settlement.’ (Paragraph 96.)

It is clear from reading the Political Declaration that the Council’s directives for negotiating the future relationship with the UK have departed substantially from it. Language matters in these documents – as Barnier is at pains to point out in his Sunday Times interview – and “Common high standards” do not mean “EU rules”.

The ‘recommendation’ from the Commission, on which these Council directives are based, states that it is based on the Political Declaration – and it was presented to the European Council on this basis – yet, as this analysis shows, it is not.

Further, Article 107 of the Treaty on the Functioning of the European Union sets out the scope of state aid, whilst articles 108 and 109 set out the enforcement for the European Union’s legal order.

All three encompass rules, but only Article 107 expresses what could be regarded as something related to ‘common standards’. The Political Declaration envisages that the UK maintain a robust and comprehensive framework for competition and state aid – usual practice in a free trade agreement – it does not envisage maintaining the EU’s enforcement system, and therefore it does not envisage the maintenance of the EU rules either, as they include enforcement as set out in Art 108 and 109.

Taking the advice of Barnier in his  interview – “We need to go back and re-read the sentences, the phrasing, that Boris Johnson agreed to and signed” – leads to a very clear conclusion: the Political Declaration offers no support for applying the EU rules on state aid.

Having followed Barnier’s advice – his ‘first condition’ – no one can continue to pretend that the UK is rowing back on commitments made on state aid in the Political Declaration.

And “now we need more realism”, was his second condition. More realism requires that the European Council directives authorising the Commission to negotiate an agreement based on the framework set out in the Political Declaration need amending to correct a clear departure from that agreed framework. This will allow the talks on the level playing field their best chance of a conclusion – one based on the commitments actually made in the Political Declaration.

68 comments for: Roderick Crawford: The UK/EU negotiation. How the impasse on state aid arose and how it can be ended.

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