Title XI: Level playing field for open and fair competition and sustainable development
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
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
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
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 non- binding guidance on additional sectors which either side may take into consideration in their respective systems of subsidy control.
The 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.
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
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
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.
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.
There are no provisions constraining our domestic tax regime or tax rates.
Chapter 6: Labour and social standards
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
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.
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
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
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.
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.
Title XII: Exceptions
This Title provides for a number of exceptions to ensure that a range of legitimate UK domestic policy aims are not affected by this Agreement. It applies to the trade part of the agreement. The exceptions provide that existing national security practices are not affected by the terms of the trade agreement. There is also an exception which protects legitimate domestic taxation policy. Finally, there is a general exception which allows for UK action in a list of areas, such as the protection of public security or public morals to maintain public order, or measures necessary to protect human, animal or plant life or health.
The Chapter also provides for the treatment of confidential information and WTO waivers.