State aid, competition clauses should form part of Brexit deal, UK's Davis says

21 February 2018 1:18pm
UK and EU Flags

20 February 2018. By Matthew Holehouse.

The UK is ready to negotiate provisions on state aid and cross-border competition cases, Brexit Secretary David Davis said in a speech today.

Davis said that measures to prevent market-distorting subsidies by UK or EU companies would be a necessary measure to ensure “fair competition” after the UK exits the bloc.

The UK also wants a cooperation agreement between the UK’s standalone competition regime and the European Commission, said Davis in a speech in Austria.

The UK “has long been a vocal proponent of restricting unfair subsidies to ensure competitive markets,” Davis said, adding he wants to see “mechanisms to ensure both sides respect open trade.”

“Fair competition means that it cannot be right that a company situated in the European Union would be able to be heavily subsidized by the state but still have unfettered access to the United Kingdom market, and vice versa,” he said.

The commission had previously said that clauses to ensure a "level playing field" to stop a race to the bottom in regulation would be a prerequisite of any trade agreement.

EU chief negotiator, Michel Barnier, has warned that the UK faces a “fundamental societal choice” over whether it wishes to retain the “European societal model,” and with it, deep access to the bloc’s market.

Today’s speech makes the UK’s position clear, but is in defiance of pro-Brexit Conservative Party lawmakers, who see deregulatory competition as the main prize of Brexit

In exchange for offering “certainty” that the UK won’t seek “a regression” from European standards, the UK wants mutual recognition of product standards for automotive industries, medical devices and toys, Davis said. These could be based on existing agreements between the bloc and Canada, South Korea and Switzerland, he said.

UK’s competition regime

The UK will drop out of the EU’s competition regime after Brexit, meaning an increase in major merger reviews and antitrust probes landing on the desk of the country’s Competition and Markets Authority.

Davis said the UK would seek an agreement between the CMA and the commission on how to handle cross-border competition investigations.

“The United Kingdom will continue to be a leading advocate of open investment flows after we leave the European Union. But it cannot mean that a European Union company could merge with a United Kingdom company and significantly reduce consumer choice,” Davis said.

EU position

The commission sketched out its early thinking on a potential agreement on standards in a presentation to national officials on Jan. 25.

It said the size and proximity of the UK economy meant that current provisions in existing free trade agreements, such as non-regression laws and adherence to broad international standards on labor and environmental policy, were too timid.

Instead, the EU executive proposed replicating elements of EU law, backed up with domestic and EU surveillance mechanisms, a dispute resolution system and potential sanctions including fines or a “guillotine clause” that would see market access suspended in the event of a dispute.

The presentation said the UK may seek to roll back EU-derived legislation covering collective bargaining rights, chemical safety or industrial emissions.

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