The EU-UK relationship: regulatory divergence and the level playing field

Since the United Kingdom’s departure from the EU, policy decisions made by both the UK and the EU will, over time, lead to regulatory divergence and create barriers to trade between the two separate regulatory and legal spaces. The UK government has already undertaken a comprehensive review of all retained EU law, to reap the benefits of its regulatory autonomy, and specific regulatory reforms have been identified in high-growth sectors. Yet there are some constraints. The UK has committed to respecting certain EU and international standards provided for in the Trade and Cooperation Agreement concluded with the EU. Most notably, a common level of protection is secured in certain areas deemed relevant for the level playing field, such as subsidy control, taxation, labour and social standards and environment and climate, although the strength of the level playing field safeguards differs considerably by area. Moreover, regulatory divergence would come at the expense of single market access. In this setting, certain regulatory measures and subsidies granted to economic operators could be a potential source of political friction between the EU and the United Kingdom and could lead to future legal disputes under the Trade and Cooperation Agreement. At the first meeting of the Trade Specialised Committee on Level Playing Field for Open and Fair Competition and Sustainable Development held on 12 October 2021, EU and UK representatives addressed issues related to subsidy control (the UK’s Subsidy Control Bill and the EU’s proposed Regulation on foreign subsidies), specific subsidies (the UK’s renewable energy schemes and the EU’s Brexit Adjustment Reserve) and several regulatory initiatives on labour and social standards and environment and climate. These technical discussions could prove crucial in limiting the risk of EU-UK disputes arising in level playing field issues.