Tamara Hervey

This blog post provides an early analysis of the ‘non-regression’ provisions on Labour and Social Standards in the EU-UK Trade and Cooperation Agreement (TCA). After considering the ‘non-regression’ provisions in the context of the TCA as a whole, it contrasts the provisions with measures of EU law. It then turns to elaborate the content of the provisions. Finally, some aspects of their enforcement are discussed.

Context: the TCA as a whole

The TCA is an international trade agreement between the EU and the UK. It entered into force provisionally on 1 January 2021, and formally into force on 1 May 2021, following the European Parliament’s consent on 28 April 2021. The EU and UK have agreed a legally binding ‘broad relationship’ based on ‘good neighbourliness’ and ‘respectful of … autonomy and sovereignty’ of the Parties (Article 1 TCA). (It’s quite interesting to think about the EU as having ‘sovereignty’, but this isn’t the subject of this post!) Unlike the EU’s usual trade agreements, this agreement aims to have less integrated trade relations between the parties than before. It gives the EU and the UK more regulatory autonomy from each other than before.

Unlike membership of the EU, the TCA is more like the EU’s standard approach to international agreements. It involves access to each other’s markets for goods; and more limited access for services. But there are some elements that go further – and the provisions on Coordination of Social Security and the Labour and Social Standards provisions are among those. The latter include a provision to the effect that:

A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place at the end of the transition period, including by failing to effectively enforce its law and standards.” Article 387 (2) TCA

The Preamble, recital 9, refers to the economic partnership being underpinned by a level playing field, including a commitment to uphold high levels of protection in areas that include labour and social standards.

What this agreement is not

At the risk of stating the obvious, it is very important to remember that this agreement is not EU law in the sense of the internal trade agreement that applies between the Member States of the EU. However, the TCA is part of EU external relations law, so will be subject to the acquis Communautaire on external relations. The TCA does not involve harmonization of standards; nor mutual recognition in the sense it applies in EU law. There are some common institutions – like the Partnership Council, and the Trade Specialised Committee on the Level Playing Field – but these are not EU institutions. There is no common approach to interpretation of the TCA’s provisions – there is nothing like the EU’s preliminary reference procedure. And there is nothing like direct effect – the TCA does not give rights to or impose obligations on private individuals. Further, this is not a human rights instrument – again, unlike in EU law, labour and social rights are not seen as human rights within it.

The content of the provisions

Title XI of the TCA on the Level Playing Field for Open and Fair Competition and Sustainable Development begins with General Provisions. These acknowledge that the trade relation between the EU and the UK – because the UK has been a member of the EU – is such that it is necessary to prevent either party from distorting trade by changing national requirements or measures in a range of areas that include labour and social standards (Article 355 TCA).

But the TCA is explicit that what is needed in this regard does not constitute harmonisation (Article 355 (4) TCA).

Article 386 TCA covers the content of the labour and social standards of protection clause. It covers all the key areas of the acquis on labour law – fundamental rights at work, which presumably includes equality rights, such as to equal pay for men and women, non-discrimination on grounds of race and disability, and labour rights found in fundamental rights instruments such as the European Social Charter; health and safety at work; fair working conditions – which between them presumably include working time, holiday pay and so on; information and consultation on restructuring, and transfer of undertakings rights. These provisions do not cover social security or pension provisions.

Article 387 TCA contains the relevant obligation: Parties ‘shall not weaken or reduce’ (including by failing to enforce) ‘labour and social levels of protection’ ‘below the levels in place at the end of the transition period’ – and this is the crucial part – to the extent that this takes place ‘in a manner affecting trade or investment’ between the EU and UK. The transition period ended on 31 December 2020 – so that is the baseline or benchmark.

Some questions come to mind: what if the UK’s approach to implementing EU standards was not compliant with EU law at 31 December 2020 – but this had not been determined by the CJEU explicitly (under Article 258 TFEU)? I can think of one example where this might be the case – the UK does not recognise the definition of disability discrimination in the UN Convention on the Rights of Persons with Disabilities (CRPD) which is based on a social model, whereas the EU has signed the UN CRPD and the CJEU’s case law recognises the social model. I’m sure others will think of more examples. What if a provision of EU law (say a health and safety at work directive, or an equality directive) in place before the end of 2020 is subsequently interpreted by the CJEU so that the UK departs from the standard? When the CJEU interprets EU law, it is stating what EU law has always meant.

Further, what is the threshold for an effect on trade or investment? Is there a de minimis that applies? Or is it more like the Dassonville approach: any effect, direct or indirect, actual or potential? You can see that there is plenty of scope for disagreement about what the terms of the TCA mean.

Enforcement

Article 388 TCA covers enforcement. In principle, relevant labour and social standards are to be enforced at the domestic level. Remedies must be appropriate and effective. There is a reference to international standards. Again, there are many possibilities for differing interpretations.

Dispute settlement of these provisions is to be governed exclusively by Articles 408, 409 and 410 TCA. However, there are some links to the TCA’s ‘horizontal’ dispute settlement provisions. The first port of call is ‘Consultation’ to reach a mutually satisfactory solution – resolutions reached under Consultation procedure must be made public. Parties must spend a minimum of 90 days attempting to consult. (Article 409 (1) TCA).

If that fails, dispute settlement takes place through a panel of three experts (Article 409 TCA). Panellists are drawn from a cadre of 15 panellists established by the Trade Specialised Committee on a Level Playing Field for Open and Fair Competition and Sustainable Development (Article 409 (3) TCA). Panellists must be independent from both the EU and the UK, with specialised knowledge/expertise in labour/environmental law (Article 409 (4) TCA).

Time limits apply for production of an interim (reviewable) report and a final report. The panel first produces an interim report, which can be reviewed at the request of either party to the dispute; and a final report within 175 days. The panel report must be made publicly available, be reasoned, and have a finding of fact and determination of the matter at issue. The panel may – implicitly – make recommendations. The panel report determines whether there is compliance with or breach of the TCA. But there is no legal consequence of any recommendations.

Implicitly, the Panel may make recommendations (Article 409 (9) TCA). There is no legal obligation to follow any recommendations of the panel, and failure to do so is not necessarily a breach of the TCA – there could be another way to comply with the TCA. This is far from what happens in EU law.

The ‘rebalancing’ element (Article 411 TCA) of the dispute settlement process is a novel mechanism specifically for this aspect of the TCA. It applies where a ‘significant divergence’ in labour and social protection standards arise which results in ‘material impacts on trade and investment’.

In that case, either party may adopt necessary and proportionate ‘rebalancing measures’, based on ‘reliable evidence’ not ‘mere conjecture or remote possibility’. The relevant procedure has a notification obligation, a 14-day consultation phase and a possible arbitration phase of 30 days before rebalancing measures can be introduced. The arbitration determines whether rebalancing measures are indeed proportionate. There is a possibility for countermeasures if arbitration is not carried out in time.

Most commentators agree that these provisions are more robust than in an average EU trade agreement. Some have suggested that the combination of these rules and the horizontal dispute settlement mechanisms in the TCA mean the possibility for cross-sectoral retaliation, suspension of parts of the TCA, or reintroduction of tariffs. The question of how to meet the requirement that divergence in labour or social protection standards has a material impact on trade or investment might mean that this is in fact a remote possibility. Showing that a change in UK standards has such a material impact might be an impossible barrier for the EU to meet. Apparently – according to trade expert Holger Hestermeyer – the only known decision on the impact of labour-related actions on trade is case brought by the US where the arbitral panel concluded that, although the Guatemalan government had failed to enforce its own labour laws, the effect on trade was not proven. The authors (Gottwald et al) of a report on the Guatemala case for the International Labor Rights Forum point out that the best way to solve this weakness in the relevant FTA would be to remove the ‘in a manner affecting trade’ requirement, and interpret labour rights chapters of FTAs as human rights provisions – as basic rights of workers (in a similar way to the way intellectual property rights are treated in many US FTAs). The EU-UK TCA is far from treating labour and social rights as free-standing human rights, inhering in all workers in the UK and EU.

The rebalancing provisions are a way of recognising the special circumstances of the EU-UK TCA (Article 411 TCA). They recognise the fact that the UK and EU are still deeply economically intertwined, that the UK is a large proximate market to the EU’s, and that the UK begins aligned with the EU in regulatory standards – including labour and social standards – on 1 January 2021, but the two parties could diverge in the future. But ultimately, they are provisions of a free trade agreement.

Tamara Hervey, Jean Monnet Professor of EU Law, City Law School

With thanks to

UKRI/ESRC Governance after Brexit Grant ES/S00730X/1 @brexithealthlaw

The Health Foundation / The Nuffield Trust Brexit Health Monitor

The European Commission Jean Monnet Health Law and Policy Network Grant  https://www.jmhealthnet.org/

The Labour Law Community (LLC) – International Community Group Webinar, 23 May 2021

Jed Odermatt, City Law School

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