Brexit: EU may veto UK trade deal lacking safeguards, leaked report reveals

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Draft resolution urges British government to ‘revise its negotiating position’

The European parliament could veto any trade deal between the UK and the European Union that lacks “robust” safeguards to ensure fair competition and strong standards on the environment and workers’ rights, according to a leaked document.

A draft resolution, seen by the Guardian, which will be put to a vote on Friday, underlines the implicit threat to block the EU-UK trade deal. Urging the British government to “revise its negotiation position”, the text states that a level playing field is the “necessary condition for the European parliament to give its consent to a trade agreement with the UK”. 

The level playing field – common standards on environment, workers’ rights and state subsidies for companies – is one of the main stumbling blocks of Brexit talks that has contributed to the current deadlock.

The parliament’s text underlines the narrow room for manoeuvre available to the EU chief negotiator, Michel Barnier, who last week hinted at a possible concession on state aid – the rules that limit government subsidies for companies. Barnier declined to back publicly the EU’s opening demand that European rules on state aid must be written into UK law. 

The parliament resolution, however, states that EU standards must be safeguarded to avoid a “race to the bottom”, while revealing little slack to escape the EU’s opening position of matching EU rules on state aid – so-called “dynamic alignment”.

Brussels sources have played down talk of imminent compromise on the crucial issue of state aid.

EU officials want to see a common approach on state aid that means the UK and EU would move together in adapting rules in response to the economic outlook.

In recent weeks, many EU restrictions on company bailouts and subsidies have been lifted in response to the coronavirus pandemic. Brussels wants to ensure similar coordination between EU and UK state aid rules in future.

“But the substance doesn’t exist right now,” an EU official said. “We made important commitments in the political declaration. The UK has not followed up on this. And it is also worrying that we have no idea what the UK state aid control system will look like as of 1 January 2021.”

State aid was one of the most difficult issues, said an EU diplomat, who added it was too early to speak of a compromise.

EU sources said the absence of strong international rules makes state aid especially complex. “You have the [World Trade Organization] agreement on subsidies but it is an old agreement and it is not easy to use. So it’s not really enough. You would need to find something else.”

British officials have also played down talk of a breakthrough on state aid – and there were no detailed discussions in the latest round of talks.

In a recent letter to Barnier, the UK chief negotiator, David Frost, described the EU’s demand that the UK accept state aid rules as “egregious”. Sources say the government cannot be constrained in its ability to run its own rules on state aid.

“We cannot accept any alignment with EU rules, the appearance of EU law concepts, or commitments around internal monitoring and enforcement that are inappropriate for [a free trade agreement],” Frost has said.

Meanwhile, Brussels has low expectations of a reset emerging from a meeting between Boris Johnson and the EC president, Ursula von der Leyen, expected later this month. Attention is focusing instead on whether the next round of talks – pencilled in for early July – can proceed in a different way to help the search for compromise.

The European parliament’s trade and foreign affairs committees will vote on the draft resolution on Friday, while all MEPs will be able to have their say next week.

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