1. Introduction
The conclusion of the Trade and Cooperation Agreement (TCA) between the EU and the UKFootnote 1 resulted from negotiations at the centre of which were concerns that the UK would deregulate or lower its protections in particular areas once it was no longer part of Europe.Footnote 2 The major concerns focused on the possibility that the UK would reduce its protections in relation to environment and climate policy and social and labour standards, and therefore be in a position to undercut EU competitors.Footnote 3 The result of these concerns was an agreement that continued and developed the trend of new generation EU Free Trade Agreements (FTAs), including commitments concerning labour and social standards and environment and climate policy, as well as subsidy control, competition policy, and taxation.
These provisions form the ‘level playing field’ (LPF) title under the TCA. The LPF title is said to be directed at ensuring that ‘no trade agreement will ever lower levels of regulatory protection’Footnote 4 and that ‘competition is open and fair and that businesses from one trading partner do not gain a competitive advantage and undercut rivals from another’.Footnote 5 Broadly, the LPF provisions in the TCA have some resemblance to those previously included in other EU FTAs in terms of commitments to international standards, but in a number of instances go further and extend the LPF model.
The LPF title includes ‘non-regression’ clauses that are in effect commitments not to reduce or weaken existing levels of protections in specified areas such as labour and environmental standards ‘in a manner affecting trade’.Footnote 6 While this phrase is a popular formulation in regional trade agreements, there has only been limited consideration of its meaning. The TCA also presents a new interpretive issue owing to the introduction of ‘rebalancing provisions’, which allow the parties to take unilateral measures to address trade impacts in certain circumstances.Footnote 7 The TCA provides that the relevant party must demonstrate that ‘material impacts on trade … are arising as a result of significant divergences between the Parties in the areas [of labour and social, environmental or climate protection, or with respect to subsidy control]’ before a party is able to take rebalancing measures under Article 411(2) of the TCA to ‘address the situation’. These rebalancing provisions have been described as ‘innovative’,Footnote 8 ‘unusual’, and ‘utterly novel and remarkable’,Footnote 9 with commentators observing that their effect is uncertain.Footnote 10 As FTAs increasingly include linkages between trade and social protections, these types of interpretive issues will be significant across a range of agreements beyond the TCA.
So far, neither party has invoked the provisions in the TCA that require trade effects or impacts to be determined, so their application has not yet been tested. However, there is potential for disputes. For example, the EU raised concerns over the UK’s enactment of the ‘Strikes (Minimum Service Levels) Act 2023’ (Strikes Act), now repealed, which amended the ‘Trade Union and Labour Relations (Consolidation) Act 1992’ (1992 Act) to give powers to the Secretary of State to make regulations that would allow employers to give ‘work notices’ specifying which workers are required to work to attain certain levels of service.
This article aims to go some way in providing a detailed account of the interpretation of the non-regression and rebalancing provisions in the TCA, with a specific focus on the trade effects or impacts that must be demonstrated. In light of that interpretation, and the implications of that interpretation for the remedies or measures that could follow, this article also considers whether the non-regression and rebalancing provisions are likely to be capable of achieving the stated objectives of the LPF title and the TCA more broadly. It draws on the above recent example of concerns about compliance with the TCA to consider whether the non-regression and rebalancing provisions are likely to encourage the parties to uphold levels of protections in the relevant areas, or whether the provisions of the TCA may be ineffective in doing so.
To that end, this article proceeds as follows. Section 2 outlines the history and policy of the LPF provisions and Section 3 outlines the operation of the non-regression and rebalancing provisions. In light of the text and context of the TCA, and the underlying policy of the LPF title, Section 4 considers the interpretation of the non-regression and rebalancing provisions and specifically focuses on what needs to be established under each form of language regarding trade effects or impacts – that is, ‘manner affecting trade’ and ‘material impact on trade’.Footnote 11 The language and context in both instances denotes the imposition of a ‘conditions of competition’ standard, as opposed to a trade remedies model. Section 5 continues by considering the possible application of the non-regression and rebalancing provision in the context of the UK’s Strikes Act. Although now repealed, the example is apt to consider how the TCA provisions could apply in the context of the parties changing their labour standards. It is argued that the trade effects or impacts of the TCA, required under the non-regression and rebalancing provisions, affect the efficacy of the provisions in achieving their stated objectives. It concludes that the focus on trade effects or impacts means that the provisions are likely to be more geared to addressing unfair competition than to ensuring high standards of social protections.
Finally, while the analysis in this article principally focuses on the provisions in the TCA, the approach to interpreting the non-regression and rebalancing provisions will be relevant more broadly since many FTAs now deploy various mechanisms by which social protections are incorporated. The implications for the interpretations of similar provisions in a range of FTAs will be significant in considering the techniques by which the linkage between trade and trade and social protections occurs, since this will ultimately affect whether or not these types of provisions are capable of achieving their intended purpose.
2. History, Policy, and Purpose of the LPF Title
The LPF title of the TCA represented a continuation and development of a trend in which FTAs now commonly include commitments with respect to ‘non-trade’ issues, most often labour and social policy and environment and climate protections.Footnote 12 Most commonly, this has been in the form of ‘non-regression’ commitments. As Mitchell and Munro identify, the first use of similar provisions (in the trade context) was in US FTAs in the early 2000s, specifically the US–Jordan Free Trade Agreement.Footnote 13 At this time, the main rationale for non-regression clauses in trade agreements was to ‘prevent the promotion of exports through weakening environmental protections, with the underlying concern being the use of undesirable PPMs [processing and production methods] as an element of competitive advantage’.Footnote 14 Since then non-regression provisions have become a mainstay in trade agreements to which the EU, US, and China are parties. More recently, multilateral agreementsFootnote 15 and agreements including the UK have also included non-regression provisions aimed at environmental and labour standards.Footnote 16
Specifically in the European context, the content of the LPF title in the TCA in many ways reflects the EU’s broader trade policy and a focus on ‘values’. In 2015, the EU announced its Trade for All policy, the foreword to which stated, ‘The Commission makes a clear pledge that no trade agreement will ever lower levels of regulatory protection; that any change to levels of protection can only be upward; and the right to regulate will always be protected.’Footnote 17 This is reflected in the inclusion of provisions in similar (though not identical) terms to the TCA non-regression provisions in various EU FTAs.Footnote 18 In the context of the Brexit negotiations, the LPF was referred to in the EU’s ‘Political Declaration Setting out the Framework for the Future Relationship between the European Union and the United Kingdom’ (Political Declaration),Footnote 19 which referred to the importance of ‘maintain[ing] environmental, social, and employment standards at the current high levels provided by the existing common standards’.Footnote 20 In these respects, the policy of the LPF title has been said to promote ‘values’, largely regarding labour and social standards, and environmental and climate policy.Footnote 21
In addition to the ‘values-based’ reasoning underscoring the LPF provisions, Gillis argues that there is often explicit and implicit ‘protectionist’ reasoning.Footnote 22 During the Brexit negotiations, concerns of this nature were commonly expressed by the EU. The European Council (Art 50) (23 March 2018) – Guidelines stated:Footnote 23
The aim should be to prevent unfair competitive advantage that the UK could enjoy through undercutting of levels of protection with respect to, inter alia, competition and state aid, tax, social, environment and regulatory measures and practices.
During the negotiations, the EU negotiator, Michel Barnier, again highlighted the need for ‘robust guarantees for a level playing field… to ensure open and fair competition among our businesses’,Footnote 24 and to ‘prevent unfair competitive advantage that the UK could enjoy through undercutting of levels of protection’.Footnote 25 These ideals were further reiterated in the Political Directive, which referred to the need to ‘ensure open and fair competition’, ‘prevent distortions of trade and unfair competitive advantage’.Footnote 26
The aspects of the EU’s trade policy and the Brexit negotiations outlined above were ultimately reflected in the Preamble to the TCA. The Preamble refers to the common understandings between the parties regarding preventing trade distortions and the need for a level playing field for open and fair competition as well as to their commitments to particular areas, including climate and social standards. It relevantly provides:
8. BELIEVING in the benefits of in the benefits of a predictable commercial environment that fosters trade and investment between the Parties and prevents the distortion of trade and unfair competitive advantages, in a manner conducive to sustainable development in its economic, social and environmental dimensions,
9. RECOGNISING the need for an ambitious, wide-ranging and balanced economic partnership to be underpinned by a level playing field for open and fair competition and sustainable development, through effective and robust frameworks for subsidies and competition and a commitment to uphold their respective high levels of protection in the areas of labour and social standards, environment, the fight against climate change, and taxation …
(Emphasis added.)
These initial statements reveal two principles that underpin the LPF in the context of the TCA: first, there are references to preventing trade distortions and unfair competitive advantages; second, they refer to commitments to values and high levels of protections. Similar principles are reflected in the ‘principles and objectives’ in Article 355, which forms part of the general provisions of the LPF title.
Importantly, these principles and objectives, and the ideals invoked by the references to the LPF more generally, indicate that while the TCA is intended to be a trade liberalizing agreement, it is concerned to preserve fair trade and fair conditions of competition. Traditionally, it has been considered that there is some degree of tension between the concepts of ‘free trade’ and ‘fair trade’. One of the classic descriptions of this tension comes from Bhagwati, who wrote that ‘[t]he true and greater crisis that we face with regard to the theory and policy of free trade today come … from the growth of demand for “level playing fields”, “harmonization”, and “fair trade”, etc, all of which are variously undermining insidiously the legitimacy and feasibility of free trade’.Footnote 27 This conception of ‘free trade’ appears to be the more classical one, concerned largely with reducing barriers to trade and minimizing regulation and intervention.Footnote 28 ‘Fair trade’, however, is generally considered to reflect the types of concerns outlined in the TCA Preamble. It is directed to ensuring that competitive advantages are not obtained through the lowering of various standards of protection, and accordingly encompasses ‘non-trade values’.Footnote 29 ‘Fair trade’ in this sense necessarily assumes a degree of regulatory intervention as regards those standards, and for that reason could be seen as interfering with purely free trade.Footnote 30 As discussed below, the extent to which the TCA is concerned with fair trade, rather than the more traditional notions of free trade, has implications for the interpretation of the LPF provisions.
3. Operation of the Relevant Provisions
For present purposes, the relevant provisions of the TCA consist of non-regression provisions in the area of labour and social standards (Article 387) and environment and climate policy (Article 391), and the rebalancing provisions in Article 411. These provisions contain different formulations of the precise trade impacts that need to be demonstrated. This section outlines the relevant provisions and their operation, and situates them within their context. The following table provides a summary of the operation of the non-regression and rebalancing provisions, which are outlined in further detail below:
3.1 Non-Regression Provisions
While the TCA contains various commitments to international standards concerning labour and social standards, and climate and environmental policy, the central provisions of the LPF title in these areas concern non-regression. These provisions are in effect obligations not to weaken or reduce the protections in place at the end of the ‘transition period’.Footnote 32
Regarding labour and social standardsFootnote 33 and environmental levels of protection,Footnote 34 Articles 387(2) and 391(2) provide, respectively:
2. 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.
…
2. A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its environmental levels of protection or its climate level of protection below the levels that are in place at the end of the transition period, including by failing to effectively enforce its environmental law or climate level of protection.
Articles 387 and 391 are carved out from the operation of the general dispute resolution mechanism in Title I of Part Six of the TCA and are instead subject exclusively to the procedures in Articles 408 and 409 of the TCA.Footnote 35 Article 408 first outlines a procedure for requesting consultations. Where matters concerning the application and interpretation of Chapters 6 and 7 of the TCA (which deal with social and labour standards and environment and climate policy)Footnote 36 are not satisfactorily addressed through consultations under Article 408, a party may request that a panel of expertsFootnote 37 be convened under Article 409(1) with standard terms of reference to examine the manner referred to the panel and deliver a report that makes finding on the conformity of the impugned measure with the relevant provisions.Footnote 38 Following the process set out for submissions, interim reports, and comments,Footnote 39 the panel is to deliver a final report, and the parties are to discuss appropriate measures to be implemented to address any non-conformity.Footnote 40 The Trade Specialised Committee on Level Playing Field for Open and Fair Competition and Sustainable Development monitor the follow-up to the report.Footnote 41 Article 409(18) goes on to provide that, if the parties disagree as to whether the measures taken to address the non-conformity, the complaining party may make a further request for the panel to decide the matter.Footnote 42
Article 409(9) provides: ‘For greater certainty, the Parties share the understanding that if the Panel makes recommendations in its report, the respondent Party does not need to follow these recommendations in ensuring conformity with this Agreement’. However, Article 410(2)-(3) provides that in the event that the respondent party does not take steps to bring their measures or protections into conformity with the panel’s report, Articles 749 and 750 of the TCA apply mutatis mutandis. This cross-reference allows the complaining party to take steps that may ultimately lead to a suspension of obligations.Footnote 43 Under Article 749(1), as it applies in conjunction with the panel of experts’ procedure, the respondent party may present an offer for temporary compensation to the complaining party, or, if the respondent party does not make an offer, under Article 749(2) the complaining party may notify the respondent party that it intends to suspend obligations. Any suspension of obligations cannot exceed the level equivalent to the nullification or impairment caused by the violation.Footnote 44 The possibility for recourse to the remedies under Article 749 of the TCA is a departure from the position under some earlier EU FTAs where there was no obligation to implement the panel’s recommendations or consequences for not doing so.Footnote 45
3.2 Rebalancing Measures
The rebalancing measures established under the TCA provide a form of unilateral measures where there are significant divergences between the parties in specific areas of regulation. The provision itself recognizes that divergences between the parties can change the underlying basis on which the TCA was concluded.Footnote 46 Article 411 could feasibly apply both in situations where one of the parties lowers their standards or where one increases its levels of protections.Footnote 47
Article 411(2) provides the substantive basis for taking rebalancing measures as follows:
If material impacts on trade or investment between the Parties are arising as a result of significant divergences between the Parties in the areas referred to in paragraph 1, either Party may take appropriate rebalancing measures to address the situation. Such measures shall be restricted with respect to their scope and duration to what is strictly necessary and proportionate in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement. A Party’s assessment of those impacts shall be based on reliable evidence and not merely on conjecture or remote possibility.
Article 411(2) refers to a slightly different standard of trade impacts as compared with the non-regression provisions. Here there must be ‘material impacts on trade… arising as a result of significant divergences between the Parties’. Article 411(1) reiterates the need to preserve fair competition between the parties, again in terms similar to the Preamble and the general principles and objectives of the LPF outlined in Article 355:
The Parties recognise the right of each Party to determine its future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control, in a manner consistent with each Party’s international commitments, including those under this Agreement. At the same time, the Parties acknowledge that significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement.
The TCA does not specifically prescribe the form that rebalancing measures can take. Article 762 only provides that a measure taken under Article 411 shall only be applied in respect of ‘covered provisions’ within the meaning of Article 735. Article 735 in turn provides that the covered provisions include all provisions of the TCA with some specific exceptions, including with respect to rules of origin, SMEs, competition policy, taxation, some aspects of subsidy control, and law enforcement and judicial cooperation in criminal matters, among others. In reality, it seems most likely that rebalancing measures would take the form of tariffs.
The procedures that apply to rebalancing measures are set out in the remainder of Article 411. In brief, the party intending to take rebalancing measures (the concerned party) is required to notify the other party (the notified/complaining party) and provide relevant information.Footnote 48) Following a period of consultation,Footnote 49 if no mutually acceptable solution is agreed, the concerned party may adopt the proposed rebalancing measures no sooner than five days from the conclusion of the consultations, unless the notified/complaining party has within that five-day period requested the establishment of an arbitration tribunal.Footnote 50
Article 411(3)(b) is not clear on precisely how an arbitration tribunal is to determine conformity with Article 411(2). Article 411(3)(b) indicates that the tribunal is ‘to decide whether the notified rebalancing measures are consistent with [411(2)]’; however, Article 411(2) contains references to both the substantive instances in which rebalancing measures may be taken and some broad statements as to the concerned party’s assessment of the trade impacts. It is, therefore, not entirely clear whether a tribunal would be required to consider substantively the compliance of the measures with Article 411(2) as well as review the concerned party’s assessment process. Nor is it immediately apparent whether a finding in relation to only one of those aspects would be sufficient to conclude that measures were not compliant with Article 411(2). Finally, there is also some ambiguity as to the parties’ respective roles. It is unclear whether it is incumbent on the concerned party to establish that its rebalancing measures were consistent with Article 411(2), or whether the notified/complaining party is required to establish that the rebalancing measures were inconsistent with Article 411(2) on a substantive level, or whether the notified/complaining party would need to demonstrate only the concerned party’s assessment of the trade impacts was somehow defective.Footnote 51
Whatever the precise nature of that task, the tribunal is required to deliver a final ruling within 30 days from its establishment.Footnote 52 If the tribunal finds the rebalancing measures to be consistent with Article 411(2), the concerned party may adopt those measures;Footnote 53 otherwise, if the tribunal finds the rebalancing measures to be inconsistent with Article 411(2), the concerned party may notify the notified/complaining party that it intends to withdraw or adjust the rebalancing measures, as appropriate, to comply with the ruling of the tribunal.Footnote 54 If the notified/complaining party considers that those measures do not comply with the tribunal’s ruling, Article 411(3)(e) provides that Articles 749 and 750 shall apply mutatis mutandis. Article 411(3)(e) clarifies that the procedures under Articles 749 and 750 do not have a suspense effect. As with the reference to Articles 749 and 750 in the non-regression provisions, the cross-reference to Articles 749 and 750 involves the possibility of the notified/complaining party suspending obligations to the extent of the nullification or impairment, which here would seem to be to the extent that the notified/complaining party established that the rebalancing measures taken by the concerned party do not conform to the requirements of Article 411(2).
Article 411(4)-(10) further outlines a procedure for ensuring ‘an appropriate balance between the commitments made by the Parties in this Agreement on a more durable basis’. This procedure allows either of the parties to request a review of the operation of Heading One (which covers trade) if that party considers that rebalancing measures have been taken frequently by either or both parties, or if a rebalancing measure has been applied for a period of 12 months.Footnote 55 The review is to address whether the TCA ‘delivers an appropriate balance of rights and obligations between the Parties … and whether, as a result, there is a need for any modification of the terms of this Agreement’.Footnote 56 Following the review, it may be determined that no action is necessary, or if either party considers that there is need for an amendment of the TCA, the parties are to use their best endeavours to negotiate and conclude an amending agreement.Footnote 57 If an amending agreement is not concluded within one year, either party may give notice to terminate the trade Heading of the TCA.Footnote 58
4. Determining Trade Effects or Impacts for the Purposes of the LPF Title
This section considers the interpretation of Articles 387, 391, and 411. It focuses specifically on what the interpretation of these provisions means for the trade effects or impacts that the party relying on the non-regression or rebalancing provisions must demonstrate.
4.1 General Approach to Interpretation
The approach to interpreting the TCA should generally accord with the usual public international law principles of interpretation. Article 4(1) makes general statements as to the interpretation of the TCA in accordance with customary international law and the Vienna Convention.Footnote 59 The TCA further clarifies that there is no obligation to interpret the provisions of the TCA in accordance with the domestic law of the UK or the EU,Footnote 60 and provides that the interpretation and application of the provisions in Part Two (which includes the LPF title) ‘shall take into account relevant interpretation in reports of WTO panels and of the Appellate Body adopted by the Dispute Settlement Body of the WTO as well as in arbitration awards under the Dispute Settlement Understanding’.Footnote 61
4.2 ‘In a Manner Affecting Trade’
As detailed above in section 3.1, the non-regression provisions (Arts 387 and 391) only apply where weakening or reducing of levels of protections is ‘in a manner affecting trade’. The TCA does not itself provide any specific guidance on what needs to be established to satisfy this requirement.
While provisions in terms similar to Articles 387 and 391 are now reasonably commonplace in some form or other in EU FTAs, the first use of similar provisions was in US FTAs.Footnote 62 Similar provisions to those in the TCA have been litigated under the Dominican Republic–Central America–US Free Trade Agreement (CAFTA-DR)Footnote 63 in the case of In the Matter of Guatemala – Issues Relating to the Obligations Under Article 16.2.1.(a) of the CAFTA-DR (US–Guatemala).Footnote 64 The approach in US–Guatemala, and subsequent criticisms and responses to it, are likely to be referred to should any dispute arise under the non-regression provisions in the TCA.
4.2.1 Approach in US–Guatemala
The US–Guatemala case concerned a complaint by the US that Guatemala had failed to conform to its obligations under Article 16.2.1(a) of the CAFTA-DR, which provided:
A Party shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties, after the date of entry into force of this Agreement.
The US alleged that Guatemala had failed to enforce its domestic labour laws by not pursuing the enforcement of court orders, specifically in relation to workers’ right of association, right to collective bargaining, and right to acceptable conditions of work.Footnote 65
The US argued for a broad interpretation of ‘in a manner affecting trade’, submitting that it means ‘has a bearing on, influences or changes cross-border economic activity, including by influencing conditions of competition within and among the CAFTA-DR Parties’.Footnote 66 The US further submitted that under this construction, any failure to enforce labour laws would result in an effect on trade,Footnote 67 since employers were evading or forgoing the costs of compliance with labour standards and benefiting from inappropriately reduced labour costs.Footnote 68 Guatemala, however, submitted that the provisions required an ‘‘unambiguous showing that the challenged conduct has an effect on trade between the parties’,Footnote 69 and that the US demonstrate that Guatemala intended to affect trade between the parties by failing to enforce its labour laws effectively.Footnote 70
The panel requested further submissions from the parties on the question of what the evidence must show in order to establish the ‘in a manner affecting trade’ requirement.Footnote 71 The US submitted that the evidence only needed to demonstrate that there was trade between the parties and that the failure to enforce labour laws modified the conditions of competition, and that it was not required to demonstrate observable trade effects through econometric analysis.Footnote 72 It contended that ‘demonstrating actual trade effects is not reasonable or feasible in the context of labour disputes under the CAFTA-DR’.Footnote 73 Guatemala disputed this last point, contending that it would be open to the US to pursue various lines of inquiry, including import price comparisons, or seeking information from US companies that purchased goods from Guatemalan companies or from the Guatemalan companies themselves.Footnote 74
Ultimately the panel determined that the US had failed to make out that any failure by Guatemala to enforce its labour laws effectively was ‘in a manner affecting trade’, with one exception.Footnote 75 The panel highlighted that it cannot be the case that every failure with respect to enforcing labour laws in a traded sector could be considered a violation of Article 16.2.1(a) of the CAFTA-DR. Had that been the intention, clearer wording could have been used.Footnote 76 The panel accepted that a failure to effectively enforce labour laws may ‘relieve an employer or group of employers such costs or risk’ of enforcing labour laws and that ‘depending on their nature and extent, such effects could provide a competitive advantage to such employer(s)’,Footnote 77 The panel went on to consider that this approach was consistent with the purposes of the CAFTA-DR in terms of both promoting fair conditions of competition and protecting, enhancing, and enforcing basic worker rights.Footnote 78 The panel determined that whether a failure to effectively enforce labour laws was ‘in a manner affecting trade’ required consideration of:
(1) whether the enterprise or enterprises in question export to CAFTA-DR Parties in competitive markets or compete with imports from CAFTA-DR Parties; (2) identifying the effects of a failure to enforce; and (3) whether these effects are sufficient to confer some competitive advantage on such an enterprise or enterprises.
As concerns shipping companies, the panel noted that the US had not contended that ‘any of these employers, or any other shipping companies in the Port of Quetzal, competes for shipping business with enterprises in other ports located in one of the CAFTA-DR Parties’.Footnote 79 Instead, the US argued that Guatemala’s failures reduced the shipping companies’ costs, which would lead to lower costs for Guatemala exporters.Footnote 80 The panel found that, in order to make out this type of claim, the US would need to establish, on balance, that:Footnote 81
(1) Guatemalan exporters shipped from the Port of Quetzal to other CAFTA-DR Parties at the relevant times; (2) a shipping company or shipping companies affected by the alleged failure to effectively enforce provided services to such exporters; (3) that the costs of the shipping company or companies in question were reduced by the failure; and (4) that such cost savings were passed on to one or more of the exporters in question to a sufficient extent to constitute a competitive advantage…
The panel concluded that the US had only produced evidence that would allow inferences to be drawn about the first three matters, and that the US had not made out that exporters obtained any competitive advantage.
The claim, as it related to the garment manufacturers, was somewhat more straightforward in that the employers themselves were found to be engaged in trade with other CAFTA-DR parties.Footnote 82 With respect to most of the allegations, the panel found that the US had not produced any evidence from which the panel could even approximate the effect of the failures to enforce labour laws on the overall labour costs of the employers.Footnote 83 In doing do, the panel again appeared to require reasonably detailed evidence concerning costs savings on the part of the garment manufacturers.Footnote 84 Accordingly, the panel found that the US had not established that the failures to enforce its labour laws effectively were sufficient to confer any competitive advantage on the garment manufacturers. The exception was with respect to one garment manufacturer, Avandia, where the panel found that Guatemala’s failure to enforce its labour laws ‘necessarily conferred some competitive advantage to Avandia by effectively removing the risk that Avandia’s employees would organize or bargain collectively for a substantial period of time’.Footnote 85 The panel’s decision has since been highly criticized, including on the basis that the panel focused too narrowly on trade effects and failed to afford precedence to the objectives of the CAFTA-DR relating to labour rights.Footnote 86 There were also concerns that the test adopted by the panel was practically unworkable and rendered Article 16.2.1 unenforceable as a result of the high threshold imposed.Footnote 87
4.2.2 Relevance of US–Guatemala to the interpretation of LPF provisions of the TCA
Whereas to date the US–Guatemala case provides the only in-depth interpretation of provisions involving the phraseology of ‘in a manner affecting trade’, it is likely that the case would be referred to in any relevant disputes under the TCA – notwithstanding that the panel’s reasoning in US–Guatemala would not strictly be binding on a panel of experts established under Article 409 of the TCA.Footnote 88 Two arguments have been made as to why the US–Guatemala approach may not be suitable in the context of EU FTAs, including the TCA.
First, it has been presumed, in general, that the underlying policy of environmental and labour standards included in US FTAs is to address competitive advantages that result from non-compliance with standards, whereas EU FTAs are principally concerned with ‘values’.Footnote 89 It may be argued that EU FTAs therefore warrant a less trade-centric approach in interpreting the non-regression provisions. Beyond the obvious problem that the language of the non-regression provisions in the TCA (and, indeed, other EU FTAs) includes words of limitation specifically referring to trade effects, this presumption needs attention.Footnote 90 Concerns about the UK deregulating and gaining a competitive advantage were at the fore during the TCA negotiations and were subsequently incorporated into the text of the TCA in numerous places.Footnote 91 In both the TCA and CAFTA-DR, the agreements refer equally to levels of social protections and fair competition.Footnote 92 There does not seem to be a difference in the objects or purposes of such materiality that the relevant test under the TCA would not also be concerned with trade effects and competitive advantages.
Second, there has been some commentary to the effect that a decision subsequent to US–Guatemala supports the conclusion that the phrase ‘in a manner affecting trade’ would be interpreted differently in EU FTAs. Following US–Guatemala, a panel of experts delivered a report under the EU–Korea FTA. The case involved a complaint by the EU that Korea had failed to comply with its commitment to respect, promote, and realize fundamental rights, as required by Article 13.4.3, by failing to include the right to freedom of association in its legislation.Footnote 93 Article 13.4.3 provides that those obligations derive ‘from membership of the ILO and the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998…’. The panel rejected Korea’s argument that Chapter 13 of the EU–Korea FTA, which covers Trade and Sustainable Development, was limited by Article 13.2.1 to ‘trade-related aspects of labour’. The panel further rejected the argument that the EU had not demonstrated any connection between Korea’s labour laws and trade between the EU and Korea. Instead, the panel found that Article 13.4.3 was not limited in the way contended by Korea and further stated that ‘national measures implementing such rights are therefore inherently linked to trade as it is conceived in the EU–Korea FTA’.Footnote 94 The panel determined that the inclusion of ‘(e)xcept as otherwise provided’ in Article 13.2.1 applied to Article 13.4.3, meaning that Article 13.4.3 provided otherwise and was therefore not limited to trade-related aspects.Footnote 95
There has since been some suggestion that the EU–Korea FTA Expert Panel Report could signal an ‘alternative approach’ under EU FTAs generally, which would involve a wider approach to the phrase ‘in a manner affecting trade’. Under such an approach, any reduction in levels of protection could be taken to affect trade between the parties.Footnote 96 The suggestion that the EU–Korea FTA Expert Panel Report could support a broader approach to ‘in a manner affecting trade’, however, fails to account for the reasoning of the panel concerning the interaction between Article 13.2.1 and Article 13.4.3, which detracts from the argument that the decision does support this broader approach to interpreting ‘in a manner affecting trade’.
Some further speculation about this different approach to ‘in a manner affecting trade’ is also drawn from the panel’s comments which were as follows:Footnote 97
Even if the matters raised before the CAFTA-DR Panel were identical to those in the EU’s Panel Request, the Panel notes that there are important differences between the texts of the CAFTA-DR Agreement and the EU–Korea FTA which would require careful examination. Most notably, the CAFTA-DR Agreement’s Chapter 16, which contains the provision upon which the United States of America made its complaint against Guatemala, does not have the same contextual setting of sustainable development as the EU–Korea FTA, nor does it refer to the range of multilateral and international agreements and declarations which the Parties have included in the EU–Korea FTA.
However, the language of the TCA non-regression provisions explicitly requires a link to trade. Simply identifying a change in social protections is insufficient to give meaning to the inclusion of the words ‘in a manner affecting trade’, in circumstances where the terms of the agreement do not set up any presumption that any reduction or weakening in levels of protection are taken to affect trade.Footnote 98 The operative effect of that language cannot simply be displaced by references to multilateral standards that are the subject of their own, separate obligations. Rather, the references to values and multilateral standards will inform the approach to interpreting the phrase ‘in a manner affecting trade’ consistently with the concept of fair trade, as discussed in section 4.3.2 below. For these reasons, there does not appear to be any strong basis for concluding that the EU–Korea FTA Expert Panel Report could suggest that a TCA tribunal ought to take a broader approach to determining trade effects under the TCA non-regression provisions – for example, by suggesting that the non-regression or rebalancing provisions would be triggered by changes to labour or environmental standards alone, in the absence of some demonstrable ‘effect’ on trade.
For the reasons outlined above, neither of the above arguments provides a compelling basis to suggest that an approach different from in US–Guatemala should be taken to EU FTAs, including the TCA. Instead, as argued below, the text and context of the TCA, and its underlying purposes, requires a different approach than what was ultimately applied in US–Guatemala.
4.2.3 Proposed interpretive approach to ‘in a manner affecting trade’ under the TCA
While contextual features of the relevant agreement being interpreted will always need to be considered, the approach to interpreting and applying the phrase ‘in a manner affecting trade’ is likely to be relevant generally to other agreements using similar language. Like the provisions of CAFTA-DR that were considered in US–Guatemala, the use of ‘in a manner affecting trade’ in the relevant provisions of the TCA signifies that the appropriate focus is on competition between EU and UK entities. The relevant test under Article 387 and 391 of the TCA should reflect this in a similar way to the test developed in US–Guatemala. However, as outlined further below, the proper approach under the TCA ought to focus clearly on a ‘conditions of competitions’ test, as opposed to adopting a test that reflects a trade remedies model. The approach taken in US–Guatemala in practice resulted in the panel on the one hand referring to the conditions of competition, while on the other applying a test more closely resembling a trade remedies model. This result should be avoided under the relevant provisions of the TCA.
A similar test that reflects the language of Articles 387 and 391 of the TCA would entail consideration of: (1) the identity of those entities that are subject to the levels of protection that are reduced or weakened by one of the parties; (2) whether those entities themselves export to the EU/UK or are in competition with imports from the EU/UK (as relevant); or, alternatively, whether those entities supply to other entities that export to the EU/UK or are in competition with imports from the EU/UK; and (3) whether the lowering or weakening of protections creates circumstances from which it can be inferred that a competitive advantage is conferred on the entities that export to the EU/UK, or are in competition with imports from the EU/UK (the proposed approach). There are two points to note on this test in the context of the TCA.
First, the proposed approach above does not limit the consideration of ‘in a manner affecting trade’ to those entities that are directly in competition in either the export or impact market. It is intended to be broad enough to account for situations where the reducing or weakening of standards in one market has a consequential effect in an upstream or downstream market – as was the situation for the shipping companies in US–Guatemala. The language of ‘in a manner affecting trade’ does not tie the trade effects specifically to the industry in which the reducing or weakening of standards occurs. This approach mirrors what occurs with respect to subsidies under the Agreement on Subsidies and Countervailing Measures (SCMA),Footnote 99 where there is no requirement that the ‘benefit’ and the trade effects occur in the same market.Footnote 100
Second, what is required to establish that there are circumstances from which it can be inferred that a competitive advantage conferred on the EU or the UK producers (as relevant) is likely to be the source of most contention. In determining the approach under the non-regression provisions, there are essentially two possible choices: a ‘conditions of competition’ test could be adopted; or the test could mirror the approach used in relation to trade remedies. These two models were, however, conflated in the US–Guatemala decision. The panel in US–Guatemala appeared to endorse a ‘conditions of competition’ test when engaging in its discussion of the interpretation of Article 16.2.1, before essentially requiring the US to prove their claim using the methods employed in trade remedies at the application stage. At times, the panel appeared to indicate that ‘approximate’ information from which inferences could be drawn would be sufficient to demonstrate a competitive advantage.Footnote 101 However, the panel’s descriptions of the inadequacies of the Unites States’ evidence at other times made it questionable that the panel would have really been satisfied on the basis of approximations. For example, the panel found that the evidence had established that each of the garment manufacturers ‘avoided costs associated with paying back pay owed to workers not reinstated’ but, nonetheless, there was no evidence on which the panel could ‘determine the total amounts owed to the workers in question pursuant to the labor court judgments’.Footnote 102
The panel’s approach went beyond what is required to demonstrate a competitive advantage for the purposes of the ‘in a manner affecting trade’ requirement, if that language connotes a conditions of competition standard. Instead, the approach inches towards requiring the complaining party to demonstrate ‘effects on prices or quantities in international trade’, even though the panel specifically stated that it sought to avoid this.Footnote 103 The panel’s error in this respect provides a compelling basis for diverging from the US–Guatemala approach. If the primary concern of the TCA was purely with trade liberalization, then the trade remedies approach would be appropriate.Footnote 104 However, in favour of adopting a ‘conditions of competition standard’ is the fact that there is greater support in the text and context of the TCA for focusing on free trade, not least because the non-regression provisions appear within the LPF title.Footnote 105 The rhetoric outlined in section 2 above signifies a shift away from a classical free trade framework, with a greater emphasis on conditions of fair trade.
It is accepted that the test outlined above pertaining to ‘in a manner affecting trade’ is not necessarily straightforward to satisfy, even though it involves the relatively lower conditions of competition standard as compared with ‘an exacting trade effects test’.Footnote 106 It does still require reasonably detailed consideration of the entities that would be subject to the weaker or reduced standard, and a cogent explanation as to how competitive advantages might be conferred. That the non-regression provisions do involve a reasonably high threshold is, however, consistent with the text and context of the TCA. Importantly in this regard, the TCA consistently recognizes the parties’ rights to set its own policies and determine the levels of protection they deem appropriate, including in Articles 387(1) and 391(1), and a degree of strictness in the application of the ‘in a manner affecting trade’ standard is consistent with preserving regulatory autonomy. However., the proposed approach aims to avoid a situation where the non-regression provisions are practically impossible to satisfy.Footnote 107
4.3 ‘Material Impacts on Trade’
The above consideration of the interpretation of ‘in a manner affecting trade’ in section 4.2 serves as a useful starting point for considering the trade impacts that need to be determined under the rebalancing provisions. This section considers whether the differences in language in the rebalancing provisions (discussed above in section 3.2), as compared with the non-regression provisions, requires a different test. Notably, the use of ‘material impacts on trade’, is arising and ‘as a result of’ in the context of Article 411’ raises additional questions as to how trade impacts are determined for the purposes of the rebalancing provisions.
Of central importance is whether the language of the rebalancing provisions suggests that the relevant test under Article 411(2) aligns closely with the non-regression provisions or whether it should instead be interpreted more on a trade remedies model. Article 411 itself does not provide an easy answer. The language of Article 411(2) at times reflects that used in relation to trade remedies. For example, the words ‘material impacts’ bear some similarity to the concept of ‘material injury’ under the Anti-Dumping Agreement (ADA)Footnote 108 and the SCMAFootnote 109. It might therefore be concluded that the use of ‘material impacts’ in Article 411(2) is intended to draw on concepts from trade remedies. The reference to a party’s assessment of trade impacts not being based ‘merely on conjecture or remote possibility’ also replicates language used in the ADA,Footnote 110 SCMA,Footnote 111 and Safeguards Agreement (SA),Footnote 112 and the use of ‘as a result of’ may be indicative of a causation element more similar to what must be demonstrated in a trade remedies context.Footnote 113 Finally, the fact that the rebalancing measures are unilateral could suggest that treating Article 411 more akin to trade remedies is more appropriate. If it were accepted that rebalancing measures should be based on a trade remedies model, it would align them with more traditional notions of free trade. While trade remedies are a form of intervention, they are generally considered to be consistent with free trade.Footnote 114 Equating divergences in the parties’ regulation effectively with ‘subsidies’ and adopting an equivalent test would bring the rebalancing measures into line with other types of trade remedies, and therefore make the approach more consistent with traditional free trade objectives.Footnote 115
While that interpretation may be open, there are also factors telling against equating the TCA’s rebalancing measures with trade remedies. The overall frameworks for trade remedies under the ADA, SCMA, and SA are concerned with more precise forms of ‘injury’ to domestic markets,Footnote 116 and the relevant agreements outline specific procedures and criteria for assessing trade remedies.Footnote 117 In contrast, the rebalancing provisions are framed more broadly and, other than those elements of language identified above, do not closely replicate the overall frameworks for assessing trade remedies under the ADA, SCMA, and SA. They are concerned instead with regulatory divergences that ‘change the circumstances that have formed the basis for the conclusion of, the TCA,Footnote 118 which at its core is more suggestive of the rebalancing provisions seeking to monitor broader conditions of competition. It is also relevant to the context that the rebalancing provisions appear in the LPF title. The very concept invoked by the imagery of the LPF suggests that the main concern is with preserving fair trade, as opposed to purely free trade.Footnote 119 As noted in section 2, most notions of fair trade encompass and accept the regulation of at least some process and production methods,Footnote 120 which would accommodate the relatively lower ‘conditions of competition’ standard. Accordingly, assuming that fair trade is the greater concern underlying the TCA for the reasons outlined in section 2, the rebalancing provisions in their context are arguably more appropriately interpreted as a ‘conditions of competition’ test. While this conclusion is finely balanced, the following proceeds on the basis that the better view is that ‘material impacts on trade’ connote a ‘conditions of competition’ test, similar to that outlined above in relation to the non-regression provisions. The significance of the differences in language, and how those differences may modify the test under Article 411, as compared with the non-regression provisions, is outlined below.
4.3.1 Significance of the use of ‘material’
In Article 411, ‘impacts on trade’ are seemingly modified by the inclusion of ‘material’. The inclusion of ‘material’ could be seen as largely redundant. In US–Guatemala, the panel referred to the dictionary definition of ‘effect’ and found that it meant ‘to influence, make a material impression upon’ (emphasis added),Footnote 121 suggesting that the meaning of ‘material’ could already be subsumed into the meaning of ‘impact’. Similarly, Chalmers has argued, ‘The test, therefore, requires there to be a “material impact” before these can be imposed, but it is not clear what the word “material” adds. Any impact will have material effects.’Footnote 122 The better view, though, would seem to be to ensure that the inclusion of ‘material’ has some work to do. This is particularly so where the word ‘material’ has technical meanings in the broader trade law and international law context.Footnote 123 The work that ‘material’ does in the TCA context seems to connect most logically to the potential consequences of adopting rebalancing measures under Article 411(2). Importantly, Article 411(4)–(10) provides for a process under which the parties can request a review of the operation of the TCA, where rebalancing measures have been taken frequently, or if a measure has been applied for 12 months. The outcome of that review could lead to modification to the TCA or even termination of the trade Heading.Footnote 124
It is therefore argued that the use of ‘material’ is aimed at ensuring that rebalancing measures are only adopted in circumstances where there has been a sufficient impact on the conditions of competition such that the basis on which the TCA was concluded has been altered.Footnote 125 It is conceivable that regulatory changes that satisfy the requirements under the non-regression provisions in Articles 387 and 391 may not alter the conditions of competition to such a material extent that they are captured by Article 411. While this is likely to be a rare occurrence, the higher standard that applies to Article 411 is justifiable on the basis that more serious consequences could flow from a party taking rebalancing measures.
4.3.2 Significance of the use of ‘are arising’
There is a further way in which the rebalancing provisions differ from the non-regression provisions, which is the inclusion of the words ‘are arising’, in relation to ‘material impacts on trade’. The inclusion of these words raises an issue as to whether a party can only take rebalancing measures under Article 411(2), where it can demonstrate actual damage, or whether the provision is broad enough to cover potential impacts.
Although the words ‘are arising’ could suggest the former, Ortino has argued that the rebalancing provisions should be interpreted as applying to potential trade impacts. This view is based on the reference in Article 411(2) to the assessment of impacts not being based ‘merely on conjecture or remote possibility’.Footnote 126 That language most closely aligns with the evidence requirement to demonstrate a ‘threat of material injury’ under the SCMA and ADA,Footnote 127 which could lend some support to Ortino’s view. However, an alternative way of looking at it, which departs from Ortino’s conception based more on a trade remedies model, is that it is the conditions that must be ‘arising’. If, as argued, Article 411 is concerned with the conditions of competition, and does not require a trade remedies approach, looking to whether the conditions are arising would be more logical. While this is a slightly different inquiry, provided that the conditions of competition have been impacted, the potential effects of those conditions would seem to be captured.
4.3.3 Standard of evidence
Issues concerning the standard of evidence required to establish trade effects, were discussed to some degree regarding the ‘in a manner affecting trade’ test, particularly in light of the US–Guatemala decision. This issue becomes more acute in the context of the rebalancing provisions. Beyond establishing the threshold of ‘material impacts on trade’, Article 411(2) goes further to indicate specifically that the ‘assessment of those impacts shall be based on reliable evidence and not merely on conjecture or remote possibility’. Similar language has been used in the context of trade remedies. In US–Soft Lumber VI,Footnote 128 the Appellate Body considered that similar language under the SCMA and ADA required that the ‘reasoning set out by an investigating authority making a determination of threat of injury must clearly disclose the assumptions and extrapolations that were made, on the basis of the record evidence, regarding future occurrences’.Footnote 129
In the context of the rebalancing measures, like the use of ‘material’, the requirement for ‘reliable evidence and not merely … conjecture or remote possibility’ signifies a degree of strictness in the assessment of changes to the conditions of competition, which could be aimed at discouraging use of rebalancing measures in a manner that unjustifiably destabilizes the agreement.Footnote 130 In this way, the evidence requirement in Article 411(2) could essentially operate as a further ‘check’ on the use of rebalancing provisions, to ensure the use of measures only in situations where there is a sound basis for inferring that significant divergences in levels of protections confer competitive advantages. Article 411(2) may suggest that inferences of competitive advantages may be less readily drawn than under the non-regression provisions.
4.3.4 Proposed interpretive approach to the rebalancing provisions
In light of the above discussion, a defensible approach to interpreting the rebalancing provisions is that the inquiry should generally be similar to the task undertaken with respect to the non-regression provisions in Articles 387 and 391. The additional modifiers in Article 411(2) are best understood in the context whereby the use of the rebalancing provisions could ultimately result in the termination of the agreement under Article 411(10) of the TCA. Accordingly, while the differences in language do not fundamentally change the relevant inquiry as compared with the non-regression provisions, they should be understood as reflecting the potential for more serious consequences. As a result, Article 411(2) may dictate a higher level of certainty (and potentially higher quality evidence) before it can be concluded that regulatory divergences have altered the conditions of competition to the requisite extent. The relevant test also needs to account for the fact that Article 411(2) could apply equally in situations of significant divergence where one party reduces its levels of protection or where one party increases its levels of protection.Footnote 131
Accordingly, an appropriate test under Article 411(2) could be as follows: (1) the identity of those entities that are subject to levels of protection or control that are increased or decreased, as relevant, by one of the parties; (2) whether those entities themselves export to the EU/UK or are in competition with imports from the EU/UK (as relevant); or, alternatively, whether those entities supply to other entities that export to the EU/UK or are in competition with imports from the EU/UK; (3) whether there is reliable evidence, and not merely conjecture or remote possibility, that the divergences in relevant levels of protection create circumstances from which it can be inferred that a competitive advantage is conferred on the entities that export to the EU/UK, or are in competition with imports from the EU/UK; and (4) any competitive advantages conferred are material in that they change the conditions of competition that formed the basis for the conclusion of the TCA.
One consequence of this approach to interpreting the rebalancing provisions is that there will likely be situations in which the non-regression and the rebalancing provisions could equally apply in situations where a party has weakened or reduced its levels of protections with respect to labour and social, or environmental, or climate protection – which are highlighted in section 5 below. However, there are additional contextual factors that may indicate that the non-regression or the rebalancing provisions might be preferred in a given set of circumstances. First, there are differences in procedure and remedies as discussed in section 3. The non-regression provisions follow a more familiar ‘expert panel’ procedure, whereas the rebalancing measures may be notified and then potentially be subject to the arbitration tribunal process, meaning that rebalancing measures can potentially be taken sooner. The form of rebalancing measures, while subject to a degree of uncertainty, are potentially broader than the remedies that may be available under Arts 749 and 750 with respect to non-regression. These differences in procedure and remedies may make either the non-regression or rebalancing provisions more appropriate in a given set of circumstances. Second, as noted in section 4.3.3 above, the language used in the rebalancing provisions could be indicative that a higher standard of evidence is required than under the non-regression provisions, meaning that reliance on the non-regression provisions may be strategically preferable in some cases. Finally, and importantly, is that the rebalancing provisions could also be applied where one party increases its levels of protections. It is perhaps in this last respect that the rebalancing provisions represent a far more novel mechanism for linking trade impacts or effects and social protections.
4.4 Conclusions on the Trade Impacts that Need to be Shown under the LPF Provisions
In the case of both the non-regression and the rebalancing provisions, there are good reasons for concluding that the relevant test is concerned with ‘conditions of competition’ and is not to be equated with the relevant tests for assessing trade remedies. However, the position with regards to the rebalancing provisions is less clear. If that is accepted, the methodology for determining whether the ‘in a manner affecting trade’ or ‘material impacts on trade’ tests are met in given circumstances ought to focus on fair conditions of competition, without the need to prove specific trade distortions or effects on domestic industries, as the panel appeared to require in the US–Guatemala case.
That is not to say that trade effects or impacts are to be presumed in cases of regression or divergence. The proposed tests still require some degree of strictness in assessing whether the conditions of competition have been altered. In the case of the rebalancing measures, there are also additional requirements of ‘materiality’ and regarding the quality of evidence required. Further, the following section demonstrates some difficulties that may be encountered in applying the proposed tests by reference to two potential case studies and considers whether the provisions, in light of their proper interpretation, are fit for purpose.
5. Implications of Determining Trade Effects for Achieving the Objectives of the LPF Title and the TCA
So far this article has outlined the policy and objectives of the LPF and the possible approach to interpreting the non-regression and rebalancing provisions, specifically by reference to the various trade impacts that need to be demonstrated. This section demonstrates the potential flow on effects of the interpretation of those provisions and whether, as drafted, the provisions are likely to be capable of achieving their stated objectives. Those objectives, as outlined in section 2, comprise addressing both unfair competitive advantages and upholding values and high levels of protection in the areas of labour and social standards and environment and climate policy.
In doing so, this section considers the possible application of the non-regression and rebalancing provisions to the measures under the (now repealed) UK’s Strikes Act. The Strikes Act was flagged as potentially contentious in meetings of the Trade Specialised Committee on Level Playing Field for Open and Fair Competition and Sustainable Development (Committee). Although now repealed, the example is potentially revealing as to the implications of the interpretation of the required trade impacts and what this means for the ability of the non-regression and rebalancing provisions to achieve the objectives of the LPF title. The upshot of this analysis is that the non-regression and rebalancing provisions appear to be better equipped to deal with some of the stated objectives of the LPF title than others. While the provisions may be more suited to addressing unfair competition as between the parties, there is a serious question as to whether these provisions are really adapted to furthering the more ‘values-based’ objectives of the LPF title.
5.1 Strikes Act and the Non-Regression and Rebalancing Provisions
In July 2023, the UK enacted the Strikes Act, which amended the Trade Union and Labour Relations (Consolidation) Act 1992 (1992 Act) to give powers to the Secretary of State to make regulations for minimum levels of service with respect to a relevant service.Footnote 132 Regulations made under the amended 1992 Act could only apply to specific public services falling within the categories of health services, fire and rescue services, education services, transport services, decommissioning of nuclear installations and management of radioactive waste, and border security.Footnote 133 Once minimum service levels were specified, employers were able to issue work notices to identify the workers that were required to work during a strike which had been notified by a trade union,Footnote 134 provided that various conditions were met.Footnote 135
At the Committee’s third meeting in October 2023, the EU ‘expressed concerns on the compliance of the [Strikes Act] with the labour commitments of the EU/UK TCA, in particular as regards compliance with Article 387 TCA…’Footnote 136 In response, the UK ‘explained that the legislation is compliant with the TCA, and that these measures do not have an impact on trade or investment’.Footnote 137 This was again raised in the second meeting of the Civil Society Forum on the Trade and Cooperation Agreement, where concerns were noted about the potential impact of the Strikes Act on the LPF.Footnote 138
As outlined above, Article 387 contains the non-regression obligation with respect to labour and social standards (defined in Article 386(1) of the TCA). It seems uncontroversial that the measures under the Strikes Act concerned labour standards that would fall within the ambit of Article 387. Under the proposed approach in section 4 above, the first step in determining whether the Strikes Act constituted a reducing or weakening of levels of protection ‘in a manner affecting trade’ is to identify the entities in the UK that were subject to the measures under consideration. Here, those entities consisted of the various services identified above and were explicitly listed in the Strikes Act. Second, it would be necessary to determine whether those providers export or were otherwise in competition with imports from the EU. At this point of the inquiry, there may be difficulty with the application of Article 387 to the Strikes Act. Since the Strikes Act was concerned largely with public services, any import or export markets that would be affected by the measures are less obvious than in frequently traded sectors and it may be more difficult to identify how the Strikes Act conferred any competitive advantage on UK providers. There may be some scope to argue that UK entities could have gained some type of advantage down the line as a result of the measures, but, without further evidence, it is not immediately obvious how the Strikes Act altered the conditions of competition in this second respect.
The final issue to consider under the proposed approach is whether the passing of the Strikes Act created circumstances from which it could be inferred that a competitive advantage is conferred on the UK entities. In this scenario, it could be argued that the conditions of competition were changed, and an advantage is conferred on the UK entities, by reducing their costs of complying with the right to association.Footnote 139 There could, however, be some dispute as to timing issues. On one view, there may be no actual effect on trade where no work notices were issued. That then raises the question as to whether the passing of the Strikes Act itself was sufficient to give rise to a competitive advantage. On the approach ultimately taken in the US–Guatemala case, the passing of the Act alone would not likely be considered enough, since it would not be possible for the EU to demonstrate any actual costs savings that have accrued to the relevant UK enterprises. However, if the focus is on the conditions of competition and ensuring fair conditions of trade, the Strikes Act itself could be sufficient to trigger the operation of Article 387 of the TCA.
An analogy could be made to the distinction in WTO law between ‘mandatory’ and ‘discretionary’ legislation. In United States–Tobacco, the Appellate Body stated:Footnote 140
panels had consistently ruled that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority of a contracting party to act inconsistently with the General Agreement could not be challenged as such; only the actual application of such legislation inconsistent with the General Agreement could be subject to challenge.
This distinction meant that ‘mandatory’ laws themselves could be challenged, whereas only specific instances of the exercise of ‘discretionary’ laws could. The reason for the distinction is that ‘discretionary’ laws are capable of being exercised (or not exercised) in a manner that is both consistent and inconsistent with WTO law.Footnote 141 The work notices at issue under the Strikes Act are more similar to ‘discretionary’ laws in the sense that they do not automatically operate as mandated without additional action. However, there has been some suggestion that the traditional dichotomy in WTO law is breaking down. Davies refers to US–Section 301 Footnote 142 as an example where the panel ‘blurred the well-established distinction between mandatory and discretionary laws which had always been clearly demarcated by previous Panel’, and indicated that there may be cases in which discretionary laws themselves are capable of violating WTO law.Footnote 143 Further, the distinction itself has been criticized since a simple characterization of a law as either mandatory or discretionary does not tell the entire story as to whether it changes the conditions of competition,Footnote 144 and is not referred to in international law more generally.Footnote 145 For these reasons, the fact that notices have not been issued should not itself be determinative and should be only part of the consideration of whether there are circumstances from which it can be inferred that a competitive advantage is conferred on UK entities.
As an alternative to the non-regression provision in Article 387, rebalancing measures could also be considered. For the reasons discussed in Section 4, the inquiry should be reasonably similar to that undertaken in relation to Article 387. Accordingly, the same difficulties are likely to arise with respect to the Strikes Act being concerned mostly with public services – there may be fewer instances where there are any relevant EU providers in competition with UK suppliers, and it may be tenuous to draw any connections between the Strikes Act measures and flow-on competitive advantages for UK suppliers. Further, it is likely to be even more difficult under Article 411(2). A more general claim that costs savings, as a result of flow on effects from the Strikes Act could potentially accrue to UK entities (other than the services identified in the Strikes Act) that are in competition with EU entities, may fall within the meaning of ‘conjecture or remote possibility’. This type of argument could be of the sort that the last sentence of Article 411(2) is seeking to avoid, unless reliable evidence can be adduced that the conditions of competition have been changed for those other entities.
It follows that the prospects of whether the Strikes Act could have attracted the operation of the non-regression and rebalancing provisions of the TCA are questionable. The Strikes Act example is illustrative of the efficacy of the non-regression and rebalancing provisions in two ways. First, it demonstrates the limitations that exists because of the inclusion of the ‘in a manner affecting trade’ criterion in Articles 387 and 391, and the ‘material impacts on trade’ criterion in Article 411(2). These limitations remain even on a broader ‘conditions of competition’ approach as opposed to a more restrictive trade remedies model. The objectives of the TCA and the LPF title explicitly acknowledge commitments to upholding ‘their respective high levels of protection in the areas of labour and social standards, environment, the fight against climate change’.Footnote 146 Yet in practice the express requirement for a link to trade in the relevant provisions means that values-based justifications for the LFP title are only realized where it can be demonstrated that a competitive advantage is conferred. The Strikes Act example highlights one area where the efficacy of the LPF title in achieving some of its stated objectives is questionable – there may be a large range of conduct outside of its ambit where UK and EU producers are not in competition with each other.
Second, there is a long-running debate concerning the law of the WTO as to whether the provisions and retaliation measures are intended, or even able, to induce compliance.Footnote 147 A similar question arises in the context of FTAs. With respect to the LPF title as it may have applied to the Strikes Act, the issue potentially arises because while the Strikes Act was directed primarily to public services, which may be less likely to involve competitors from both the UK and the EU, there may have been the possibility of consequential effects on the conditions of competition for other entities. If there were such effects, they could theoretically be litigated under Article 387. However, the expert panel procedure in non-regression areas may not be able to induce compliance with the non-regression provisions. Article 409(9) makes it clear that there is no obligation to follow the recommendations in any expert report issued under the expert panel process in Articles 409 and 410 of the TCA. Where the impugned trade effects are limited to those more consequential effects, but the central concerns of the Strikes Act are not ‘in a manner affecting trade’, any subsequent suspension of obligations under Article 749 of the TCA would be limited to the extent of the nullification or impairment. In this scenario, that could be restricted to those more consequential effects only. It is therefore conceivable that the suspension of obligations would be ineffective in inducing the UK not to weaken or reduce its levels of social protections,Footnote 148 so that the UK could retain the Strikes Acts’ primary focus on what may be non-traded sectors. The end point could be a situation where trade between the UK and EU became less liberalized, but aspects of the objectives of the LPF title that related to values and social protections may not become realized.Footnote 149
6. Conclusions
The non-regression and rebalancing provisions in the LPF title of the TCA present new interpretive issues, particularly with respect to considering how to determine whether there are effects or material impacts on trade. They further raise fundamental questions about whether the TCA, and indeed other new generation FTAs, are principally concerned with traditional notions of free trade, or have moved on to be more focused on securing fair trade. How these provisions are interpreted, and whether they are capable of achieving the objectives they are intended to address, will impact the use and design of mechanisms for linking trade and social protections in a wide range of FTAs.
This article has argued that both the non-regression and rebalancing provisions in the TCA should be interpreted as involving a ‘conditions of competition’ standard, as opposed to adopting a stricter trade remedies model. A ‘conditions of competition’ test is more consistent with the strong notions of fair trade that are prevalent throughout the TCA. But notwithstanding the argument that the text and context of the TCA supports a conditions of competition test, which may in some respects be simpler to satisfy than a test more aligned with a trade remedies model, the example of the UK Strikes Act reveals some ways in which the non-regression and rebalancing provisions in the LPF title may not be equipped to secure compliance with the standards that the LPF title seeks to uphold. This same problem has existed and been recognized in the context of WTO law, especially as concerns retaliation.Footnote 150 However, the issue potentially takes on a different complexion in the context of LPF provisions and trade and sustainable development aims more generally. It might be one thing to accept that outcome as concerns economic measures, but it is a different thing to accept that outcome as concerns commitments relating to labour and social standards, and environment and climate policy.
The analysis accordingly highlights issues in the broader picture of linking trade and social protections in FTAs, beyond the TCA, if upholding values and high levels of protections is to be the goal of including provisions like those in the LPF title.Footnote 151 These links are in the process of being considered and new types of commitments are being included in FTAs, including the TCA.Footnote 152 However, to the extent that the standard for intervention in areas of social protections under FTAs retains a ‘manner affecting trade’ or ‘material impacts on trade’ standard, there is a risk of allowing parties to pay to unlevel the playing field.
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