The UK could be fined or lose preferential access to the European market if it violates the terms of a future relationship agreement with the EU, according to plans presented by the European Commission on Monday.
Brussels wants trade and other future cooperation with Britain to be governed by a solid set of enforcement rules, according to an EU presentation, shared with diplomats on Monday and viewed by the Financial Times. The measures would ensure that each party can act decisively to protect itself in the event that the other party fails to fulfill its obligations.
France and other European capitals are pushing the UK to stay in tune with EU rules in areas such as environmental and labor market policy, state aid and taxes, arguing that future alignment is essential for protect European companies from unfair competition.
EU concerns are likely to have intensified following an FT interview on Friday with British Chancellor Sajid Javid, who said post-Brexit Britain would never accept regulatory alignment with Brussels.
A particular concern for Brussels is how to support the “level playing field” of the common rules which the EU insists that the UK must accede to in exchange for a duty-free and quota-free trade agreement.
At the meeting with EU diplomats in Brussels on Monday, the commission outlined its proposed future dispute resolution procedures which would be supported by sanctions including “suspension of the agreement in whole or in part” and even “financial compensation” .
The commission added that the “monitoring and compliance” mechanisms concluded in an EU-UK agreement would reflect “the depth and content” of that future partnership.
In particular, Brussels stressed the need for rapid and temporary measures to respond to Britain which violates a level playing field.
In its presentation, the commission said that “tailored remedies” would be needed in this area, but did not elaborate further.
The EU is determined to avoid any repeat of the EU’s problems with Switzerland. Brussels has become deeply dissatisfied with relations, because the Swiss enjoy broad access to the EU market through a series of fragmented agreements that offer few solutions for dealing with disagreements.
Commission officials at Monday’s meeting stressed that a future relationship agreement with Britain would be impossible if an agreement on the global governance system could not be reached.
EU diplomats noted that a declaration on future relations, approved by the UK government and the EU last year, already predicted that there would be “solid, efficient and effective agreements” for dispute resolution.
The ideas set out in the declaration include mediation, reporting disputes to an “independent arbitration panel” and the possibility of “temporary remedies”.
Alarmed officials and diplomats from Brussels are still trying to digest the meaning of Mr. Javid at FT on the weekend.
An EU official said: “The main conclusion for the real economy is: prepare for the worst. Anything agreed will be an advantage, “while a European diplomat added that the kind of vague relations outlined by the UK finance minister would cause economic damage.
“In the end it’s all pretty simple: if Britain wants to diverge from EU rules, it will diverge,” said the diplomat. “Such an approach would obviously lead to new trade barriers between Britain and the EU and, consequently, less trade, less investment, fewer jobs.”