Advertising Association – Written evidence (FTS0009)

About the Advertising Association

1. The Advertising Association promotes the role and rights of responsible advertising and its value to people, society, businesses and the economy. We bring together companies that advertise, their agencies, the media and relevant trade associations to seek consensus on the issues that affect them. We develop and communicate industry positions for politicians and opinion-formers, and publish industry research through advertising’s think-tank, Credos, including the Advertising Pays series which has quantified the advertising industry’s contribution to the economy, culture, jobs and society.

Context

2. The membership of the Advertising Association is very broad and includes the associations representing industry sectors, such as the advertisers (through ISBA), the agencies and advertising production houses (through the IPA and APA), all the media (from broadcasters and publishers, cinema, radio, outdoor and digital), advertising intermediaries and technology providers (through IAB), market research (through MRS) and marketing services such as direct marketing (through the DMA) and promotions.

3. Advertising is important. It plays a crucial role in brand competition, drives product innovation and fuels economic growth. Many industries such as arts, sport and culture depend on it for their revenues and it also funds a diverse and pluralistic media enjoyed by consumers of all ages, including children and young people.

4. Advertising is a driver of economic growth and competition. We have estimated that every pound spent on advertising returns £6 to GDP through direct, indirect, induced and catalytic economic effects. We estimate that advertising spend will be over £26.7 billion in 2020, which we estimate, will result in £160bn to GDP, supporting 1 million jobs across the UK.

5. According to Deloitte research carried out on behalf of the Advertising Association, the one million jobs supported by advertising can be broken down as follows:

        350,000 jobs in advertising and the in-house (brands) production of advertising.

        76,000 jobs in the media sectors supported by revenue from advertising.

        560,000 jobs supported by the advertising industry across the wider economy.

Our Response

6. The UK is a global leader in advertising, digital and market research. It is currently the fourth largest advertising market globally and, according to ONS figures, the UK exported £11 bn worth of Advertising and Market Research services in 2019. 

7. The industry’s largest export market for advertising and marketing services is the EU, particularly France and Germany. Hence, we were relieved to see a trade deal between the UK and EU that avoided the chaos of a no deal transition. We hope that this lays the foundations for expanding UK advertising exports to the EU even further. However, there are still many unanswered questions surrounding the future relationship on services, which are key to the success of our economy and make up the largest proportion of UK exports. The hard work of navigating these new arrangements in the midst of a global pandemic starts now, with many questions still to be resolved.

Question 1: What is the impact for trade in services of the UK and EU reaching a free trade agreement?

8. The UK-EU Trade and Cooperation Agreement (TCA), ensures that UK firms in a variety of service sectors can continue to access the EU market broadly, including as business travellers and cross-border services suppliers or investors, while being treated no less favourably than either EU businesses or competitors from third countries[1].

9. As the UK is no longer a member of the Single Market and that a free trade agreement will not confer the same benefits as EU membership, we expect that there will be some friction for trade in services between the UK and EU. There will be a change in how UK advertising companies and independent (self-employed) professionals, who do not have an establishment in the EU, deliver advertising services via mode 4 (presence of natural persons).

10. Additionally, under the agreement (current pandemic travel restrictions notwithstanding), UK business visitors will be able to visit EU countries without a visa but only for certain permitted activities and certainly not for remunerated work. This arrangement is vastly different to what was possible under the freedom of movement arrangement.

11. We have also seen that some areas of the TCA are incomplete, such as data adequacy. The TCA has introduced a data adequacy “bridge” whilst the decision is still pending.

Question 2: What effect may national reservations to the UK-EU TCA have on trade in services with the EU?

12. The key impact of the national reservations means that contractual service suppliers (CSS) and independent professionals delivering advertising or market research services via mode 4 cannot rely solely on the main text of the TCA. They will need to consider individual host state rules whether they are subject to further restrictions. This type of activity will likely require visas and/or work permits.

13. Roughly half of the EU Member States have accepted mode 4 commitments on advertising services and market research i.e., they promise to guarantee market access in that sector to UK service suppliers coming over to fulfil a contract. Others have made that commitment subject to certain conditions such as an economic needs test.

14. All Member States (bar the Netherlands) are “unbound” to any mode 4 commitments allowing independent professionals to travel to the EU to deliver advertising services. “Unbound” does not mean that this activity is prohibited, but entry is at the discretion of the individual Member State concerned and not subject to the main text agreed in the TCA. Market research services differ slightly in that some EU Member States have undertaken commitments to liberalise market access for independent professionals. However, a majority of EU Member States still require economic means tests as a condition for market access.

15. A practical result of this means that UK staff or independent professionals travelling to the EU to deliver advertising or market research services could be subject to more administrative costs and require more planning time, especially as entry regulations could vary from one EU Member State to another.

Question 3: What effect will arrangements on the mobility of professionals have on trade in services between the UK and EU?

16. Due to COVID-19 travel restrictions and the use of video-conferencing facilities, the new mobility provisions have not been tested. Hence, we do not know yet what impact it will have on advertising and market research professionals and whether it will result in any practical issues which could be exacerbated by higher travel volumes.

17. Under the TCA, we note, short-term visa-free business trips are permitted to each other’s territory for establishment purposes and for specific, listed purposes, namely:

1. Meetings and consultations             
2. Research and design             
3. Marketing research             
4. Training seminars             
5. Trade fairs and exhibitions             
6. Sales             
7. Purchasing
8. After-sales or after-lease service
9. Commercial transactions
10. Tourism personnel
11. Translation and interpretation.

18. However, short-term business visitors cannot engage in selling their goods or supply services to the general public, nor can they receive remuneration from within the Party they are staying in temporarily. This, and other activities not listed here, will likely require a work permit or visa. Hence, it would be prudent for business visitors to check the requirements of individual Member States prior to travelling. Additionally, visa-free access has been restricted to 90 days within any six-month period. We understand this limitation applies to the whole Schengen area and includes time taken during tourist visits. Time accumulated during visits to non-Schengen EU Member States is calculated separately.

19. Consequently, this should not, in principle, affect advertising or market research professionals to conduct fly-in/fly-out business meetings for example. However, some EU Member States have expressed reservations to the mobility terms of the deal, so again it makes it difficult to rely on the main text as a definitive guide to entry permissions across the EU.

20. For example, for all of the activities listed above

• Cyprus, Denmark and Croatia require work permits, including economic needs test, in case the short-term business visitor supplies a service. 
• Latvia requires a work permit required for operations/activities to be performed under a contract.
• Malta requires a work permit, but no economic needs test is performed.
• Slovenia requires that a single residency and work permit is obtained for the supply of services exceeding 14 days at a time and for certain activities (research and design; training seminars; purchasing; commercial transactions; translation and interpretation). However, an economic needs test is not required.
• In case of supplying a service in Slovakia, a work permit, including economic needs test, is required beyond seven days in a month or 30 days in calendar year.

For marketing research: 

• Austria requires a work permit, including economic needs test. The economic needs test is waived for research and analysis activities for up to seven days in a month or 30 days in a calendar year. A university degree is also required. 
• Cyprus requires a work permit, including economic needs test.

For trade fairs & exhibitions:

• Austria and Cyprus require a work permit, including economic needs test, for activities beyond seven days in a month or 30 days in a calendar year.

For commercial transactions:

• Austria and Cyprus require a work permit, including economic needs test, for activities beyond seven days in a month or 30 days in a calendar year. 
• Finland requires that the natural person needs to be supplying services as an employee of a legal person of the other Party.

21. Additionally, the TCA stipulates that CSSs and independent professionals can enter each other's territory for a cumulative period of 12 months or the length of the contract, whichever is less. This appears to rule out contract extensions although it is not clear if a new contract is signed the clock is restarted.

22. The TCA also has provisions for intra-corporate transferees but does not explicitly rule out the need for visas or work permits.

23. Overall, we think the TCA will create additional administrative burdens to send staff from the UK to the EU and require longer lead times to plan for visits. UK citizens will likely be subject to additional scrutiny at EU borders regarding the purpose of their visit.

24. These new mobility arrangements should also be viewed alongside the UK’s new points-based immigration system. EU citizens (apart from Irish citizens) are no longer afforded preferential treatment under this new system and therefore it will be important that the points-based immigration system is flexible enough to respond to future changing labour demands.

Question 4: How will the intellectual property provisions set out in the Agreement affect UK-EU trade in services?

25. We welcome the TCA’s commitment to provide high standards of protection for and enforcement of IP rights.

26. However, we note that UK businesses trading in Europe will no longer benefit from EU wide IP rights within the UK, so there may be additional questions to consider such as what steps may be needed to secure equivalent protection in the UK and vice-versa.

Question 10: What will be the impact of the Agreement’s provisions on the cross-border supply of services and rights of establishment, such as commitments on local presence and economic needs tests?

27. It is helpful that the TCA includes provisions on national treatment, most-favoured nation, local presence and performance requirements covering the cross-border supply of services and rights of establishment. But given the non-conforming measures listed in ANNEX SERVIN 1, these commitments have limited practical effect. For example, the EU does not regard EU

membership benefits within the scope of national treatment.

28. At a national level there are several reservations applied by EU Member State with respect to investment liberalisation, for example:

1. Austria requires a company established in a third country to appoint one person responsible for the operations of a branch to be resident in Austria.
2. Third country legal persons, that are not established in the EEA, must be registered on the Bulgarian commercial register to do business in Bulgaria.
3. Finland requires at least one of the partners in a general or limited partnership to have residency in the EEA, or if the partner is a legal person to be domiciled in the EEA.
4. A foreign company, which has not established a legal entity in Sweden or is conducting its business through a commercial agent, needs to conduct its commercial operations through a branch, registered in Sweden, with independent management and separate accounts. The managing director and the vice-managing director, if appointed, of the branch, must reside in the EEA. A natural person not resident in the EEA, who conducts commercial operations in Sweden, shall appoint and register a resident representative responsible for the operations in Sweden.

29. Some EU Member States have reservations concerning the purchase of real estate and recognition of UK professional qualifications. The latter would mean that the ability of UK established advertising or market research companies using UK established professional services (legal, accounting, architecture etc) locally in the EEA would be severely curtailed. The point being that UK companies may be forced to use local suppliers when operating in those markets instead of their UK ones.

30. This list is not exhaustive but demonstrates the need for a UK company not established in the EEA to understand local rules and adapt to the country-by-country market access requirements for trade in services with EU Member States. Alternatively, UK businesses may opt to establish themselves in the EU in order to avoid all of the problems they will now encounter as a third country entity. This will have of course implications for UK corporation tax.

Question 13: How will the provisions in the UK-EU TCA affect the creative industries sector?

31. The EU, in keeping with precedent, has retained its cultural carve-out which means there are no provisions covering audio-visual services in the TCA. Consequently, Country of Origin rules under the EU’s Audiovisual Media Services Directive (AVMSD) will no longer apply to the UK. This will have a particular impact on UK-established broadcasters carrying UK advertising cross-border. Where previously they could rely on Ofcom rules and licensing to broadcast EU-wide, the new reality is that without an EU licence, UK-based broadcasters would be subject to host state rules and this will affect the type of advertising they can broadcast into the EU.

32. Alternatively, a UK broadcaster could seek another licence in an EU Member State or satisfy other criteria that could allow it to be “established” in the EU and therefore remain under the scope of AVMSD.

33. There are welcome provisions on the temporary admission of professional equipment and other goods for display or demonstration at an exhibition, fairs, meetings or similar events. Without such provisions, it could have led to additional costs through the purchase of ATA carnets or having to submit “temporary import under bond” deposits.

34. Whilst rules concerning the temporary import of professional goods has been resolved, there is uncertainty over what category advertising production i.e., sound recording, animation, post-production should be classified under the WTO’s Services Sectoral Classification list. Advertising production could either fall under Advertising services - CPC (Central Product Classification) 871 - or audiovisual services (CPC 961x). If advertising production belongs to the latter classification then it is captured under the wider definition of audio-visual services, and therefore subject to individual host state rules. UK-based advertising production businesses, unable to respond quickly to filming on-location requests in the EU, would be put at a competitive disadvantage.

Question 14: The EU has granted the UK a six-month data adequacy ‘bridge’ to allow the free flow of personal data until the EU determines whether or not to grant a data adequacy decision to the UK. How would the absence of a data adequacy decision at the end of this bridging period affect trade in services?

35. We welcomed the data adequacy bridge which avoided a potentially chaotic cliff-edge at the end of the transition period. If a data adequacy decision was not forthcoming, then those UK companies receiving personal data from the EU/EEA would have to incorporate Standard Contractual Clauses (SCCs) in their agreements with EU-based data controllers as an alternative transfer mechanism. Additionally, multinational companies that operate in the UK and across the EU/EEA would need to implement Binding Corporate Rules (BCR) to transfer data between subsidiaries. All these measures would increase legal and compliance costs for business.

36. The administrative burden of no data adequacy will likely hit SMEs the hardest because they will be the least resourced to deal with compliance requirements. Those resources have already been stretched because of the COVID-19 pandemic. Moreover, we should not underestimate the number of SMEs that may be unaware of legal requirements even with a data adequacy decision in place.

37. For UK companies wanting to scale-up, it seems unfathomable not to include the EU within those plans and hence SCCs would become a necessity in the absence of a data adequacy decision. However, it is difficult to predict how EU-based companies will behave towards UK companies. It is conceivable that they may only want to deal with other EU-based service providers to avoid the need to establish alternative transfer mechanisms, assuming there was no need to export data out of the EU/EEA.

Question 15: What impact will the arrangements agreed have on digital trade and trade in digital services between the UK and EU?

38. The digital trade provisions in the TCA aim to facilitate the trade in digital goods and services and both Parties are committed to remove unjustified barriers to e-commerce. There is support for digital signatures, digital contracts, and electronic authentication and trust services. Additionally, both Parties have agreed not to: require prior authorisation, impose custom duties on electronic transmissions, require data localisation or transfers of source code.

39. However, it is worth noting that the commitment to the flow of cross border data under Article DIGIT.6 does not necessarily extend to the flow of personal data which is covered under Article DIGIT.7. Article DIGIT.7 recognises the right of both Parties to adopt measures to protect personal data and privacy. To that end, it is the pending data adequacy decision which will underpin the flow of personal data from the EU/EEA. Additionally, these digital provisions do not apply to audio-visual services. This should not affect digital audio and visual content, as UK produced content is regarded as “European Works” but could affect the way it is distributed.

40. Finally, being outside the scope of the eCommerce directive and its Country of Origin principle may bring additional complexity. On one hand it brings all EEA-established online service providers operating in the UK under the scope of UK legislation, but on the other hand UK-established online service providers operating in the EEA will be subject to the host state rules of individual EU Member States (unless they change their operating structure).

2 February 2021