1. What is the impact for trade in services of the UK and EU reaching a free trade agreement?
The UK-EU Trade and Cooperation Agreement (TCA) contains gold-standard rules on services and investment liberalisation that are in line with our respective agreements with other like-minded partners such as Japan, but with some additional benefits for both sides. The provisions in the agreement significantly build on the Parties’ commitments under WTO rules and lock in access to EU markets for service providers across a substantial number of sectors.[1]
In practice, this means that UK businesses will benefit from increased legal certainty about their operating environment relative to the WTO baseline when trading with the EU and will not be exposed to the risk of potential future backsliding in services regulations in EU markets. Through the commitments on most-favoured-nation, the agreement also guarantees the most liberal market access that either party grants to other trading partners, which ensures our services suppliers and investors can remain competitive in these markets.
The legal certainty that the TCA provides is valuable given the EU is the UK’s largest export market for our services, representing about 39% of services exports in 2019.[2] The UK has a particularly strong global reputation in Professional and Business Services (PBS) and the EU is the UK’s most significant trading partner in this sector, the destination for approximately 37% (£41 billion) of PBS exports in 2019.[3] It is therefore significant that we negotiated a number of important ‘wins’ in the TCA that are particularly beneficial to PBS providers.[4]
In legal services, for example, we have negotiated unprecedented provisions regarding the right of UK solicitors, barristers and advocates to practice in the EU using their UK title in both UK and public international law, across all modes of supply. This will be key in ensuring the UK remains an attractive and competitive trading partner in professional services with the EU, and that UK law remains popular as the governing law of choice for commercial contracts worldwide.
The government is supporting businesses to understand the changes to our trading arrangements with the EU and take advantage of the opportunities provided in the agreement. We will continue to engage in dialogue with the services sector through direct Ministerial engagement, roundtables and events, and provide support including a suite of video explainers and detailed guidance on GOV.UK.
2. What effect may national reservations to the UK-EU Trade and Cooperation Agreement have on trade in services with the EU?
The Cross-Border Trade in Services and Investment Chapters include obligations that provide for non-discriminatory treatment between UK and EU service suppliers and investors and ensure that businesses do not face limitations such as foreign equity caps and quotas on transactions. Exceptions to these obligations (known as ‘reservations’ or ‘schedules’) are set out in the Annexes 1 and 2 to the Agreement.
Reservations in Annex 1 set out requirements which are applied in laws currently in force. Some of these reservations may represent new requirements for UK businesses, which could include having to be an EU/EEA national or resident to provide a service. Areas most likely to be affected by new requirements are highly regulated sectors where there was previously a level of EU harmonisation. For example, Spain requires statutory auditors to be a national of an EU Member State, and Italy requires residency or a business address in Italy to provide architectural and engineering services.
Reservations in Annex 2 allow the EU and individual Member States to introduce new discriminatory requirements or trade barriers in the future. For example, the EU takes an Annex 2 reservation reserving the right to adopt or maintain any measure with respect to educational services which receive public funding or state support in any form.
The EU’s schedules of reservations provide clarity and transparency about what is required to provide services or invest in diverse Member State regimes. For example, we negotiated commitments that mean the EU must take reservations where they intend to introduce requirements for UK firms to be resident or based in the EU to provide services. The EU has only agreed a commitment like this once before (with Mexico). It will provide clarity to UK businesses about the establishment requirements in different Member States and could be particularly beneficial to PBS firms, which rely on the ease of doing business with international client networks without having to establish in the EU, and SMEs, who may find it harder to identify and overcome barriers than larger businesses with more resource.
The Government is exploring ways to make the reservations more accessible to businesses so they can more easily identify which ones are most relevant to them. We will publish guidance on GOV.UK on navigating these national reservations in due course.
3. What effect will arrangements on the mobility of professionals have on trade in services between the UK and EU?
Freedom of movement between the UK and the EU has ended, but professionals will still be able to travel abroad for work.
The TCA’s Mode IV commitments are similar to the EU’s best precedent free trade agreements. They guarantee market access to key economic sectors and include reciprocal measures for: short-term business visitors, including a list of activities that do not require work-permits; business visitors for establishment purposes; intra-company transferees; contractual service suppliers; and self-employed professionals. They also prevent the imposition of economic needs tests in key areas and ensure the UK and EU Member States have transparent signposting and visa application processes for business travellers. These provisions will support many of the estimated 4.8 million UK nationals and 5.6 million EU nationals who visited the EU and UK, respectively, for business purposes in 2019.[5]
In addition to the provisions of the TCA, UK nationals have also been included in the EU’s Schengen visa-waiver. This allows travel without need for a visa for up to 90 days in a 180 day period for a limited number of business activities. Most Member States also allow additional permitted activities as part of their domestic immigration regimes for short-term visitors, though the type of activities permitted will differ across Member States.
When travelling to the UK, EU/EFTA nationals are permitted to stay up to 6 months without a visa, when undertaking specific activities under UK immigration rules. The full list of permitted activities can be found on GOV.UK.[6] For stays longer than 90 days in the EU or 6 months in the UK, or when carrying out activities not covered by a country’s visa-waiver list, UK and EU nationals may need a visa, work permit or other documentation.
We recognise that there are now additional processes when travelling abroad for work, including potentially longer lead-in times and additional costs associated with attaining the required paperwork. The Government is committed to supporting individuals and businesses during this period. We have published guidance on GOV.UK, including updated advice for travelling to the EU, and continue to engage regularly with our businesses and embassies to support UK nationals both here and abroad.
4. How will the intellectual property provisions set out in the Agreement affect UK-EU trade in services?
The intellectual property (IP) provisions in the Agreement commit both sides to provide high standards of protection for, and enforcement of, IP rights. They ensure that high standards are maintained across both territories and include registered IP rights such as patents, trademarks and designs, and unregistered rights such as copyright, trade secrets and unregistered designs. These provisions refer to, and in many areas exceed, the standards set out in international agreements such as the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and World Intellectual Property Organization (WIPO) treaties.
The Agreement supports innovation, market entry and consumer choice, while continuing to reward creators and support investment in the creative industries. It also includes mechanisms for cooperation and exchange of information on IP issues of mutual interest while retaining regulatory flexibility for each Party where appropriate. This will enable the UK to develop and deliver an IP framework in line with our future domestic priorities.
5. How will the arrangements in the UK-EU Trade and Cooperation Agreement shape UK-EU trade in financial services?
The Trade and Cooperation Agreement signed with the EU will provide a baseline of rights and protections for financial services firms providing services in the UK and the EU. It enshrines the core non-discriminatory provisions set out under the WTO into our bilateral agreement, ensuring that financial services firms receive fair treatment.
Other provisions in the agreement, including on data and on temporary entry, will also make it easier for financial services firms to operate across borders, protecting existing business models and avoiding additional barriers to trade. This is covered in more detail in the rest of the written evidence.
6. The Joint Declaration on Financial Services Regulatory Cooperation sets out that both sides seek to establish structured regulatory cooperation on financial services. What form should this dialogue take?
As set out in the Joint Declaration, the UK and the EU have committed to agree a Memorandum of Understanding (MoU), which will establish a framework for regulatory cooperation on financial services, by March 2021. The MoU will provide a terms of reference for future cooperation between the EU and the UK, which is likely to involve regular dialogue: both high-level, formal meetings between UK and EU officials, and more regular working-level engagement.
We are in the process of discussions with the EU, in order to agree an MoU which will cover the activities set out in the Joint Declaration. We are seeking arrangements that reflect the fact that the UK and the EU are large and close financial services jurisdictions and are aligned with what we aim to achieve with other similar jurisdictions.
7. Given the plans to delegate more powers to financial regulators, what form of Parliamentary oversight of these regulators would be appropriate?
In October 2020, the Treasury published a consultation document on the Future Regulatory Framework for Financial Services (FS). This consultation sets out a proposal for the UK’s approach to financial services regulation now that we have left the EU. In this proposal, the FS regulators would be responsible for making the technical rules that apply to firms. This approach does not involve delegating more powers to the regulators. It proposes a return to the practical use of their existing rule-making powers under the Financial Services and Markets Act 2000.
The regulators’ use of these rule-making powers under FSMA has been eroded over the past twenty years as the EU has increasingly set very detailed, prescriptive requirements for FS firms in legislation. The Government thinks that the independent, expert regulators, one of the key strengths of the UK framework, should be responsible for developing and maintaining the UK’s technical regulatory standards now that we have left the EU.
However, given the proposed expansion in the regulators’ rule-making responsibility, the Government considers that this should be balanced with appropriate strategic policy input from Government and Parliament, as well as enhanced and democratic accountability. The consultation sets out, and seeks views on, possible mechanisms for how we can achieve the right balance between delegation of responsibilities to, and enhanced scrutiny of, the regulators.
Select Committees in both Houses of Parliament already have the option of reviewing all aspects of the regulators’ work, and accountability to Parliament is an important part of the proposed approach. The Government’s proposal would give Parliament a greater role in setting the policy framework within which the regulators operate. This will provide a clearer basis on which to assess the performance of the regulators and hold them to account. The exact structures for this further scrutiny are first and foremost for Parliament to consider.
8. How might the financial services sector be affected by the changes in other, interrelated sectors?
Financial services firms will be able to enjoy benefits from the wider TCA agreement, many of which are covered in the rest of this submission. The financial services industry is notably interconnected with the professional and business services sector.
Commitments on the practise of home and public international law give UK solicitors, barristers and advocates the right to advise their clients across the EU in UK and public international law using their home professional titles, without administrative requirements which amount to requalification or joining the host profession. This is provided that the country concerned does not reserve against the commitment. In practice, their right to provide advice will be subject to national regulatory frameworks for foreign lawyers. This commitment does, however, provide clarity and certainty on levels of market access to Member States and should prevent future backsliding.
The macroeconomic benefits of the Agreement will benefit financial services firms that interact with the rest of the economy. The Agreement is zero-tariff and zero quota, so that goods flowing across borders will not face any tariffs, fees, charges or quantitative restrictions. That is novel for an FTA agreement with the EU.
The agreement will support professional mobility by ensuring UK service suppliers travelling to the EU for short term trips do not face undue barriers, such as work permits. This is covered in more detail in question 3.
We have agreed a ‘free flow of data’ provision that prohibits unjustifiable restrictions on where data can be stored and how it can be transferred across borders. This is also a first for an FTA with the EU, and is covered in more detail in question 14 and 15.
The Government remains committed to ensuring that the Professional and Business Services (PBS) sector is held in high regard domestically and internationally. Recognising the importance of the recognition of professional qualifications (RPQ) in cross border trade in the sector, the TCA establishes a framework under which the UK and EU may agree arrangements on RPQ, such as Mutual Recognition Agreements (MRA) covering the UK and all 27 EU Member States.
This approach is based on the EU’s standard approach to RPQ with its trading partners, though we have streamlined the process by which professional bodies and authorities make recommendations for arrangements and have opened further possibilities for the type of arrangement available under this framework. Once an arrangement is adopted under the TCA, using a single profession’s MRA, all professionals across that profession will be able to take advantage of the agreement across the whole of the EU.
Footnotes 23 and 24 to Article SERVIN 5.13 set out that the UK and EU could agree arrangements outside of this framework.[7] Professional bodies and associations now have the option to engage with the TCA process if they choose. It is possible that some UK professional bodies or associations might seek to conclude other agreements with EU counterparts outside of this framework. We believe that the increased flexibility of this framework will enable a wider pool of professional bodies and regulatory authorities to participate and accelerate the negotiation process - resulting in more arrangements being agreed at a faster pace.
As of 2021, the Government is taking a range of steps to support professional regulators, businesses and individuals. BEIS has secured the services of the UK Centre for Professional Qualifications, which provides advice, guidance and signposting to individuals looking to provide services overseas. A video explainer has been produced outlining the actions that professionals should take to ensure recognition of qualifications.
To promote the uptake of MRAs between UK and EU regulatory bodies, BEIS is establishing an MRA facilitation team to support regulatory bodies entering into MRAs and will provide guidance on the options available to facilitate mutual recognition.
The TCA establishes a strong platform for trade in services and for investment through provisions requiring the following standards of treatment, except where reservations are specifically scheduled:
Both sides have scheduled their reservations against these obligations in a way that provides a clear and predictable basis upon which EU businesses can invest in the UK, and UK businesses can realise investment opportunities in the EU.
The UK’s liberal regulatory environment, support for SMEs and apprenticeships, and the attractiveness of the UK market for inward investment will continue to support the growth of the UK services sector. This is supported by figures from the Department for International Trade published in July 2020, which show that the UK attracted 696 new inward investment projects from the EU in the 2019/2020 financial year, representing a 3% increase on the previous year.[8] The Investment Chapter in the TCA aims to minimise disruption to investors and enterprise owners, and to lock in existing market access. These provisions increase transparency and clarity for investors looking to establish an enterprise in either the UK or EU, enable our businesses to continue to develop the partnerships they have built up over decades, and explore and invest in new ventures both in the EU and further afield.
Our legal services provisions will create additional certainty and clarity about UK lawyers’ market access. We have secured an additional binding commitment for UK solicitors, barristers and advocates to establish a branch office in an EU Member State from which it can employ UK lawyers to provide services in UK and International law. Where a Member State intends to maintain barriers, such as an obligation to practice alongside a locally qualified lawyer, this will be listed in its schedule of reservations. The EU has also taken an EU-wide reservation on specific non-discriminatory legal form requirements which will apply in each Member State.
Questions 11 and 12 partly relate to Erasmus+ and the Turing Scheme, which are policy areas led by Minister Donelan in The Department for Education. Minister Donelan has written separately to the committee on these issues.
The decision to associate to Horizon Europe will have a positive impact on our research sector, including universities, research institutes and businesses, and represents a real benefit to British people and industry. Horizon Europe will provide a platform through which our scientists and innovators can tackle significant and shared challenges in society – ranging from climate change to global health. Beyond funding for UK research and innovation through this programme, our participation will continue to give UK access to cross-border networks, supply chains for new products and access to global talent.
Through the Horizon Europe programme, UK research organisations and Higher Education Institutions can continue to participate in world leading programmes, such as those led by the European Research Council, offering excellent opportunities for domestic and international talent within the UK. Our participation in Horizon furthers our ambition to become a global science superpower - continuing our important collaboration on scientific research with our EU partners.
Attracting world-leading talent is important to the UK’s research ambitions and the new Global Talent visa is making it easier for scientists and researchers to come to the UK. The Government will continue to improve our approach to attracting global talent through the new Office for Talent in No.10, which brings together groups from across government with the aim of securing outstanding talent in academic and commercial innovation. The UK also allows EU nationals in science and research, as with other non-visa nationals, to come to the UK for up to 6 months as a visitor without a visa to undertake a range of activities relevant to their discipline.
Additionally, as a result of the deal, we have secured certainty that fewer short-term business travel activities will be subject to work permit requirements compared to a no-deal scenario when travelling to the EU. This includes, for example, technical, scientific and statistical researchers conducting independent research or researchers attending business meetings and conferences as a short-term business visitor from the UK - subject to any reservations being taken.
The Government is confident that the impact of the Turing scheme will be positive. While providing funding for similar numbers to Erasmus+, the scheme will be tailored to UK needs, ensuring more valuable experiences for UK students. The scheme will support social mobility and will be more aligned to our Global Britain agenda. For more detailed evidence on these policies, kindly refer to Minister Donelan’s response to this inquiry.
Creative industries accounted for £15.4 billion worth of services exports to the EU in 2018. Based on the Office for National Statistics estimates, 57% of DCMS services exports which cover creative industries are delivered via business travellers (Mode 4, physical presence in EU countries).
The UK-EU TCA guarantees market access for business travellers in sectors that are relevant to the creative industries, including advertising, market research, computing, translation and interpretation, and minimum standards for how temporary workers are treated. The Agreement includes a list of 11 activities that can be carried out by short-term business visitors without the need for a work permit, on a reciprocal basis in most Member States, subject to any reservations taken.
This list covers general activities including attending trade fairs and exhibitions, permissions for after-sales, translation and market research services, among others. It does not include touring, film crews taking part in location shoots, or activities related to attending fashion weeks. In negotiations with the EU, the UK explicitly proposed that further activities for creative professionals be added to the list of short-term business visitor activities, but the EU rejected our proposals.
This list of short-term business visitor activities is a baseline and, in practice, each Member State may allow additional permitted activities to those in the TCA without the need for a visa or work permit, as the UK does. For example, due to the UK’s inclusion on the EU Schengen visa-waiver list, certain activities are permitted, visa-free, across the whole Schengen Area for up to 90 days in a 180-day period. Under the Schengen rules UK nationals can visit visa free as a tourist, to attend cultural or sports events or exchanges, business meetings, for journalistic or media purposes, for short-term studies or training. Member States may require a visa for what they regard as “paid activity”. UK nationals should check the rules of the relevant host state(s) before travelling. For those undertaking long-term stays involving work or providing a service under contract, a visa and/or work permit will likely be required.
The TCA also includes copyright provisions in the Intellectual Property Chapter that will benefit the creative industries. These provisions aim to harmonise the existing high international standards of intellectual property rights protection between the UK and the EU. Where appropriate, they go beyond the standards in the international multilateral agreements. For example, we have agreed to higher standards on copyright duration and rights of authors, performers, producers and broadcasters, affirmed our commitment to international treaties, and agreed to look at the ratification of the Beijing Treaty on Audiovisual Performances.
We have also established a firm commitment to cooperate on collective rights management to ensure UK creators continue to receive revenue from the use of their works in the EU and vice versa. The Agreement represents a good balance between securing high standards for copyright protection and securing the UK’s domestic flexibility to continue to improve and adapt the copyright framework to meet future opportunities and challenges.
In our globalised digital economy, flows of personal data envelop all trade in goods and services as well as other business and personal relations.
Both the UK and the EU are clear that the bridging mechanism is only in place while the EU completes its process for adopting adequacy decisions in respect of the UK. We see no reason why the UK should not be granted adequacy and the process concluded promptly.
In a scenario where positive adequacy decisions are not in place, businesses and other organisations would be able to use alternative legal mechanisms to continue to transfer personal data. Standard Contractual Clauses (SCCs) are the most common legal safeguard and will be the relevant mitigation for most organisations. As a sensible precaution, during the bridging mechanism, businesses and other organisations should consider putting in place alternative transfer mechanisms to safeguard against any interruption to the free flow of EU to UK personal data.
If the alternative legal mechanisms are not put in place, EU organisations may be transferring data without an appropriate legal basis.
This could have a knock-on effect for UK organisations resulting in EU organisations ceasing to send personal data to the UK if the appropriate mechanisms are not in place.
The UK and EU have agreed a digital trade title that contains some of the most modern and liberalising provisions of any trade agreement in the world. Its provisions will benefit businesses and consumers alike, including:
Through these commitments, the title promotes trade in digital services by preventing the emergence of costly barriers in future. It will benefit businesses across the whole economy by facilitating modern, digital forms of trade in goods and services.
February 2021
[1]The details of these provisions can be found on GOV.UK.
[2] ONS Pink Book, Chapter 3, November 2020
[3] Trade figures for PBS are proxied by trade in Other Business Services (OBS) which is broader than PBS and includes other services not included under PBS such as trade related services and services incidental to agriculture, forestry, fishing and mining. ONS The Pink Book, Chapter 3: Trade in Services, November 2020.
[4] Further detail can be found in the Government’s response to the House of Lords inquiry on Professional and Business Services.
[5] ONS Travel Trends, 2019
[6] Information on the permitted activities can be found here: https://www.gov.uk/guidance/immigration-rules/immigration-rules-appendix-visitor-permitted-activities
[7] The footnotes to Article SERVIN 5.13 can be found on GOV.UK: https://www.gov.uk/government/publications/agreements-reached-between-the-united-kingdom-of-great-britain-and-northern-ireland-and-the-european-union
[8] Department for International Trade: Inward investment results, 2019-20, Table 5.1