PACT- Written evidence (TAS0034)

Submission to the Lords EU Internal Market Sub-Committee on the inquiry Brexit: future trade between the UK and the EU

Introduction

1)      Pact is the trade association which represents the commercial interests of the independent television, film and digital media production sector in the UK.

2)      Pact works on behalf of its members to ensure the best legal, regulatory and economic environment for growth in the sector. Pact has around 500 member companies and the majority of these are SMEs with a turnover of less than £50m a year.

3)      Taken as a whole, the TV industry around the world is worth a staggering $400 billion.[1] The UK independent television sector (i.e. programme makers who are not owned by a broadcaster which broadcasts in the UK) is one of the biggest in the world. Independent television sector revenues have grown from £1.3 billion in 2005 to just under £3 billion in 2014.[2]

4)      The British Independent TV production sector is extremely successful internationally. UK TV exports continue to grow and the estimated total revenue of the sale of international sale of UK TV programmes and associated activities was £1,207m in 2014/15[3].

5)      The UK is the second largest exporter of TV content in the world (after the USA)[4] and the biggest international exporter of programme formats (the templates for ideas which make a TV programme). After the US, Canada and Australasia, Europe is one of the largest export markets for UK content, worth around £400m.

6)      Pact is an Approved Trade Organisation (ATO) and well respected DIT (Dept. for International Trade) partner. We support companies exporting through a number of means including global markets, trade missions, buyer briefings and webinars. Companies can also access an ‘Export bible’ (guide to over 50 territories) and multiple apps to access global buyers and advice on coproduction. We have also recently rolled out an award winning ‘export accelerator’ workshop programme across the UK.

7)      Pact has also been coordinating input into the Creative Industries Council (CIC) paper to Government about Brexit and the priorities for the UK creative industries more widely.

Inquiry questions

Sectoral overview

1. Please provide us with an overview of trade in your sector. Please include a summary of the significance of the sector to UK trade in services, including employment statistics (linked to trade if possible), the volume and balance of trade, value added and Foreign Directive Investment (FDI), and UK strengths and specialisations in the sector.

UK TV exports have grown exponentially over the last ten years and international revenues stand at around £1,207m in 2014/15[5]. The USA is the UK’s largest export market with sales at £407m, and sales to Europe not far behind at £370m and then Australia (£145m). Europe is a key market for audio visual content around a third (31%) of TV exports overall.

There is strong growth potential in some emerging territories. Exports have grown particularly strongly for example over the last year in countries such as Mexico (+46%), Brazil (+30%), South Africa (+37%) and positive growth in China. The latest version of the UK TV export report for 2015 will be published later this year.

The split of UK TV exports by services and goods is strongly skewed towards services with physical goods such as DVDs making up a smaller proportion of exports than was the case previously. The UK TV exports report shows that 6% of sales was attributed to physical goods.

In terms of employment statistics, the UK broadcast sector employs over 50,000 people, with independent production making up over half of all jobs in the sector[6].

More broadly, UK creative businesses overall are major exporters to both EU and non-EU countries, responsible for £19.8billion of service exports in 2014, of 9% of the UK’s total – an 11% increase on 2013, compared to 2% growth for the whole economy. Overall, 57.5% (or £11.4 billion) of our service exports are going to countries outside the EU[7].

EU and market access

2. How and to what extent does the EU facilitate enhanced market access for your business/in your sector? Is there a harmonised Single Market framework that allows you full access to other member states’ markets? If not, how (and how well) does the Single Market function in your sector?

The UK is Europe’s most successful hub for the media, audio-visual and wider creative industries. A large number of US media and film businesses have chosen to establish their European headquarters in the UK too. The EU’s ‘country of origin’ framework as set out in the Audio Visual Media Services (AMVS) Directive is critical to the UK’s status as Europe’s media hub.

The EU ‘country of origin’ framework for audio-visual media services licensed in the UK allows media companies operating across the EU to be regulated in just one member state. According to Ofcom, of all the broadcasting licences granted to channels across the EU, more than half (1100) are granted by Ofcom in the UK, and half of these (650) are for ‘non domestic channels’ that are broadcast from the UK to other countries. This is a critical factor in the development of the £10billion UK media sector, and drives investment in other areas; for example investment in UK content by the ‘multichannel broadcasters i.e. beyond the main public service broadcasters) has grown by 50% over five years to £600m per year[8]. There are also a number of channels (believed to be over 60) which broadcast into the UK from other EU countries, including France, Germany and the Netherlands and depend on the UK’s recognition of their home market licences.

Retention of the ‘country of origin’ principle should be a critical priority for the UK. This is likely to mean continued compliance with EU minimum standards for media regulation, including on provisions for European works, protection of minors and advertising. However, these are already incorporated into UK law and the cost is small compared to the risk of losing our guarantee of access to the EU market. The alternative of relying on the Council of Europe’s Trans frontier Television Convention would provide some assurance of access to some, but not all, parts of the EU market and only for a more narrowly defined range of services focused on broadcast TV.

The UK should ensure that access to the EU market for audio-visual services is retained without the imposition of non-tariff barriers. As a key part of this, the UK should look to maintain inclusion in the EU country of origin framework for regulation of audio-visual media services – while protecting the territoriality of IP rights for the UK – and ensure continued free flow of data with EU countries. It is also important that the current definition of European Works is retained in EU law, ensuring that UK-originated content continues to count towards broadcasting and video-on-demand quotas.

The UK should also retain tariff-free access to the EU market for goods and we develop this point later in the submission.

3. Do other aspects of EU membership help or impede the ability of your business to operate (e.g. access to justice, horizontal legal regimes, free movement of persons, mutual recognition of professional qualifications, regulation and standards)?

One area of current EU negotiations is work to secure a ‘Digital Single Market’ (DSM) including audio-visual services. The European Commission makes the case that this will help make more content available across EU borders for the consumer and boost the digital economy. However, the reality is that some aspects of the draft legislation proposed so far risk undermining important financing models for developing and selling content, risking both the diversity and quality of programming for the consumer in addition to putting up prices.

Broadcasting has been wholly digital for several years now. The outcome of the negotiations to secure a DSM will be critical for the UK and its future trading relationship with Europe, whether or not individual proposals apply directly to us after we have left. The UK has been a supporter in principle of the DSM, which could bring significant benefits to UK-based creative businesses. However, without active UK involvement, there is a risk that new legislation could have a detrimental impact on the UK’s interests and future trade deals with EU countries. We therefore urge the government to continue its proactive engagement with key dossiers under live negotiation, while the UK is still at the table. Specific current priorities are:

• Revised Audio Visual Media Services Directive: As well as confirming the future of the ‘country of origin’ regulatory principle, it is critical that the current definition of ‘European Works’ (which covers programmes made in all Trans frontier Convention countries) is retained. This will mean that UK-originated content will continue to count towards broadcasting and video-on-demand quotas when exported to the EU, avoiding a potentially damaging non-tariff barrier.
• New copyright package: the European Commission published a package of legislation in September including a draft Regulation that will make broadcasters online catch up services available across borders. They would only need to get copyright clearance in one EU country to make their ‘ancillary online services’ available in any member state.

The issue for the audio-visual industry is that the ability to license content on an exclusive territorial basis is fundamental to the sustainable financing and distribution models that underpin the commercial viability of audio-visual content, whether it is high-end scripted drama or independent films. Recent research demonstrates that undermining this principle of exclusive territoriality would have significant negative consequences for the industry and viewers[9]; namely welfare losses worth up to €9.3bn as a result of losing access to content and services they currently enjoy and higher prices.

Exiting the European Union

4. What specific issues does the UK exiting the EU raise for your business/sector? Please be as specific as possible.

The specific issues raised by Brexit for the audio visual sector are summarised as follows:

• UK as a global media hub: the risk of losing the UK as a global media hub as already outlined above in answer to question 2.
• European works: the importance of retaining the current definition of European Works in EU law, ensuring that UK-originated content continues to count towards broadcasting and video-on-demand quotas. In this way, broadcasters and buyers across the EU will continue to invest in UK content.
• Freedom of movement: The UK should secure continued ease of movement between UK and EU countries for time limited activities, such as film and TV productions where there is a positive record of collaboration in European coproductions.
• Lack of talent supply: Some parts of the production sector, in particular animation, rely heavily on European workers. The Government should confirm urgently that EU nationals currently employed in the UK will be able to stay. Work should also start on refocusing education and apprenticeships to fill potential future skills gaps in the sector. In the longer term the government should reform the migration system to enable easy access to critical skills and talent from both EU and non-EU countries, including a review of the shortage occupation list in the light of our exit from the EU.
• European media funding: Support from the Creative Europe programme has enabled the circulation of European works and in its first two years (to 2015), Creative Europe has provided some £40m in grants and the distribution of 84 UK films abroad. In addition, to film and drama, the fund is particularly valuable to children’s and animation producers as it is even more difficult to fully finance their programmes. The UK should look to maintaining participation in Creative Europe, alongside other non-EU partners given its effectiveness, particularly for cultural exports, to the UK as a net beneficiary. If this is not possible, equivalent funding should be redirected for similar purposes to production centres and creative clusters across the UK nations and regions.
• IP collaboration and enforcement: there is a risk of weakening collaboration on intellectual property issues, particularly on action to reduce online infringement and the proliferation of counterfeit goods. The Government should commit to future UK/EU cooperation on intellectual property.

Future UK-EU trade relationships

5. What would the impact be for your business/sector of leaving the EU and operating on WTO (GATS) terms? To what extent would businesses be able to continue to trade in services as at present? How would your business adapt to this specific scenario? Are WTO terms an attractive option?

It is critical for the audio-visual industry that reciprocal access to European markets is not excluded from the UK’s relationship with the EU post-exit. This would be the case if we were to simply end up trading with the EU under default WTO rules. The EU would then be able to impose discriminatory provisions on the UK, particularly with regards to the audio-visual sector, under the exemptions it has carved out for these areas from the MFN (Most Favoured Nation) requirements.

Non-tariff barriers, which can encompass discriminatory requirements or legislation of all sorts which inhibit or restrict market access, are a particular issue for most of the creative sectors including audio-visual which predominantly trade services rather than goods. This could be a particular challenge for the UK because of our substantial surplus in creative industry exports (unlike in many areas of goods). Given the EU’s policy approach to the creative industries, continuing to trade without non-tariff barriers would not pose a threat to the unique combination of commercial and public intervention which underpins the UK creative industries and the benefits they provide to British consumers.

To enable the UK’s continue growth as a centre from which to build international businesses, we should agree to reciprocal retention of freedom to invest in, and secure investment from, EU businesses. For example, in a media market that is globalising fast, it is important for major UK businesses to be able to continue to buy businesses across Europe and more widely without restriction or disadvantage (and vice versa).

6. Would leaving the EU but remaining a member of the European Economic Area (EEA) retain present levels of market access for your business or not? Is this an attractive option?

The EEA model would be more positive for the audio-visual sector in the sense that it would ensure no tariff barriers on goods or non-tariff barriers on services exports and allow for the free movement of labour across the EU. The downsides are that there would be limited opportunity for the UK to influence negotiations around current and future draft EU legislation given that it would no longer be a member of the EU. Pact understands that Norway, an EEA but not an EU member is initially consulted by the European Commission when EU proposals are introduced but is not then involved in negotiations.

7. Is a negotiated UK-EU Free Trade Agreement (FTA) an attractive option? How confident are you that the needs of your business/sector, including but not limited to market access, would be accommodated in such an agreement?

As suggested in our response, any free trade deal should retain the ‘country of origin’ principle as previously discussed and retain the current ‘European works’ definition so that UK content is still counted within this definition. Any free trade deal between the UK and EU should allow for both trade in goods and services to allow for trade in audio-visual services. Allowing for tariff free importing of goods is also important, for example most film and TV DVDs are manufactured elsewhere within the EU. Any FTA should also allow for both temporary and permanent access to talent from within and outside the EU.

8. What should the Government’s key objectives be for your sector in its negotiations with the EU?

The key points for the audio visual sector can be summarised as follows:

• EU ‘country of origin’ framework: The UK should ensure that access to the EU market for the creative industries in respect of services is retained without the imposition of non-tariff barriers. As a key part of this, the UK should look to maintain inclusion in the EU ‘country of origin’ framework for regulation of audio-visual media services – while protecting the territoriality of IP rights for the UK – and ensure continued free flow of data with EU countries.

• European works: retaining the current definition of European Works in EU law, ensuring that UK-originated content continues to count towards broadcasting and video-on-demand quotas.

• UK/EU cooperation on intellectual property: The government should commit to future UK/EU cooperation on intellectual property issues, particularly on action to reduce infringement.
• Tariff free access for goods: The UK should retain tariff-free access to the EU market for goods
• Creative Europe funding: The UK should look to maintain participation in Creative Europe media funding, alongside other non-EU partners, given its effectiveness, particularly for cultural exports. If this is not possible, equivalent funding should be redirected for similar purposes within the UK, particularly focused on supporting selected creative clusters and production centres around the UK.
• Skills and talent: The Government should confirm that EU nationals currently employed in the UK will be able to stay. Securing continued ease of movement between the UK and EU for time-limited activities; enabling reciprocal ease of movement for temporary purposes is critical for the future of our production industries, and for the UK’s continued status as prime location for foreign productions. We should ensure that any future migration system allows for easy access to critical skills and talent from both EU and non-EU countries.

Opportunities

9. Does leaving the EU raise significant benefits or growth opportunities for your business/sector? What are these and how can they best be exploited? To what extent do they offset/outweigh concerns about reduced access to EU markets?

In terms of opportunities, the Government should pursue the following:

• Government/industry partnership: We should establish a government-industry partnership to tackle trade barriers and open up access to other priority markets such as China. We should commit to making strong protection of IP rights a red line in future bilateral trade agreements, and ensure that we retain scope for continued public support for media and creative sectors.

• Export support: The Government should enhance bespoke support for creative industry exports, ensuring that it is firmly industry-led. Pact has made the case that Department for International Trade (DIT) that export support should:

-          Be more effectively targeted and focused on putting businesses in direct contact with buyers overseas particularly through the TAP (Tradeshow Access Programme) that our producer feedback shows delivers a strong return on investment.

-          Transfer the administration of funding into the hands of the private sector who have knowledge and insights as to how best support their sector, with a clear framework of targets and accountability.

• Coproduction treaties: The government should investigate the possibility of securing more coproduction treaties with key countries, particularly as a precursor to securing a wider trade deal in those territories.

• UK tax reliefs: The Government should explore the option of improving the impact of creative sector tax reliefs, including possible expansion. The current suite of creative sector tax reliefs has helped deliver returns of £6 billion per year to the UK economy.

October 2016