Eurostar International Ltd-Written evidence (TAS0074)

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

SECTION A: SECTORAL OVERVIEW

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.

Eurostar operates international cross-border passenger rail services between the UK and mainland Europe. All of Eurostar’s services begin or end in the UK, and all passengers on our services are travelling internationally. We are a UK-headquartered company with an annual turnover of £821m in 2015, competing in a multimodal European market.

Eurostar is only a medium-sized business. We operate on a stand-alone commercial basis and receive no subsidies or support from any Government and no parent company support, loans or guarantees. We employ around 1,800 people in the UK, with around three quarters of these in our different UK locations (Ashford, St Pancras and Ebbsfleet stations, London headquarters, Ashford contact centre and Stratford engineering centre). We pay taxes in the UK, and have consistently been rated as fully compliant (“low risk”) by HMRC .

Eurostar’s biggest impact on the UK economy is not our own turnover but the business we enable. Our more than 10m customers are trading, investing, spending. So it is not just that our business stands or falls with the ease of trade and movement between Britain and the EU, but that the success and effectiveness of our service helps enable this trade and promote this investment:

• Last year we carried over 10 million passengers. Businesses choose to travel with us, and we notably support London as a financial centre (our top corporate customers are European financial services companies and almost half of all of our passenger journeys are for business). We do not only allow trade abroad from the UK and help maintain strong London-based companies, we also add to London and the UK’s traditional attractiveness to skilled, entrepreneurial French and other EU workers;
• Similarly, we support a community of more than 350,000 British citizens living and doing business in France, Belgium, Germany and Holland;
• We also bring a significant number of leisure visitors to the UK each year – based on location of customer purchase, approximately 3 million Eurostar journeys for leisure are for a visit to the UK.

SECTION B: EU AND MARKET ACCESS

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?

Unlike many domestic operators, Eurostar operates in four jurisdictions (France, Belgium, UK, Tunnel and soon the Netherlands with our future route to Amsterdam) under a range of regulatory laws and guidance. In that complex context, the EU has aimed to facilitate cross-border rail travel through a range of rules that have a positive impact on Eurostar:

• Existing provisions governing access for so-called ‘open access’ operators, such as those in Directive 2012/34/EU establishing a single European railway area. Without such access rights Eurostar would not have the automatic legal right to operate abroad. These also establish common rules and principles which ensure consistency of charging and consistency of regulation and rights of appeal etc;
• Provisions on safety facilitating the mutual recognition of safety certificates across border (Railway Safety Directive and its associated instruments – Directive 2004/49/EC, as amended). Common safety standards and processes help ensure that safety can be managed and staff trained and authorised consistently across the business;
• Provisions facilitating the certification and recognition of train drivers’ qualifications across borders (Train Driver Directive 2007/59/EC, as amended) which reduce costs for cross border operations;

• Passenger rights (Rail Passenger Rights and Obligations Regulation no 1371/2007 which, in the UK, applies to international journeys) which provide comprehensive and homogenous guarantees to customers wherever they come from, and facilitate the administering of claims under one single set of rules;

• The creation and adoption of EU wide TSIs (Technical Specifications for Interoperability) in the rail industry, which allows integrated and standardised transport solutions. TSIs cover a range of areas including control command and signalling, and telematics (interoperability of information systems). TSIs are not just of benefit to international rail services operators, they also provide advantages for UK-based rail industry manufacturers, infrastructure managers and train operating companies as they are able to benefit from the product of a wider research and development pool, and standardised specifications. These broaden the marketplace for manufacturers, as well as reduce the costs for procurers who will acquire from a broader range of potential suppliers in respect of a common standard, rather than a bespoke solution.

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

Free movement of workers: International high speed rail is a highly technical industry. In order to deliver a competitive and successful service, Eurostar relies on the expertise of not only UK-based colleagues but from a talent base from other EU Member States. We need these workers to be mobile, not only to support our business and its needs but also to be able to attract the best talent in a competitive international marketplace.

Arrangements related to tax and accounting, including VAT arrangements, strongly benefit a company such as ours which operates across different jurisdictions.

Data protection requirements are also harmonised at EU level and are, for the same reason, important to a company such as ours which has to deal with customer data in different countries.

SECTION C: EXITING THE EUROPEAN UNION

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

1. Rights to work and rights to remain. Eurostar is a pan-European business, and approximately 40% of our workforce in the UK are non-UK citizens. This raises three sets of issues:

• skills and experience: Eurostar draws on the internal talents of partner rail companies to aid our operations, and we also rely on colleagues with appropriate language skills both on board our services as well as at our customer contact centres. We need colleagues who are able to communicate effectively in English, French and Dutch.

As is clear from the above, these skills cannot be categorised as ‘low’ or ‘high’, if future rules were to attempt to make such a distinction to decide which individuals were allowed to work in the UK. All levels of the company are – by its very nature - reliant on these skills.

• More restrictive rules for employment of non UK nationals would make recruitment difficult and costly: a medium-sized company such as ours doesn’t have an HR department geared for complex employment processes. Similarly, restriction of in-work benefits for EU citizens would make working for Eurostar, a UK based company, far less attractive, and probably result in a skills-shortage.

• There is a significant brand value to our diversity. We are known for our European feel, reflecting the markets and customers we serve, and even if such skills could be reliably sourced in the UK, the cultural diversity that supports the success of our operations could not. This is about ensuring the culture of the company reflects the diversity of our customer base and the service we wish to offer. In staff engagement surveys, “Diversity” is consistently rated by employees as one of the key positives about working for Eurostar and we are proud of this.

2. Ease of doing business and clarity of future intentions. As indicated earlier, about half of Eurostar’s customers are engaged in business between the UK and continental Europe, driving investment and trade. A significant proportion of those customers work for French companies based in London or British companies based in Paris or Brussels to a lesser degree.

Barriers to trade, or even uncertainty as to the risk of future barriers, will reduce demand and could lead these business to relocate some or all of their operations. Uncertainty could reduce inward investment, e.g. European entrepreneurs coming to London to start up. These would have serious implications for Eurostar as a business.

3. Ease of movement. Eurostar depends on the operation of “juxtaposed” controls, similar to those in force at Calais and established under the Treaty of Sangatte. Although not linked to EU treaties, recent developments in France have made clear that there are pressures in some quarters of French society on this set-up following Brexit.

Experience suggests that removing juxtaposed controls and replacing them with “on arrival” controls would increase journey time by c.40 minutes each way. That is the equivalent of taking away the entire UK investment in HS1. The number of passengers using the service might be expect to fall significantly in such an eventuality, with a particular focus on time-sensitive business travel. Eurostar could not sustain such a re-alignment in its present form.

In addition to juxtaposed controls, Eurostar depends on the joint and rapid processing of UK and EU citizens at the border. Eurostar operates out of highly capacity-constrained stations in each of its principal locations. These are listed buildings in city-centres and cannot be re-modelled without significant investments and years of planning. There is no capacity at these locations to remodel the use of space (nor does UK Border Force have the current resources) in order to process UK and EU separately and/or to process EU citizens at the border.

Lastly, should the UK leave the customs union and re-establish custom controls, these new customs obligations would be very difficult to put in place in the restricted space available in stations, and would make our current cargo business (Eurodespatch) economically unviable.

4. Regulatory divergence: as mentioned above, Eurostar has benefited immensely from EU rules making cross border rail travel easier and cheaper. If divergence between UK and EU rules were to happen, this would lead to significant cost and complexity for our business. This in turn would affect our competitiveness and, depending on the nature of any differences between systems, it may not be possible to operate either from an economic or practical standpoint. For example:

• Under the fourth railway package, we expect to have a single safety certificate with a one stop shop to obtain this for our entire operation. If UK-registered companies were not able to obtain this certificate and/or the UK were to adopt a different approach, we would face uncertainty on the compatibility of the rules between the UK and EU and ongoing additional costs were there to be an additional UK only system;
• Would train drivers be required to have more than one licence to provide services between the UK and EU ? If so, what conditions and standards would need to be met and complied with in a separate UK system? This would impact cost and, potentially, the pool of available drivers that we could recruit to these positions;
• As a UK-headquartered company, would we be able to continue to benefit from the provisions of Directive 2012/34 on the single European railway area in the same manner as an operator in an EU Member State, or would a less advantageous ‘third country’ approach be adopted? If the latter, this could affect our competitiveness and the economics of our operation;
• If the UK was to exempt certain parts of the UK network or operators from the application of TSIs, wouldn’t that create a network system that may not be interoperable with the requirements of EU Member States, thereby harming cross border trade as well as opportunities for services to/from the UK?

In essence, the less divergence between the UK regime and the EU regime the better.

Duplication leads to increased costs, which potentially suppresses future expansion. We feel strongly that, as a cross border operator with services to/from the UK, we should be treated the same as UK companies in the UK, and as EU companies in the EU, and shouldn't suffer in either jurisdiction (costs charged, access rights etc) just because we would be operating inside and outside the EU, especially as we have established our cross border transport business during the EU single market.

SECTION D: FUTURE UK-EU TRADE RELATIONSHIPS

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?

Operating under WTO terms would make Eurostar’s business very difficult if it translated (as is likely) in customs obligations (the checking of which may not be accommodated in UK stations) and complex procedures to employ non-British nationals (therefore reducing access to talent). Any re-establishment of strong visa and immigration obligations would also create congestion in our already space-limited stations, lengthen journey times and ultimately  threaten the Eurostar service as it is known.

It is also likely such an arrangement would increase the potential for regulatory divergence. Eurostar’s concern is that, what may be seen as an opportunity to reduce regulatory burden from Brussels will result in regulatory duplication, as it becomes apparent that the regulations exist for a clear purpose. Duplication with divergence could end up significantly increasing our regulatory cost burden and, ultimately the cost to customers.

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?

An agreement whereby the UK would become a member of the European Economic Area would conceivably allow Eurostar to maintain access to markets and talent and minimise regulatory divergence, although the exact details would remain to be seen.

However, it is worth noting that although a country like Norway (an EEA member) is part of the Single Market, it is not part of the Customs Union, which could potentially have an impact on cross-border traffic.

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?

It is difficult to assess the impact of the UK entering a Free Trade Agreement with the EU, as the terms of such an agreement are as yet completely unknown.

The more comprehensive and wide-ranging such an FTA would be, the better. As explained above, it is important for Eurostar that as little regulatory divergence as possible happens, and that both easy movement across borders and access to talent remain secure.

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

Eurostar is unusual in the rail sector in its complete dependence on cross border travel. With 10m passengers per annum and in light of our large impact on the UK economy through the business we enable, we believe that it is important that the uniqueness of the Eurostar business is understood and taken on board by negotiators, rather than dealt with solely as part of a wider rail or transport agenda.

The key objectives from our perspective are:

• It is key that juxtaposed controls are retained on international passenger rail routes;
• Access to talent should be maintained;
• Regulatory divergence should be avoided

On that last aspect, divergence has the real possibility to damage the economics of our business, as well as our ability to operate an effective service between the UK and the continent, thereby affecting the wider economy.

We believe that all EU regulatory laws directly or indirectly applicable to cross-border railways (including international freight through the Channel Tunnel) are maintained as they are or, if this is not possible, that these are adopted in identical form and updated as required with the aim of ensuring that there is no divergence of law or application of law between the EU and the UK.

EU negotiations should ensure that UK-headquartered rail services operating into the EU will be subject to a level playing field with the same rules of operation, rights of access and charges as those applied to EU Member States operated services. The alternative is a system where it may be impossible to run a cross-border service either economically or technically.

SECTION E: OPPORTUNITIES

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?

No.

There are no benefits or growth opportunity that we could identify from leaving the EU.

As a cross-border operator, our fixed costs are already very high, and in many instances the business case is marginal. Any additional cost, small as it might seem, would only add to these costs and risks either raising prices for passengers or, if the market cannot bear such increases, making the operation unsustainable in its present form.

November 2016