Why does mobility matter?
The ability to provide services across borders is critical to the success of the sector. Business offering professional services, such as accountancy, consultancy and legal services, contribute about £225 billion to UK GDP (about 11%) and provide nearly five million jobs.
The services sector is a broad category ranging from hairdressing and the arts, through to health services and education, as discussed in our Services and Brexit report.
Many of these are not traded internationally but those that are, such as financial services, are areas of export strength for the UK. In 2018, the financial services sector contributed £132 billion to the UK economy, 6.9% of total economic output. There were 1.1 million financial services jobs in the UK.
The EU represents an important export market for the UK. The UK had a surplus on services exports to the EU before Brexit. Despite this, trade in services has been the poor relation in the UK-EU trade talks, a matter of concern for the House of Lords EU Services Sub-Committee.
“The ability to provide services across borders is critical to the success of the sector. Business offering professional services, such as accountancy, consultancy and legal services, contribute about £225 billion to UK GDP (about 11%) and provide nearly five million jobs.”
Mobility is a critical enabler of services provision. In contrast to manufacturing, where export involves the moving of goods, for services, exports are facilitated by the movement of individuals (lawyers and accountants, and the like).
The EU provisions on free movement of persons have been replaced, since Brexit, by rules on mobility between the UK and the EU laid down in the Trade and Cooperation Agreement. These apply to service providers only.
How does the agreement compare to the WTO and other EU trade agreements?
Without any agreement between the UK and the EU, trade would be governed by World Trade Organisation (WTO) rules. That therefore provides the baseline that both sides can agree improvements on, as has been done in the UK-EU’s Trade and Cooperation Agreement (TCA).
The WTO services agreement (GATS) groups services trade into four categories, referred to as ‘modes of supply’:
- Mode 1 ‘Cross border trade’: from the territory of one member into the territory of any other member (e.g. an architect sending building plans to a client abroad);
- Mode 2 ‘Consumption abroad’: in the territory of one member to the service consumer of any other member (e.g. a patient travels to receive medical services abroad);
- Mode 3 ‘Commercial presence’: by a service supplier of one member, through commercial presence, in the territory of any other member (e.g. when a service is provided by a locally-established entity of a foreign-owned and controlled company, such as a hotel group); and
- Mode 4 ‘Presence of natural persons’: by a service supplier of one member, through the presence of natural persons of a member in the territory of any other member (e.g. consultant or health workers, or employees of service suppliers like consultancy firms or hospitals).
The WTO services agreement contains ‘schedules of commitments’ (i.e. lists of what a country will accept) and reservations (i.e. limits) for each country for each sector (e.g. legal services, architecture) and for each mode. These schedules are complex documents.
The WTO follows the so-called ‘positive list’ approach which means that services liberalisation commitments apply only to those sectors which are listed in the schedules. As a result, GATS is a rather limited agreement for services.
Like GATS and the EU’s agreements with Canada and Japan, the TCA covers all four modes of supply. However, the TCA (like the EU-Canada and the EU-Japan free trade agreements) adopts the ‘negative list’ approach for Modes 1-3.
This means that all services sectors are covered unless explicitly provided otherwise in the annexes. This is a more liberal position than under the WTO agreement.
For Mode 4 (whereby a natural person travels to supply a service), the TCA adopts a mix of positive and negative listings: contractual service suppliers, independent professionals and short-term business visitors must fall into one of the sectors listed in the annexes, while business visitors for establishment purposes and intra-corporate transferees are not subject to sectoral limitations.
All categories of Mode 4 service suppliers are, however, subject to country-specific reservations (see below). What this means in practice for service providers is highly variegated, by type of mobility, destination, member state and service sector.
How is mobility dealt with in the TCA?
Free movement between the UK and the EU is over.
Mode 4 on the ‘Presence of natural persons’ is crucial. It covers five situations:
- business visitors for establishment purposes – i.e. those going to help their own company set up a business in the host state;
- intra-corporate transferees (ICTs) – i.e. those managers or trainees being sent temporarily to another part of the company in another state;
- contractual service suppliers (CSSs) – e.g. those providing services on behalf of a UK company in France;
- independent professionals (IPs) – g. those UK self-employed providing services to a German consumer;
- short-term business visitors (STBVs) – e.g. those attending meetings, training seminars, trade fairs in another state).
This is an exhaustive list. A summary of the TCA requirements to fall under one of the five situations, the period of residence they are entitled to in the host state, and their other rights, can be found in the table.
Family members’ rights (for families that may travel with a service provider) are very limited. There is a brief reference to the partners, children and family members of ICTs only.
The TCA makes no provision for visa-free travel. It merely notes that currently both parties provide for visa-free travel for short-term visits in accordance with the domestic law of the parties. In practice, most EU member states waive visas for short-term business visits.
It also adds that if the UK decides to impose a visa requirement for short-term visits on nationals of any member state (e.g. on those coming from Romania or Bulgaria) then that requirement will apply to the nationals of all member states. It is also likely to lead to the imposition of visa restrictions on UK nationals in turn.
Why are provisions on mobility so restrictive?
As the Commission has pointed out, the UK refused to include a chapter on mobility in the agreement. The UK apparently rejected this as incompatible with its commitment to take back control of borders and instead proposed a more limited measure covering performing artists. This in turn was rejected by the EU as cherry picking.
The EU also called for reciprocal conditions of entry and residence for any period exceeding 90 days for research, studies, training and youth exchanges. However, the UK did not want to agree this.
So what has been agreed are limited provisions for those who are engaged in trade in services. These provisions are only somewhat more generous than those found in GATS.
This means that there are now very significant new barriers to the provision of services between the UK and the EU that vary by service, type of visit and the destination of the trip.
Are there exceptions?
First, there are sectoral carve-outs from the TCA services chapters provisions. The EU-Canada agreement excludes sectors such as healthcare, public education, culture and other social services.
The TCA excludes some air and inland waterways transport, as well as national maritime cabotage services and audio-visual services. This means that mobility within these sectors will be subject to domestic regulation and will not benefit from the TCA.
Second, in addition to these sectoral carve-outs, numerous country-specific reservations are listed in extensive, highly technical annexes, with exceptions under all four modes of services. These cover areas such as education, real estate, finance, agriculture, energy and others.
Sectors which are subject to state-specific reservations will be governed by national regulations and not the TCA. These reservations are listed separately for the UK and the EU, and for individual member states so they vary by type of trip, service and destination country.
To give an example, let’s look at STBVs. As we explained above, the TCA follows a positive list approach for STBVs (i.e. only listed activities are permitted).
So, one of the annexes to the TCA lists the activities STBVs can do, including attending meetings and trade fairs, conducting market research, providing after sales service, and acting as tour guides.
Despite the fact that the commitments in the TCA say that STBVs don’t need work permits nor do they need to satisfy an economic needs test, STBVs will do if they wish to go to Cyprus, Denmark and Croatia for any of the permitted activities, and for Austria for aftersales service.
For tourism personnel, the Annex says that in Cyprus, Poland and Spain this is ‘unbound’, which means those three countries make no commitments at all in respect of market access for UK providers (though this does not prevent them from granting mobility rights on the basis of their domestic law).
So, as this example shows, individual service providers will need to check what activities they are permitted to undertake where and under what forms of mobility by checking country-specific exceptions in the 200 or so pages of Annexes.
Will professional qualifications still be recognised?
Following the example of the EU-Canada agreement, the TCA does not facilitate the automatic mutual recognition of professional qualifications, calling instead for a conclusion of separate agreements by professional bodies.
This reflects the EU’s negotiating stance – the UK wanted an umbrella mutual recognition clause in the agreement itself which would have made the process of recognition more straightforward.
If the agreement operates in the way the Canada agreement does progress will be slow – so far only one draft proposal for mutual recognition of professional qualifications — on architecture — has been submitted to the EU-Canada Joint Committee.
There is one exception the UK succeeded in negotiating: a provision on home title legal services, enabling UK lawyers to practise under their title as solicitor or barrister, but again subject to several reservations. This is an important and significant concession.
Why are sectors like musicians complaining?
Prior to Brexit, musicians along with other artists such as dancers, directors and comedians could travel visa free into the EU. Under the terms of the TCA, they may not satisfy the criteria for mobility under Mode 4 either as STBVs or IPs.
Therefore national law applies, which means they face additional costs and bureaucracy including paying for work permits and ensuring any equipment they need meets the new rules on haulage within the EU. As a result, they fear that they will be at a disadvantage to EU passport holders in terms of bookings for tours.
The additional paperwork and costs are particularly acute in this sector because many artists are self-employed and have less experience and capital in order to meet the new border requirements.
What will be the impact of the agreement on trade in services?
Under the TCA, mobility rights are essentially ‘Canada with a small plus’, the plus being over matters such as lawyers being able to use their home title.
The UK says it has got the benefits of the EU’s deal with Japan, with a little bit extra on legal services. These are ultimately trade agreements and thus focus exclusively on trade-related mobility.
Given the UK’s pledge to end free movement after Brexit, this is pretty much all that could have been expected. Services rules between the UK and the EU will be significantly more complex in the future and so far there has been little guidance from government on the detail of how the rules now operate.
There is provision to revise the services rules in the future but this may not happen in the near future given the current difficulties in relations between the UK and the EU.