The services sector is vital to the UK’s economy. Business and professional services add an estimated £224.8 billion to the UK wealth and provide nearly 5 million jobs.
Yet 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 in a recent report. So what may – and may not – be in the UK/EU trade deal on services, assuming there is one?
Mobility through liberalisation of trade in services
First, free movement for all EU citizens is over. Instead, any UK-EU trade agreement is likely to reflect the limited regime for mobility of people under the EU’s recently negotiated trade deals such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA).
So it will not cover immigration policies of the UK and the EU, a triumph for the Brexiters and their pledge to take back control of our borders.
It will also not apply to measures affecting individuals’ rights to seek access to the employment market, nor to measures regarding nationality or citizenship, residence or employment on a permanent basis in the host state. In other words, it will not allow individuals to move as ‘workers’.
Instead, any UK-EU trade agreement will be limited to those who are engaged in trade in services: it will grant movement rights to a limited group of people for a limited amount of time – providing or receiving services, or travelling for investment purposes.
The EU’s draft free trade agreement (FTA) includes another group too: short-term mobility of individuals for reasons unrelated to business.
The EU proposal provides for reciprocal visa-free travel for short stays of at least 90 days in any 180-day period. It further calls for reciprocal conditions of entry to and residence for a period exceeding 90 days for the purpose of research, studies, training and youth exchanges.
However, like CETA, the UK’s draft FTA does not cover this important category of people, rendering the UK’s approach to negotiating the future agreement a purely trade arrangement.
So, what services related mobility rights are provided in the two draft FTAs?
Four modes of service supply
The General Agreement on Trade in Services (GATS) under the WTO Agreement groups trade in services 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 hotel group);
- 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).
Like CETA, both draft FTAs cover all four modes of supply of services. There is, however, an important difference between the scope of trade in services liberalisation under GATS and that proposed under the draft FTAs (and CETA).
GATS follows the so-called positive list approach under which liberalisation rules only apply to the areas and measures that the parties have specifically included in their schedule of commitments, which makes GATS a rather limited instrument.
By contrast both the UK and EU draft FTAs adopt CETA’s negative list approach, meaning that all services sectors are covered unless explicitly listed as otherwise.
CETA excludes sectors such as health care, public education, culture and other social services from its scope of application, that is areas where the numbers of migrant EU workers in the UK have been particularly high.
With respect to financial services, the two drafts differ in the scope of application of trade in services rules.
Under the EU draft FTA financial services are covered by the general provisions of Title VI on services and investment, including domestic licencing requirements and procedures, and apply in addition to sector-specific provisions of Section 5 on financial services.
Similarly, CETA does not exclude financial services from domestic regulation provisions, and includes a sector-specific chapter on financial services (Chapter 13).
Under the UK draft FTA, financial services are excluded from the general provisions on trade in services and investment and are governed by a separate Chapter 17, which contains market access, national treatment and most favourite nation clauses (MFN).
Importantly, financial services are also excluded from the scope of Chapter 12 on domestic regulation, which covers licencing requirements and procedures. Chapter 12 licensing requirements do, however, apply ‘to the exercise of statutory discretion by the financial regulatory authorities of the Parties’.
This latter provision renders the effects of excluding financial services from Chapter 12 unclear – to the extent that they are required, the process of issuing licences and authorisations will have to comply with the requirements for domestic regulation under both proposed FTAs.
Mutual recognition of professional qualifications
The two draft FTAs follow the pattern of the EU’s recent FTAs by including mutual recognition of professional qualifications (MRPQs). The EU and the UK, however, have a different approach on the process of negotiation of MRPQs.
The EU draft FTA follows the example of CETA, in that it does not itself include a mutual recognition clause – instead calling for a conclusion of a separate agreement by professional bodies. We believe that so far only one draft MRPQ of professional qualifications has been submitted to the EU/Canada Joint Committee – on architecture.
The UK draft FTA, on the other hand, proposes a much more ambitious regime for mutual recognition. Instead of ‘waiting’ for sector-by-sector initiatives from professional bodies, the proposed FTA includes an umbrella mutual recognition clause in the agreement itself.
Assuming there is a trade deal, mobility rights will be either a ‘CETA’ or a ‘CETA+’. CETA, however, is an exclusively trade agreement, and it thus focuses exclusively on trade-related mobility. This is bad news to those who see benefits in free movement of people.
As it currently stands, the future arrangements on trade in services will therefore be neither ambitious nor comprehensive in respect of the UK’s vital services sector.
By Professor Catherine Barnard, senior fellow at The UK in a Changing Europe and Dr Emilija Leinarte, University of Cambridge.