The TCA is a major setback to services sectors that have relied on UK regulation being recognised in other EU economies... particularly the case for financial services with the loss of passporting rights...
Key Points
- The UK-EU Trade and Cooperation Agreement (TCA) sets out the
conditions under which UK businesses may supply services according to
rules prevailing in the receiving (host) country. This constitutes a
major change compared to the economic freedom to provide or receive
services through cross-border trade and/or establishment in the EU
Single Market, which the UK has left with the end of the Brexit
implementation period.
- The TCA appears to be ambitious in a few sectors such as
telecommunications, international maritime transport and digital trade,
where strong disciplines seemed uncontroversial.
- But the TCA is a major setback to services sectors that have
hitherto relied on UK regulation being recognised in other EU economies,
such as licenses or professional qualifications. This is particularly
the case for financial services with the loss of passporting rights, and
for air and road transportation services, both of which will see their
mode of operations severely curtailed.
- The TCA provides for improved mobility of skilled workers between
the UK and the EU compared to the default position under WTO GATS rules.
Yet the temporary stay of business personnel, for limited categories of
workers, is a far cry from the free movement of personnel within the
EU. The absence of an agreement regarding mutual recognition of
qualifications is also a major impediment to the movement of
professionals.
- Some services sectors are going to rely more on having a commercial
presence in EU markets, and large enterprises (potentially already
multinationals) will find this change easier to make compared to smaller
businesses.
- The TCA has a stand-alone section dedicated to digital trade, which
supports digitally enabled and delivered services as well as certain
parts of e-commerce. This section also includes free data flow
obligations with some strong safeguard provisions. In practice, though,
the ability of UK businesses to transfer personal data from the EU will
depend on an adequacy decision to be taken by the European Commission.
- The TCA is an incomplete agreement in the sense that the precise
conditions under which services can be traded with the EU still need to
be worked out in a number of areas, including financial services,
cross-border data flows, and mutual recognition of professional
qualifications.
Introduction
There are few advanced economies in the world for which services
trade is as important as for the UK. On a Balance of Payment basis, in
2019 services exports constituted 46% of total UK exports, i.e. goods
and services combined.[1]
For comparison, the same share for the EU-27 (excluding the UK) stands
at about 25%. And this high share for the UK is even before considering
investment flows, which are another important conduit for services
trade. So the UK economy has a demonstrated comparative advantage in
producing and exporting services. In 2019, services worth £123.7 billion
went to the EU. This is a substantial figure and accounts for nearly
40% of all UK services exports. Hence, for a substantial part of the
economy, it is vital to scrutinise the extent to which the TCA
facilitates services trade and, relatedly, digital trade.
Policies that can facilitate or impede services trade come in many
forms and shapes, partly because individual services sectors are very
different (legal advice vs healthcare) and partly because services can
be exchanged by firms moving abroad, by consumers moving abroad, by service professionals crossing borders or, indeed, the service itself
crossing borders in digital form. Many of these transactions require
some sort of permit, license or are otherwise subject to domestic
regulations.
Prior to the end of the Brexit implementation period on December 31st
2020, the Single Market for services—albeit less complete than the
Single Market for goods—had facilitated the international integration of
EU services markets by the country-of-origin principle, which meant
that, when a service was supplied cross-border into another Member
State, the law and rules in the sending country would apply to
this transaction. This regulatory approach in the EU Single Market is
observed e.g. in broadcasting and in financial services (where it is
called ‘passporting’). Another feature of the Single Market for services
is the mutual recognition of qualifications for a range of professions.
This Briefing Paper aims at outlining the main changes to trading
services brought about by the TCA, in terms of scope and depth. It is
part of a comprehensive discussion of the Agreement in three parts, with
two companion pieces that look at trade in goods (Briefing Paper 52) and the governance, subsidies and the level playing field provisions (Briefing Paper 54).
Trade in Services: Overall Assessment
The TCA sets out rules for cross-border services trade and investment
in one chapter as part of Part Two, Heading One (Trade). Important
exclusions from the scope of this Heading are audiovisual services and
financial services. The former exclusion reflects the standard approach
by the EU in all of its free trade agreements and is a hard blow for
the UK given its strong position in such areas as broadcasting, media
and some creative industries. Decisions on the future governance of
financial services have been postponed and a terse joint declaration
commits both sides to a Memorandum of Understanding regarding regulatory
cooperation of financial services (more details on financial services
below). This declaration emphasizes the significance of each party’s
unilateral equivalence decisions, whereby either party will determine
whether the other party’s regulatory and supervisory standards match its
own standards. For the remaining services covered, the TCA offers
standard market access and national treatment commitments for both
cross-border services trade providers and investors.[2]
The agreement appears to be ambitious in the realm of
telecommunications, international maritime trade and digital trade,
including the protection of intellectual property rights, whereas
aviation, road haulage, the financial sector and businesses in
regulation-intensive parts of professional and business services will
face substantial new barriers to trading their services with EU
economies. These sectors constitute a quite substantial share of
services trade.
As a general principle, UK service suppliers will have to comply with
host-country rules in each EU Member State, in particular with regard
to the recognition of professional qualifications but also in terms of
licensing. The country-of-origin principle for regulating the
cross-border trade of financial services, known as ‘passporting’, will
also no longer apply.
Overall, therefore, considering the substantive changes in trading
conditions as well as the fact that crucial decisions have been
postponed in important areas such as financial services, cross-border
data flows and recognition of professional qualifications, the TCA
represents a major setback for services sectors, for some more so than
for others. The increase in trade frictions may also hit smaller firms
harder than large enterprises, which may have foreign affiliates and
could therefore more easily adapt by relocating activities across
borders.
Some Principal Changes
Under the EU Single Market for services, businesses from EU Member
States enjoy two core principles: freedom to establish and freedom to
provide or receive services cross-border. These are supplemented by some
EU directives, such as the Services Directive(2006/123/EC) or the
Mutual Recognition of Professional Qualifications Directive
(2005/36/EC), as well as sector-specific laws. This level of freedom no
longer exists under the TCA. Instead, UK businesses may supply services
only according to rules prevailing in the receiving (host) country, and
even then they are subject to a plethora of reservations made by
individual EU Member States.
One ramification of this change is that, since investment provisions
are generally liberal in the TCA, service suppliers could fall back on
the option of creating a commercial presence in one of the Member States
to serve the EU market. That is, substituting commercial presence for
cross-border supply of services is likely to be one of the consequences
of the TCA in many service sectors, especially for airlines, banks and
insurance, and providers of broadcasting and audio-visual services.
As for the liberalisation commitments on cross-border services supply
and investment, the TCA in principle follows a negative list approach.
This calls for complete liberalisation subject to a list of reservations
(i.e existing or future measures that do not conform to the
liberalising obligations in the agreement) in two Annexes. These set
out, respectively, existing and future non-conforming measures that are
inconsistent with the TCA’s obligations regarding market access,
national treatment, and a range of other general obligations.[3]
Looking at the EU’s reservations, UK service providers’ access to the
EU services market is quite similar to Canadian or Japanese services
providers’ access under the Comprehensive Economic and Trade Agreement
(CETA) and Japan-EU Economic Partnership Agreement (JEEPA) respectively.
It should be noted that disciplines against local presence requirements
and commitments pertaining to legal services are included as general
obligations under the TCA, which is not the case under the CETA and the
JEEPA. This means that the TCA’s disciplines in this regard apply more
broadly than in CETA and JEEPA, and in this sense, the TCA’s obligations
for market openness can be viewed as more far-reaching.
However, at the same time, an important caveat emerges from the
reservations that have been lodged as part of the negative list
approach. Looking at the EU’s reservations for cross-border services
trade, there are many non-conforming measures relating to local presence
requirements at the level of individual EU-27 Member States. UK
services providers have to carefully check the EU’s commitments at the Member State level to determine the locally applicable conditions for providing services.
Services are a dynamic area and technological progress is constantly
creating new business models and service propositions, in particular
with regard to digitally enabled services in finance (often called
‘FinTech’). The UK agreed a clause (Article SERVIN.5.42) that opens the
door for the future exchange of new financial services. When offered by
providers from one party, these shall be permitted by the other party if
it would permit such new financial services, in like situations, from
its own financial service suppliers without adopting or modifying a law.
A similar clause is found in the UK-Japan CEPA (Article 8.60) but does
not exist in JEEPA; hence, this is an important development that may
facilitate trade in innovative financial services between the UK and
both the EU and Japan. Compared to CEPA, though, the EU insisted on
establishment as a precondition, which renders this article not
applicable to the cross-border supply of new financial services.
Open-mindedness towards new services does not extend beyond financial
services in the TCA. The EU and the UK have both scheduled a
wide-ranging general derogation[4] for any measures with respect to the provision of new services other than those already classified in the United Nations Provisional Central Product Classification 1991.[5] This means that both parties retain full regulatory flexibility in areas affected by emerging technologies.
Selected Services Sectors
a. Transportation Services
The TCA hits air and road transport providers particularly hard. Air
traffic rights are reduced to bilateral point-to-point flights between
airports in the UK and the EU, respectively (what are referred to as the
3rd and 4th freedom of the air). Hence, onward
journeys are no longer possible, neither to/from additional destinations
outside of the UK and the EU nor, of course, flights between two EU
airports. For comparison, the EU-US Open Skies agreement does provide
for 5th freedom rights (i.e. onward legs) for qualifying carriers. As
these air traffic rights are hardly compatible with airlines’ business
model these days, some UK airlines have established, at no small cost,
separate legal entities in the EU. This was necessary in order to meet
the requirements under the Substantial Ownership and Effective Control
(SOEC) framework which, based upon the Chicago Convention of 1944 and
the International Air Transport Agreement, is followed globally by the
airline industry to allocate air traffic rights. Some airlines with a
mixed ownership structure have taken steps to ensure that they remain EU
community carriers (and continue to benefit from the European Common
Aviation Area) by stripping UK investors of their voting rights.
The situation with respect to the reduced scope for freely
configuring journeys is similar in the realm of road haulage. In
contrast to airlines, UK road hauliers may add one additional stop
within the EU to take on cargo for the return journey; nonetheless,
international road transportation is in principle limited to
point-to-point routes.
Unlike aviation and road transport, which are separate Headings in
the TCA within Part Two, international maritime transport services are
included within the ‘services and investment’ chapter in Heading One
(Trade). The provisions are liberal, stipulating the principle of
non-discriminatory, unrestricted access to international maritime
markets, i.e. ports, port infrastructure and maritime auxiliary services
including vital ancillary activities such as feeder traffic and
container re-positioning. These provisions are valuable as the
overwhelming majority of international merchandise trade, in volume
terms, is moved by seaborne transport. That said, domestic maritime
cabotage (i.e. transporting goods/people within a country’s territory by
a provider from another country) is excluded from the scope of the TCA,
which is not surprising as it is a sensitive area for many countries.
b. Financial Services
There is little by way of agreement on financial services except for
non-discrimination (Most Favoured Nation treatment), free movement of
capital and co-operation on cybersecurity. Many of the decisions that
would determine the actual conditions for trading certain services have
been postponed, especially in regard to the ability of financial
services firms to provide financial products and services cross-border.
Passporting rights are lost. The sector is hoping that the EU will
grant ‘equivalence’ status in a number of areas, which would enable
financial businesses to continue their current activities in many parts
of the sector. However, equivalence is not as good as passporting as it
is normally granted for a limited duration and can be revoked at 30
days’ notice. As such, equivalence provides firms with much less
certainty. The EU is currently in the process of reviewing equivalence
decisions in 28 areas but, according to EU documents, the European
Commission is currently awaiting further clarifications regarding UK
regulations, before decisions can be finalised.
Akin to the situation in civil aviation, many financial services
providers have shifted substantial parts of their business to affiliates
established inside the Single Market, located typically in Frankfurt.
Advocates in Germany who promote Frankfurt as a financial centre claim
that under the terms of the TCA, around 40% of the business that banks
transact out of London with EU partners will need to relocate, and the
fate of another 20% will depend on the outcomes of the pending
equivalence decisions.[6]
c. Entry and temporary stay of business persons and Mutual Recognition of Professional Qualifications
The TCA brings the free movement of citizens between the EU and the
UK, including participation in national labour markets, to an end. This
is likely to have a substantial impact on UK and EU businesses. For as
long as the UK had been part of the EU Single Market, the UK economy has
benefitted from an influx of workers with wide-ranging skills. In
particular, many skill-intensive services sectors have come to rely
crucially on hiring talent from other EU countries, and many
low-skill-intensive sectors also relied on workers from other EU
countries. What was agreed under the TCA was to revert to the level of
commitments on the temporary movement of personnel for business
purposes, provisions that can also be found in other Free Trade
Agreements (FTAs) the EU has signed. Under such provisions, non-EU
workers and their dependents are allowed to enter and stay inside the EU
only under specified conditions such as limited permissible business
category and limited duration of stay.
The temporary stay of personnel for business purposes is categorized
into five types: business visitors for establishment purposes,
intra-corporate transferees, short-term business visitors, contractual
services suppliers and independent professionals. The permissible
length of stay may differ across these five categories. There are also
additional requirements such as visas, work permits and potentially
economic needs tests. These requirements, which again may differ
depending on the type of business personnel and the sector, need to be
met and will depend on the reservations (i.e. the excluded or restricted
categories) which are made in the agreement (TCA Annexes SERVIN-3,
SERVIN-4, and SERVIN-5). The reservations vary across Member States and
will need to be met for every jurisdiction in which the worker hoped to
discharge the service.
Thus the temporary movement of business people is subject to new
restrictions that curtail mobility and render it more costly compared to
the Single Market; at the same time, however, the TCA provisions are a
clear improvement relative to MFN treatment that would have been the
default in a ‘No Deal’ scenario under the WTO/GATS framework; for
example, the categories of independent professionals, short-term
business visitors and graduate trainees do not exist under the WTO/GATS.
Also, the TCA facilitates short-term business trips and includes
liberal provisions for intra-corporate transferees (and their
dependents) as well as other classes of temporary movers. This is going
to be useful for large businesses, especially for multinational
enterprises, and for high-skilled professionals. Small and medium-sized
enterprises, however, are much less likely to benefit from these rules,
partly because of the bureaucratic fixed costs of compliance with rules
is more difficult to shoulder for them, and partly because they do not
typically have affiliate enterprises abroad to which staff could be
posted as intra-corporate transferees.
As for the EU’s reservations, UK services suppliers will need to
carefully check both reservations made both at the EU-wide level as well
as at the EU member states level. There are different regulatory
regimes across the 27 member states, and thus the rules for temporary
movement will be country-specific. For example, even though the TCA
stipulates a 90-day visa-free presence for short-term business visitors
in any six-month period (Article SERVIN.4.3.4), a number of EU Member
States have included reservations requiring work permits in many
sectors. In addition, economic needs tests, which make market access
conditional on certain economic criteria defining the host country’s
need for foreign workers, are required in many sectors with regard to
contractual services suppliers and independent professionals. For
instance, 14 of the 27 EU Member States apply economic needs tests to
foreign independent service professionals for legal advisory services in
public international law and home jurisdiction law.
The current provisions in the TCA effectively appear to favour the
exchange and inflow of high-skilled professionals. In turn, this may
make it harder to realise the gains from trade with partner economies
wishing to send lower-skilled people to the UK. While the exchange of
high-skilled professionals, and the local discharge of their services,
is clearly beneficial for the UK, there is a bias against the movement
of lower-skilled workers, which may adversely impact on the
competitiveness and supply of services internally in the UK by domestic
firms.
A different issue is that the UK has not made any commitments on
contractual services suppliers and independent professionals working in
medical services (e.g. medical and dental services, mid-wives services,
nurses, physiotherapists and paramedical services). Given the known
shortages of medical staff in the UK, this lack of commitment
constitutes a missed opportunity. It means that filling the vacancies
for medical professionals in the UK will have to be undertaken using the
standard immigration rules applying to all third countries, and there
is no provision via the TCA for enhanced access for such professionals
from the EU.
One of the significant shortfalls of the TCA is the arrangements for
the mutual recognition of professional qualifications (MRPQ), as set out
in Annex SERVIN-6. MRPQ allows people with professional qualifications
obtained in one country to have these qualifications recognised in
another. These rules are extremely important to allow professionals
qualified in one country to work or provide a service in another
country. At the end of the transition period, access to the EU’s
simplified or automatic recognition of professional qualifications in a
range of professions such as midwives, doctors, or architects falls
away.
Under the TCA, qualifications will need to be regained in individual
EU member states on the terms of locally applicable rules like the MRPQ
scheme under CETA (Chapter 11 and Annex 11-A: Guideline for MRA). The
TCA leaves open the possibility of future agreements on the mutual
recognition of qualifications with individual member states; however,
this process is optional and on a profession-by-profession basis, and is
therefore resource-intensive, uncertain and piece-meal. The lack of
mutual recognition of professional qualification may have a significant
impact on the ability of both manufacturing and services firms to offer
their services in the EU market. It may also affect the ability of UK
firms to source professional services from the EU or EU residents.
Digital Trade and Data Flows
The rise of the digital economy raises a range of complex issues for
trade relations and agreements between countries. Digital trade can
refer not only to digitally-enabled transactions of goods and services
that can either be digitally or physically delivered, but also
data-based services (e.g. the Internet of Things, cloud computing,
social platforms) where data itself may be treated as an asset. Digital
trade involves consumers, firms and governments in complex ways.
Digitisation affects goods and services in terms of how they may be
produced, delivered, as well as the cost of delivery/transport (such as
route planning, cargo and shipment tracking, drones, intelligent storage
and inventory management), how they can be sourced / purchased, and the
monitoring of supply chains.
The TCA conceives of digital trade as “trade enabled by electronic
means” (Article DIGIT.2). The substantive provisions on digital trade
included in the TCA range from a prohibition of customs duties on
electronic transmissions to allowing for electronic authentication and
contracts. These suggest that both digitally enabled and delivered
services can benefit from these disciplines as well as certain parts of
e-commerce.
Underpinning digital trade is the movement of data across borders,
which needs to be regulated as it raises issues around privacy, consumer
protection, cybersecurity and potentially, competition. This raises the
challenge of balancing the need for cross-border data flows, which may
facilitate the provision of goods and services, with safeguarding the
aforementioned public policy objectives. Given that 11.5% of global
cross-border data flows go through the UK, of which 75% is with the EU[7],
the economic and social impact of the regulatory arrangements regarding
the free flow of data and data protection between the EU and UK cannot
be underestimated.
The UK claims that, for the first time in an EU FTA, data flow
provisions have been included as part of the FTA. This is true insofar
as Article DIGIT.6.1.1 includes disciplines against such measures as
those requiring data localization or local computing facilities.
However, the pursuit of public policy objectives can override these
disciplines, provided that policy interventions do not constitute
arbitrary discrimination. More important in practice, and independent
from the TCA, is the ability of UK businesses to transfer personal data
to/from the EU, which will depend on an adequacy decision to be taken by
the European Commission. Whilst the assessment by the Commission is
still ongoing, a six month ‘bridging’ period currently allows for the
continued flow of data. It is estimated that failure to secure a data
adequacy decision from the EU at the end of the bridging period would
cost UK businesses approximately £1-1.6 billion.[8]
The disciplines against measures that could impede cross-border flows
are subject to a review mechanism within three years (Article
DIGIT.6.2). This article mirrors the EU’s draft text, proposed by the EU
to retain policy flexibility. Either party may request a review of the
list of disciplines and request changes; however, it is important to
recall that decisions to change TCA provisions can only be taken by
mutual consent by the Partnership Council.[9]
Since the digital trade provisions in the TCA are largely based upon
the EU’s draft agreement, the TCA often mirrors the EU’s digital trade
policy. In comparison, under CEPA, which is notionally the UK’s first
bespoke FTA, the UK departed from EU-style e-commerce provisions, which
tend to put more emphasis on achieving public policy objectives.
Instead, CEPA shifts its policy stance towards an Asia-Pacific style (or
US style) digital trade policy, which focuses more on market forces and
innovation (see Table 1). For example, CEPA introduced provisions
against restrictions on free data flow and data localization that did
not exist under JEEPA. CEPA also expanded the scope of disciplines so as
to cover encryption and products using cryptography and open government
data initiatives, akin to the Japan-US Digital Trade Agreement. In
summary, the scope of digital trade provisions is broader and more
business-oriented in CEPA relative to the TCA, which in turn reflects
more strongly public policy objectives.
A broader synopsis of e-commerce provisions across three major
agreements, covering every bilateral pair in the triad formed by the UK,
the EU and Japan, is provided in Table 1. The Table compares the TCA
(middle column) against provisions in JEEPA (first column) and the
UK-Japan CEPA (third column), respectively. Table 1 elucidates in
particular the different weight that these agreements accord to public
policy considerations. JEEPA adopts a strong notion of public policy
objectives reflecting the EU’s digital trade policy, compared to the
other two agreements with UK involvement. The coverage of digital trade
provisions in JEEPA is narrower compared to the TCA and CEPA. The TCA
takes a slightly softer approach, as is evident, for example, from the
provisions on source code (DIGIT. 12) in comparison with JEEPA (Article
8.73). CEPA, in turn, reflects an even lighter approach on public policy
objectives than the TCA.
Table 1: A Comparison of the major e-commerce provisions under TCA, the JEEPA and the CEPA
|
JEEPA |
EU-UK Trade and Cooperation Agreement |
CEPA |
| Non-discrimination against digital products |
No |
No |
No |
| Free data flow |
No
*EU’s adequate decision of Data privacy as a condition of free data flow |
Yes
Article DIGIT.6. Cross-border data flows (6.1)
*Free data flow based on right to regulate (DIGIT 3) and exceptions (DIGIT 4).
*The review clause (6.2)
*Primacy of protection of personal data and privacy over free data flow (DIGIT 7) |
Yes
Article 8.84: Cross-border transfer of information by electronic means
*Some limited exceptions for public policy measures, same as CPTPP and US-Japan |
| Data protection and privacy, consumer protection |
Yes
Article: 8.88: Consumer protection
*Plus the EU-Japan data adequacy agreement (January 2019) |
Yes
-Article DIGIT13: Consumer trust
-Article DIGIT 14: Unsolicited direct marketing communications
-Article DIGIT7: Protection of personal data and privacy
*Plus an adequacy agreement (EU’s adequacy decision still on the process) |
Yes
-Article 8.79: Consumer protection
-Article 8.80: Personal information protection
*Plus adequacy agreements between the UK and Japan? |
| Data localisation |
No |
Yes
Article DIGIT.6: Cross-border data flows (6.1)
*Ban on data localisation requirements based on right to regulate (DIGIT 3) and exceptions (DIGIT 4).
*The review clause (6.2)
*Primacy of protection of personal data and privacy over free data flow (DIGIT 7) |
Yes
Article 8.85:
*Ban on data localisation requirements with safeguarding measures necessary for a legitimate public policy. |
| Source code |
Yes
Article 8.73: Source Code
*Ban on forced disclosure of source code and software with safeguarding exceptions. |
Yes
DIGIT. 12: Transfer of or access to source code
*Ban on transfer of or access to source code of software (the scope is narrower than CEPA) with safeguarding exceptions. |
Yes
Article 8.73: Source Code
*Ban on mandatory disclosure of source code, software and related
algorithms with safeguarding exceptions. The scope is widen to
algorithms. |
| Encryption / products using cryptography |
No |
No |
Yes
Article 8.86: Commercial information and communication technology products that use cryptography |
| Open government data initiatives |
No |
Yes |
Yes
Article 8.82: Open government data
*Replicate Japan-US |
Source: authors’ elaboration. The information for JEEPA and CEPA is taken from Table 4 of UKTPO Briefing Paper 50
“The UK-Japan Comprehensive Economic Partnership Agreement: Lessons for
the UK’s Future Trade Agreements”, which also covers CPTPP and the
Japan-US Digital Trade Agreement.
Note 1: “Yes” indicates that there are provisions for the issue
at hand. As the shades of grey in cells containing ‘Yes’ becomes
lighter, reflection of public policy objective (e.g. inclusion of
provisions to retain government interventions to safeguard safely,
security and privacy) becomes weaker: ‘Yes’ (No restriction with clear
and strong safeguard provisions)→ ‘Yes’ (No restriction with safeguard
provisions in detail), →’Yes’ (No restriction with limited safeguard
provisions) → ‘Yes’ (No restriction with no/very limited safeguard
provisions)
Note 2: “No” indicates that there is no provision for that issue.
Conclusion
The services sector constitutes a substantial part of the UK economy.
The UKTPO has for a long time been documenting the significance of
services trade for the UK and the associated benefits of an ambitious
deal for services trade.[10]
Despite the fact that the UK enjoys a comparative advantage in
producing and exporting services and that EU economies are key markets
for the UK, services never seemed to be a priority for the UK Government
during the entire process of the negotiations. Yet beauty is in the eye
of the beholder, and many will be glad that, on Christmas Eve, a deal
could be agreed at all. But all told, the services provisions in the TCA
are thin. In a few areas where it seems uncontroversial, such as
telecommunications and digital trade, the agreement is ambitious; but at
the same time, for many important services sectors, the TCA rules are a
far cry from the trading conditions under the EU Single Market for
services.
The conceptual switch to trading services under host country rules
has severe implications for air transportation, financial services and,
because of reduced mutual recognition of qualifications, many
professional and business services. A general ramification is that
services trade with the EU may have to rely increasingly on commercial
presence rather than cross-border supply. This shift, though by no means
costless, will be relatively easier for large businesses that may
already have affiliate enterprises within the EU-27.
Yet, the conclusion of the TCA only marks the beginning of the next
negotiation. One feature of the services provisions in the TCA is their
incompleteness in many areas. Financial services still need to be worked
out, data adequacy is pending, and there is a regulator-led process for
the mutual recognition of qualifications in the future. Once the dust
has settled, there are opportunities over the coming months and years to
fill these gaps in a constructive way. Given the state of the economy
after COVID-19, any boost from trade in services should be welcome.
Footnotes
[1] ONS Pink Book 2020, Chapter 9.
[2]
In international law, market access refers to the conditions under
which foreign services suppliers may enter the domestic market, whereas
national treatment requires extending the same conditions to foreign and
domestic services suppliers in like situations post-entry.
[3]
Such as Most Favored Nation (MFN) treatment, the prohibition of local
presence requirements (for cross-border services), the prohibition of
restrictions on senior management and boards of directors (for
investment), the prohibition of performance requirements (for
investment), and obligations for legal services (for cross-border
services).
[4]
Covering investment liberalisation – market access, national treatment,
senior management and boards of directors, performance requirements and
cross-border trade in services – market access, national treatment,
local presence.
[5] Annex SERVIN-2, Reservation No. 23 for EU and Reservation No. 15 for the UK.
[6] Hubertus Väth quoted in Frankfurter Allgemeine Zeitung on 28 December 2010: https://www.faz.net/aktuell/finanzen/brexit-bleibt-fuer-die-banken-trotz-handelsabkommen-hart-17121588.html
[7] TechUK website: UK and EU agree a path forward to achieve the free flow of personal data
[8]Patel, O and McCann, D. (2020). The Cost of Data Inadequacy: The economic impacts of the UK failing to secure an EU data adequacy decision. ucl_nef_data-inadequacy.pdf
[9] See our companion Briefing Paper 54, which describes in greater detail the governance structures in the TCA.
[10] See for example: “What about the remaining 80 percent – services?” UKTPO blog, 05 July 2018 and “The curious absence of services trade” UKTPO blog, 14 December 2016.
UKTPO