SERVICES & INVESTMENT
The EU and the UK are major partners when it comes to trade in services and investment.
While the UK was an EU Member State, participating in the EU Single Market and benefitting from the free movement of persons and services, businesses could supply services freely across the EU. The UK benefitted from the EU’s Single Market ecosystem based on common rules, a single supervisory framework, and a common jurisdictional system.
What changes will occur on 1 January 2021?
As of 1 January, the UK will no longer benefit from the principles of free movement of persons, free provision of services and freedom of establishment.
As a result, UK service suppliers will lose their automatic right to offer services across the EU. They may need to establish themselves in the EU to continue operating. In any event, they must comply with the – often varying – host-country rules of each Member State, as they will no longer benefit from the ‘country-of-origin’ approach or ‘passporting’ concept, according to which authorisations issued by one Member State under EU rules enable access throughout the entire EU Single Market.
What is covered by the Trade and Cooperation Agreement?
The Agreement provides for a significant level of openness for trade in services and investment, going beyond the baseline provisions of the WTO’s General Agreement on Trade in Services (GATS), to which both the EU and the UK are parties, and commensurate with the commitments taken by the EU with other industrialised third countries throughout the world.
As in all its free trade agreements, the EU fully maintains the right to regulate its own markets.
Which sectors are covered by the Trade and Cooperation Agreement?
As required by the WTO’s General Agreement on Trade in Services (GATS), the Agreement has substantial sectoral coverage, including professional and business services (e.g. legal, auditing, architectural services), delivery and telecommunication services, computer-related and digital services, financial services, research and development services, most transport services and environmental services. Furthermore, the scope of the Agreement applies to investment in sectors other than services such as manufacturing, agriculture, forestry, fisheries, energy and other primary industries.
As in any free trade agreement negotiated by the EU, there are a number of exceptions to the scope of liberalisation: namely, public services and services of general interest; some transport services; as well as audiovisual services.
Under what conditions will EU service suppliers be able to operate in the UK and vice versa ?
The non-discrimination obligations of the Agreement ensure that service suppliers or investors from the EU will be treated no less favourably than UK operators in the UK, and vice-versa. This entitles them to receive more favourable treatment than that granted to service suppliers or investors of third countries without similar provisions in place.
Naturally, given that the UK will no longer be in the Single Market, all UK service suppliers and investors must abide by the domestic rules, procedures and authorisations applicable to their activities in the countries where they operate.
For UK service suppliers, this means complying with – often varying – host-country rules of each Member State, as they will no longer benefit from the ‘country-of-origin’ principle, mutual recognition or ‘passporting’.
The actual level of market access will depend on the way the service is supplied: whether it is supplied on a cross-border basis from the home country of the supplier, e.g. over the internet (‘mode 1′); supplied to the consumer in the country of the supplier, for example a tourist travelling abroad and purchasing services (‘mode 2′); supplied via a locally-established enterprise owned by the foreign service supplier (‘mode 3′), or through the temporary presence in the territory of another country by a service supplier who is a natural person (‘mode 4’).
In practice, the actual ability to supply a particular service or invest in a certain sector will also depend on specific reservations set out in the agreement, which may be imposed on UK service suppliers when supplying services in the EU in some sectors, and vice-versa.
The EU-UK Agreement also includes a forward-looking “most-favoured nation” clause that would allow the EU and the UK to claim any more favourable treatment granted by the UK or the EU respectively in their future agreements on trade in services and investment with other third countries – except in the area of financial services.
It also includes a review clause encouraging the parties to consider whether there are possibilities to improve trade in services and investment relations between the EU and the UK in the future – except in the area of financial services.
How easy will it be for professionals to travel between the EU and the UK under the Trade and Cooperation Agreement?
The UK has chosen to no longer allow the free movement of EU citizens to the UK. It also refused to include a chapter on mobility in the Agreement. These choices inevitably mean that business travel between the EU and the UK will no longer be as easy as it currently is.
Nonetheless, regarding the temporary movement of natural persons for business purposes (often refered to as ‘mode 4‘), the EU and the UK have agreed on a broad range of reciprocal commitments facilitating the ability of companies located in a Party to transfer certain employees, as intra-corporate transferees, to work in an associated company located in the other Party. As intra-corporate transferees constitute temporary migration, the maximum duration of such transfers is capped at three years. With respect to UK nationals transferred to the EU, this duration includes periods of mobility between Member States. This is in line with current EU practice with other third countries.
The EU-UK Agreement also facilitates the movement of “contractual service suppliers” or “independent professionals” to supply services under certain conditions. Business visitors not providing services will also be allowed short-term entry in order to carry out certain activities.
Does the Agreement provide for the recognition of professional qualifications?
As a member of the EU and the EU Single Market, UK nationals and EU citizens holding a qualification from the United Kingdom previously benefitted from a simplified – in some cases automatic – recognition regime in other EU countries, which allowed professionals such as doctors, nurses, dental practitioners, pharmacists, veterinary surgeons, lawyers, architects or engineers to supply services across the European Union, including in the United Kingdom.
As of 1 January, as a general rule, UK nationals, irrespective of where they acquired their qualifications, and EU citizens with qualifications acquired in the United Kingdom will need to have their qualifications recognised in the relevant Member State on the basis of each country’s existing individual rules applicable to the qualifications of third-country nationals as of the end of the transition period.
The Trade and Cooperation Agreement nevertheless foresees a mechanism whereby the EU and the UK may later agree, on a case-by-case basis and for specific professions, on additional arrangements for the mutual recognition of certain professional qualifications.
Will EU lawyers still be able to provide legal services in the UK and vice versa?
The EU and its Member States, and the UK will allow lawyers from the other Party to provide legal services relating specifically to the practice of international law and the law of the country where they are authorised under their “home” title.
However, it should be noted that EU law is not considered to be international law, but instead the law of the Member State in which EU lawyers are established or hold their “home title”.
Does the Agreement cover financial services?
The draft EU-UK Trade and Cooperation Agreement covers financial services in the same way as they are generally covered in the EU’s other FTAs with third countries.
In particular, the Agreement commits both parties to maintain their markets open for operators from the other Party seeking to supply services through establishment. The parties also commit to ensuring that internationally agreed standards in the financial services sector are implemented and applied in their territories. Both parties preserve their right to adopt or maintain measures for prudential reasons (‘prudential carve-out’), including in order to preserve financial stability and the integrity of financial markets. The parties will also aim to agree by March 2021 a Memorandum of Understanding establishing a framework for regulatory cooperation on financial services.
What about the equivalence decisions on financial services?
The Agreement does not include any elements pertaining to equivalence frameworks for financial services. These are unilateral decisions of each party and are not subject to negotiation.
The Commission has assessed the UK’s replies to the Commission’s equivalence questionnaires in 28 areas. A series of further clarifications will be needed, in particular regarding how the UK will diverge from EU frameworks after 31 December, how it will use its supervisory discretion regarding EU firms and how the UK’s temporary regimes will affect EU firms. For these reasons, the Commission cannot finalise its assessment of the UK’s equivalence in the 28 areas and therefore will not take decisions at this point in time. The assessments will continue. The Commission has taken note of the UK’s equivalence decisions announced in November, adopted in the UK’s interest. Similarly, the EU will consider equivalence when they are in the EU’s interest.