The new Trade and Cooperation Agreement between the UK and EU was agreed on Christmas Eve 2020 and provisionally enacted on January 1st, 2021. While it still needs to be ratified by the EU Parliament, it will govern trade and other cooperation between the two for the foreseeable future. But what do the changes mean in practice, particularly for the UK’s services sector, both in the immediate future and beyond?
What does the EU-UK TCA mean for my business?
Anyone trying to read the deal to try to work out what it means for their business is likely to be scratching their heads, not because of its length, but because of the way it is written.
The Trade and Cooperation Agreement comprises 416 pages of text and 832 pages of annexes, which cover a vast range of topics. 268 pages of the main text concern “Trade, transport, fisheries and other arrangements” and this section includes a 42 page chapter on “Service and investment” as well as related sections on digital services, capital movements, energy and transport. Each subsection begins with legal definitions of the words used within it, before describing the terms agreed with reference to the many annexes which provide further detail on what is included and excluded.
However, rather than simply list what type of economic activity is permitted across the EU, the text mostly defines what kind of activity are exempted from the national rules that each state sets for foreign business (such as requirement to establish a business within the state, prohibitions on permitted economic activity for foreign nationals and equity caps) – and there are also exemptions to the sectoral activities which are granted exemptions (e.g. tour guides are only exempted from work permit requirements if the tour started in the UK, some countries have time restrictions on that). The result is a lot of double-negatives, which makes it difficult to understand.
But there is a clear logic in this, because the primary purpose of the Single Market is to overcome barriers to trade between the countries inside it – and much of that is achieved by exempting individuals and legal entities of member states from the national rules that individual countries apply to those from non-member states.
The End of Exemptions
The Single Market is based on the concept of the freedom of movement of goods, capital and people, and the freedom to establish and provide services. Without these “four freedoms” it wouldn’t be a genuine Single Market, as each of these freedoms grants member state individuals and companies the automatic right to operate their business in other member states without the restrictions that member states normally impose on foreign individuals and companies.
Unlike the economies of individual countries, the Single Market is only a single market for the countries in it, which means that the benefit of membership is restricted to members. For any business outside it, it is not a single market, unless they have a legally registered entity within it. For individuals from non-member states, being entitled to work in one state doesn’t grant the automatic right to work in others.
Leaving the Single Market thus means ending the exemptions from national legislation of each EU member state which the UK previously enjoyed. As the former Prime Minister Theresa May eloquently explained in her speech at the second reading of the EU (Future Relationship) bill , “it is no longer the case that UK service providers have the automatic right to deliver services across the EU; they will have to abide by the individual rules of a member state.”
“I understand that if you’re a lawyer advising on UK law, in the Czech republic you will have to be resident, in Austria you will not have to be resident”Theresa May, House of Commons, 30 December 2020
This means that anyone wishing to understand the full implications of this trade deal for their own business will need to familiarise themselves with the rules for their sector in each country they trade in, unless the TCA clearly exempts their business from this need. Lawyers, accountants and other experts on such matters in those countries will be in high demand.
It also explains why you won’t find a comprehensive guide to interpreting the practical implication of the TCA for each industry. It is simply impossible to list them all with links to the relevant legislation each of the 30 EEA states (EU27 plus Norway, Iceland, and Liechtenstein).
General Observations on Selling Services into the EU
While it is impossible to provide full analysis of the implications of the new regime for each type of cross-border or investment-based economic activity for UK entities in the EEA, there are some broad generalisations we can make.
Contrary to claims that the agreement does not cover services, it does allow UK businesses and citizens to continue to provide many types of services into the EEA. However, the scope of permitted activities is limited to certain types of services and subject to many restrictions.
For many businesses there is a need for establishment in the country in which they want to deliver services and even those who deliver services remotely or digitally face such restrictions. Any UK citizen will also require a visa and work permit if they wish to seek payment for any services they deliver.
Travelling to the EU for Business purposes
The most significant consequence of ending freedom of movement of people is that UK citizens lose the automatic right to work across Europe. This means that British citizens who wish to carry out any type of business activity in any EU country will have to ascertain if a) they are eligible to make use of the visa-free travel scheme agreed in the TCA, or if b) they require a work permit and visa for the country in which they wish to work. As a rule of thumb, the main criteria for deciding which is apt, is whether the UK citizen wishes to get paid for their services and who they are being payed by.
The Visa-free Travel Scheme
The TCA grants visa free travel for three types of short term business visits, of which “the permissible length of stay shall be for a period of up to 90 days in any six-month period”.
The 3 types of activity are establishment of a business, intra-corporate transfers and other short-term business visits falling under a list of permitted activities outlined below (see Annex SERVIN-3.8). However as a caveat, some countries also impose additional requirements or restrictions, such as work permits, economic means testing or shorter periods of time under which such business visits are permitted on a visa-free basis (which are described as “non-conforming” measures in the TCA).
Permitted activities include scientific research, market research and design on the basis that the UK citizen is not seeking any payment from an EU client. Exceptions to this exemption include Austria where work permits and economic means testing is required even where no payment is being sought.
Attending meetings, conferences and trade fairs for B2B sales is permitted, but all B2C product sales and most service delivery is prohibited. You may attend training seminars, but not provide the training. You may meet and consult with business associates, but not seek payment for giving a consultation.
While cultural and artistic activity is not specifically mentioned, it appears that UK musician may perform for free, but to be paid, they need to have a work permit and visa, as this article by George Peretz QC on the row over post-Brexit visas for musicians explains. Painters and sculptors wishing to attend exhibitions of their work presumably fall under the trade exhibition exemption, and as sales to the public will be made by the local gallery rather than the artist seeking payment themselves.
A notable significant exception to this is after-sales and after-lease services requiring specialist knowledge for installation, repair or maintenance as well as training. This will be welcome by British manufacturers such as Rolls Royce and Otis, who derive a lot of their income from services, as well as producers of computer software. However, these exemptions are conditional on delivery of these services being a requirement of the contract or warrant, i.e. that payment for these services has to be part of the price of the product, not solicited afterwards. Several countries have lodged other reservations to this. Sweden, Austria, Cyprus and the Czech Republic require work permits, Finland may require a residents permit and Spain has other restrictions on the eligibility of the person carrying out the work.
Details of these can be found in Annex SERVIN-3 on business visits for establishment purposes, intra-corporate transfers and other short-term business visitors.
Visas for Contractual Service Suppliers and Independent Professionals
UK nationals and legal entities seeking to enter the EU for any other purposes than those listed above will a) have to apply for visas, b) satisfy the elligibility criteria and c) abide by the restrictions of the terms of the visas, which can last up to 12 months (but may be shorter).
The types of work covered by this visa are listed in Annex SERVIN-4 on Contractual Service suppliers and independent professionals. While the range of activities this covers is far more extensive than the aforementioned activities permitted short-term business visas, they are also subject to many more “non-conforming measures”, meaning that different countries have different additional requirements. In many cases, there is are needs for a work permit, an economic needs test and/or the need to prove that the individual is qualified to perform the work.
This annex is 21 pages long, which list the sectors and sub-sectors for contractual service suppliers (2 pages) and independent professionals (1 page), as well as a long list of “non-conforming measures” defining the exemptions and additional criteria of the individual member states (16 pages). It’s important to note that these reservation are in addition to those listed in Annex SERVIN-1 and SERVIN-2 on “Existing Measures” and “Future Measures”, which are 200 pages long.
The economic needs test generally refers to showing that the client needs to hire a non-EEA contractor as they are unable to source someone in the domestic economy. What is required to satisfy this can vary greatly from country to country. It may be as simple as referring to an officially held list of shortage professions or it may place a more onerous burden of proving such need on the employer, e.g. by showing lack of response to advertisements.
Are my Qualifications valid in the EU?
The practice of most professions on the lists in Annex SERVIN-4 is restricted to qualified persons only, so being able to prove you are qualified for the work is an important element of a visa application. However, while the TCA mentions mutual recognition of qualifications, it does not place any obligations on recognising them. This means British citizens will need to seek recognition of their qualifications in each country they wish to use them in. E.g. for a lawyer, this means that recognition of your UK legal qualifications in Ireland does not give you the automatic right to practice law in other EU states.
The ideal way to secure mutual recognition of professional qualifications would be via the Recognition Directive which grants automatic recognition across the EEA and Switzerland on the basis that it is an essential aspect of freedom of movement of services and people. This could be achieved by seeking to duplicate the bilateral treaty on Freedom Of Movement of people which the EU has with Switzerland, but that would require a shift of political will in the UK.
If the UK government is unable to secure mutual recognition of qualifications in future negotiations with the EU, then it should strive to make bilateral agreements with individual member states.
Mutual Recognition of Legal Judgements
Whilst a member of the EU, the UK was a popular location for resolving legal disputes between international companies in other EU states, e.g. if a US or Japanese company had an intellectual copyright dispute in Eastern Europe it would often chose to bring this to court in the UK for various reasons, not least of which that it gave its lawyers greater ability to follow the proceedings of the case in English.
Mutual recognition of legal judgements is covered by the Lugano Convention which the UK is no longer a signatory to, and is thus not covered by the TCA. The UK has the backing of the EFTA states in rejoining the Lugano Convention, and securing the backing of EU states should be among the urgent priorities in UK trade diplomacy in 2021. Whether this can be achieved is unclear as it appears that the EU is keen to seek a larger share of the lucrative legal services sector.
The effect of this on UK legal service is that the UK will cease to be an option for formally resolving legal disputes at court, and that may ultimately also lead to a reduction of the UK’s position as an arbitration centre in informal dispute resolution.
Beyond the TCA: Declarations and Ambitions for Closer Cooperation in Other Areas
In addition to the TCA, the UK and EU have also agreed a separate Security of Information Agreement and a Civil Nuclear Agreement, the latter of which replaces UK’s EURATOM treaty, as well as a series of Declarations concerning intended future cooperation on matters not covered by the TCA.
These Declarations notably include financial services, but the financial services industry is highly sceptical that it will be able to retain equivalence recognition, let alone reinstate passporting rights.
While these declarations are only expressions of intent and thus are of no immediate use, they matter because they clearly show that while this deal marks the end of the Brexit negotiations, it is not the end of negotiations between Britain and the EU. On the contrary, it is the beginning of a new phase in the relationship. The many blanks in the deal make it likely that this phase will be more akin to the relationship of Switzerland and the EU which has led to many bilateral treaties over the past 3 decades.