Overcoming barriers to trade with the EU for services businesses

Author
Rohan Roy
Senior Policy Analyst | Business West
26th February 2021

Services account for around 80% of the UK economic output and the EU is the UK’s largest export market for services, accounting for 41% of all service exports (£123.7 billion). 

Under the EU Single Market for services, businesses from EU Member States benefit from two core principles: freedom to establish and freedom to provide or receive services cross-border. These commitments no longer exist under the TCA. Instead, UK businesses may supply services only according to rules prevailing in the receiving (host) country, and may also be subject to additional rules made by individual EU Member States. The result is a significant amount of change for UK businesses that want to provide services in EU member states. 

The TCA provisions set out in the Services and Investment chapter around the broad principles of the freedom to establish and allowing cross-border trade. However, the EU and individual member states have put entry conditions across huge areas of different services sectors. For trade in goods, once a product has been sold into the EU, it can be sold anywhere in the EU (it has entered circulation). This does not apply for services trade, which has to be done at a member state level. This is because services trade is more complicated, with trade occurring can be exchanged by firms moving abroad, by consumers moving abroad, by service professionals crossing borders or the service itself crossing borders in digital form. 

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.  There are also new rules across different sectors for UK businesses in relation to their ability and need to establish and run a business within the EU; the ability to provide services into the EU from the UK and the ability of EU consumers to buy commercial services from the UK.

Because of this degree of specificity of the new rules, for both the type of services sector which a business operates and the variation of rules on this sector by individual EU member states, UK businesses would be well advised to consult those with specific legal expertise in dealing with the EU country and sector in which they wish to trade. 

The country-of-origin principle for regulating the cross-border trade of financial services, known as ‘passporting’, will also no longer apply.

Three basic ways you can provide services:

  1. Travel to another country and do it in person.
  2. Do it over the Internet.
  3. Set up subsidiary or branch.

Travel to the EU 

If you’re travelling to the Schengen area (EU, Switzerland, Norway, Iceland or Liechtenstein) for less than 90 days in a 180-day period, you may be able to do some things without getting a visa or work permit, for example going to a business meeting.

You may need a visa, work permit or other documentation if you’re planning to stay for longer than 90 days in a 180-day period, or if you’ll be doing any of the following:

  • transferring from the UK branch of a company to a branch in a different country (‘intra-corporate transfer’), even for a short period of time
  • carrying out contracts to provide a service to a client in another country in which your employer has no presence
  • providing services in another country as a self-employed person

To Stay longer than the 90 days in 180 days, or to conduct certain business activities (listed below), you will need a visa. Visas are granted by individual countries, and so you will have to apply to the embassy or consulate of the country you are visiting. For countries inside the Schengen area, you can apply to a Schengen visa, which can allow you to travel to multiple countries. To make things more complicated, some member states have put down reservations against certain listed activities, while other members have a more liberal system that isn't captured by the deal. And if you get caught with the wrong category, then penalties range from being refused entry and the border through to fines and challenges with future visa applications.

This means that companies going forward will need to:

  1. Track who's going where.
  2. Track how long they're staying for.
  3. What activities they're undertaking while there.

Data 

The key question is whether data can flow between the UK and the EU, which requires ‘adequacy’. Currently data flows will continue as before, under a ‘grace period’ of four months, during which time the EU will decide whether the UK's data privacy regime is "adequate" for protected data to continue to flow. Analysts have speculated that it is likely that they will conclude that it is, however this isn’t guaranteed. Even if this does pass however, there is a high possibility of legal challenges to the international aspects of the EU's GDPR, which has already happened in the case of an EU-US agreement. There may also be the requirement to have a ‘data representative’ established in the EU. 

Over the next four months, companies should:

  1. Understand where their data is being stored.
  2. Understand if it’s protected data for GDPR purposes.
  3. Understand where it is flowing.
  4. Understand what processing is taking place and who is doing it.

 

Then they can explore whether or not to look into things like standard contractual clauses and binding corporate rules. T

Opening up a subsidiary/ branch 

One ramification of the TCA is that service suppliers could fall back on the option of creating a commercial presence in one of the Member States to serve the EU market. Regarding establishing a new subsidiary or branch, restrictions vary based on the level of regulation of the sector. For highly regulated sectors like financial services, accounting, auditing, legal and engineering then there are higher levels of protection, which again differs between member states. 

Carnets 

For certain services, equipment will need to be taken from the UK to the EU without it being sold. This applies, for instance for trade shows, technical assistance, repairs and touring bands. In this instance, carnets are required. Carnets are like a passport for goods and list items being taken into the EU so that on leaving, customs authorities can ensure that they have not been sold. Business West offers a carnet service with a 24 hour turn around.

Qualifications 

The TCA does not contain a Mutual Recognition of Professional Qualifications (MRPQ) although it does contain an agreed framework (similar to the CETA deal). This means that any individual who holds a professional qualification that hasn't already been recognised by an EU or EU member state body will not have any recourse to have their qualification recognised. 

For example, in architecture, the licenses of architects in the U.K. are no longer recognized as valid by 29 out of the 30 countries that make up the European Economic Area (as well as Switzerland). For the time being, those hoping to work with any EU or EEA country except Ireland will need to demonstrate their competency for practicing architecture on a country-by-country basis. 

Professional bodies will need to negotiate profession by profession and member state by member state to agree on mutual recognition agreements and then submit this to the Partnership Council and this will take significant time and energy. This represents a restriction of the ability of many companies to provide their services, and legal ramifications for providing services in the EU – which will not be covered by liability and insurance. This also has an obvious impact on employing EU-trained staff in the UK.

Immigration 

UK services will still employ non-UK labour. In order to do this, they need to consider two things. First, as above, whether their qualifications will apply in the UK. Second, the new immigration rules in the UK. The new immigration system treats EU and non-EU citizens equally (Irish citizens are treated separately under a separate common travel area).

These new rules mean that EU nationals will have to have an employer to sponsor their UK working visa, and the job must fulfil the skills and earnings criteria (£26,500). There is also a Global Talent route, which does not require migrants to be sponsored, but must demonstrate being a ‘leader’ in a particular field.  More information about these can be found here

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