The UK-EU Trade and Cooperation Agreement: What does this mean for the provision of services?

28 January 2021

Author: Anna Wroe
Practice Area: Corporate - M&A
Sector: Brexit

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The services sector employees every 4 out of 5 workers across the UK. It is the world’s second largest exporter of services and the EU is the largest export recipient. Following the implementation of the UK-EU Trade and Cooperation Agreement (“TCA”) on 1 January 2021, the key question for a lot of UK service providers is, can we still provide services in the way we want to?

Unfortunately, there isn’t a straightforward answer to this. It will instead depend on the sector, member state and how the service is being delivered. Whilst the UK and EU agreed to a number of commitments on market access for services in the TCA, with its departure from the EU the UK no longer has an automatic right to provide services to the EU. Provisions in relation to services have been included, but they do not go much further than existing EU practice for third countries and include a number of barriers that will impede service providers to trade between the EU and UK.

Most notably, the level of access for UK services firms will instead vary from one member state to another and sector by sector.

TCA impact for trading services between the UK and the EU

Going forward, any UK business that provides services to the EU will need to consider a range of challenges. These will include changes to business travel, visa restrictions and recognised professional qualifications. Some will face sector specific rules but ultimately this will depend on the sector, member state and how the service is provided.

Whilst it is a far cry from the single market, the TCA does contain some non-discrimination provisions for the UK. These include a national treatment obligation, meaning businesses from the UK must be treated no less favourable than investors from their own country. In addition, there is also a most favoured nation treatment obligation, which would mean that if the UK or EU agree more favourable terms with another country in the future, these terms will automatically be extended to UK-EU trade.

The deal also includes a number of general provisions to support cross border services trade. For example, it includes commitments on local presence which bans requirements for parties to have to establish a local subsidiary before services can be provided in any particular state. It is important to be aware however that UK business owners may face restrictions on their ability to own, manage or direct a company registered in some member states. These may include limits on the amount of equity that can be held by non-nationals and additional requirements on the nationality or residency of directors. It is therefore recommended that businesses research the relevant member states national regulations before doing business in order to understand how best to operate.

The UK government has provided useful guidance on services to the EU, Switzerland, Norway, Iceland and Liechenstein, as well as country guides for each of the EU member states here.

Business travel between the UK and the EU

In relation to business travel, visa-free entry from the UK to the EU (and vice versa) for certain work purposes will be allowed for up to 90 days in a 180-day period, although there are restrictions on this, dependent on which member state you are working in.

Business travel is permitted on a short term basis, but is subject to a number of general restrictions. Independent professionals will need to hold a degree and have had six years’ experience to travel on any short term business trips. There are also restrictions at the member state level, some member states have put down reservations against certain listed activities. For example, any UK businesses that intend to provide insurance advisory services in Denmark will need an economic needs test along with a work permit. These restrictions do not apply if the business intends to provide the same insurance advisory services in France. If a business is caught in the wrong category, penalties can range from being refused entry to fines and challenges with future visa applications.

It is therefore recommended that employers should familiarise themselves with the business visitor rules of the UK and the relevant member states. Companies going forward should:

  • Track where their employees travel to;
  • How long they’re staying for; and
  • What activities they’re undertaking.

End of mutual recognition

One of the most significant absences from the agreement in relation to services is the mutual recognition of professional qualifications. Previously, whilst the UK was a member of the single market, professional qualifications in areas such as legal services, architecture and engineering in the UK by both UK national and EU citizens were recognised across the single market, sometimes automatically.

From 1 January, any individual who holds a professional qualification that hasn’t already been recognised as part of the Withdrawal Agreement, will typically need to have these qualifications recognised on a member state by member state basis. This adds a level of complexity to the provision of cross border services due to the varying levels of rules on qualifications in every state and sector. It will require different professional bodies coming together and negotiating profession by profession and member state by member state in order to agree a mutual recognition agreement.

The TCA provides a future framework for mutual recognition of professional qualifications through the Joint Partnership Council, introduced by the agreement on a case by case basis although there is no guarantee that arrangements will be agreed.

Business travel between the UK and Ireland

The Common Travel Area (“CTA”) between the UK (including Jersey, Guernsey and the Isle of Man) and Ireland remains in place. The CTA has existed since 1922 and is not and has never been reliant on Ireland or the UK’s membership of the EU. In response to Brexit, the Irish and UK governments signed a memorandum of understanding, reaffirming their commitment to maintaining the CTA in all circumstances. This memorandum is a commitment by both governments to ensure that the both country’s CTA rights and privileges continue to be protected. All Irish and British citizens will continue to have the same reciprocal rights associated with the CTA, including the right to work. Consequently, UK citizens will not require immigration permission from the Irish immigration authorities to travel to Ireland and will be able to work within the CTA without the need to obtain employment permits.

Conclusion

While some of the TCA's provisions in relation to services are welcome, they fall short of the principles of free movement of services and labour under the EU single market which UK businesses enjoyed with membership of the EU. The new arrangements have the potential to involve significant additional cost and complexity.

Navigating this new landscape will have implications across the UK economy more generally and the future of the export market remains uncertain.

For more information please contact the Corporate team at Carson McDowell.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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