Cleared from scrutiny; update requested; drawn to the attention of the Business, Energy and Industrial Strategy and Exiting the European Union Committees
Proposal for a Directive of the European Parliament and of the Council on a proportionality test before adoption of new regulation of professions
Articles 46, 53(1) and 62 TFEU
Business, Energy and Industrial Strategy
(38451), 5281/17 + ADDs 1–2, COM(16) 822
5.1The European Commission has proposed a Directive which would require Member States to conduct a “proportionality test” when they modify the rules which apply to regulated professions, the aim being to improve transparency and compliance with the Professional Qualifications Directive. The Government lobbied the Commission to introduce the proposal, which it supported in its Explanatory Memorandum.
5.2On 30 November 2017 the Parliamentary Under Secretary at the Department of Business, Energy and Industrial Strategy (Lord Henley) wrote to update the Committee regarding a General Approach which had been agreed by the Member States, in line with the scrutiny waiver granted by the Committee. In a follow-up letter on 29 March 2018, the Minister now informs us that trilogue negotiations quickly reached agreement on a compromise text. As the text is in line with UK interests, he asks the Committee to clear the file from scrutiny, so that the Government can support its adoption.
5.3The issue of the mutual recognition of professional qualifications is relevant in the context of the UK’s withdrawal from the European Union, and legal text has recently been agreed by both parties in the latest version of the draft Withdrawal Agreement. Looking beyond the exit agreement, the Prime Minister indicated the Government’s preference to retain reciprocal recognition of qualifications in her Mansion House speech, and the European Council’s guidelines on the future economic partnership also express a preference to retain some form of recognition of qualifications, alongside “ambitious provisions” regarding movement of natural persons.
5.4We thank the Minister for updating the Committee regarding the outcome of trilogue negotiations. We note that the compromise text makes a number of minor technical changes whose overall effect is to clarify the scope of the Directive and how the proportionality test will function. These do not alter the Government’s assessment that the Directive will encourage Member States to be more proportionate in their regulation of professions, which has the potential to benefit the UK post-exit, particularly where individual Member States’ regulation of professions does not differentiate between EU and third country nationals. Nonetheless, we consider the likely benefits of the proposed Directive to be modest: it will merely require Member States to assess the proportionality of regulatory measures and to share these assessments, and does not require any action to be taken when a Member State or other stakeholder challenges a specific provision or test, or require Member States to reduce the restrictiveness of their regulations.
5.5Significant progress has been made on the recognition of professional qualifications in the context of the withdrawal negotiations. The agreed text in the draft Withdrawal Agreement regarding professional qualifications (Articles 25–27) establishes that, subject to its agreement, existing recognitions of UK and EU27 nationals’ qualifications will be protected and procedures which are ongoing at the end of the transition period will be concluded in accordance with current rules. UK professionals’ qualifications will be recognised in the EU27 country in which they have exercised this right.
5.6Regarding the future economic partnership, both the UK and the EU have indicated that they wish to retain some form of continued recognition of professional qualifications. We consider it noteworthy that European Commission data shows that the UK has recognised a far greater number of EU27 nationals’ qualifications than vice-versa. This imbalance appears to be attributable to the UK’s reliance on a supply of qualified nurses, doctors and teachers from the EU. The EU is therefore likely to have a strong interest in retaining ambitious arrangements in this policy area. We note its linkage of this issue in its guidelines to that of movement of natural persons. The Government also has an interest in continued recognition of qualifications: in addition to the UK public sector’s current reliance on EU professionals, UK businesses with an international presence benefit from their employees being able to practice in different countries (although the ease of doing so varies from country to country).
5.7We note that the EU’s existing bilateral arrangements with third countries outside EFTA/the EEA, including the relevant chapter of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which is the most ambitious such arrangement to date, do not currently provide for significant levels of reciprocal recognition of qualifications.
5.8If new arrangements on this issue are not agreed with the EU as part of the future economic partnership, the current system will cease to apply from the end of the transition period or, in the event of a non-negotiated exit, from exit day. UK professionals’ applications for recognition of their qualifications in the EU27, and vice-versa, would proceed thereafter on the basis of host country law. The harmonised regimes for lawyers, auditors and accountants would cease to apply, as would the system of automatic recognition for doctors, general care nurses, dental practitioners, veterinary surgeons, pharmacists and architects. UK professionals who temporarily provide cross-border services within the EU on the basis of their home country qualification would in future be subject to host country rules, which would in some cases prevent them from continuing to do so. These changes would erect new non-tariff barriers to services trade via cross-border supply, commercial presence, and movement of natural persons.
5.9We now clear the proposal from scrutiny. For completeness, we ask the Government to provide us with an update regarding any types of professional qualification that have been excluded from the scope of the professional qualifications provisions in the draft Withdrawal Agreement, including an explanation of why they were excluded and an assessment of the practical implications of these exclusions, by 23 May 2018. We draw this report to the attention of the Business, Energy and Industrial Strategy and Exiting the European Union Select Committees.
5.10The Mutual Recognition of Professional Qualifications Directive provides for:
5.11Alongside the Professional Qualifications Directive systems, EU legislation applies to certain professions including sailors and seafarers, aircraft controllers, insurance intermediaries, commercial agents and activities involving toxic products. Recognition of qualifications related to the legal profession is regulated by two Directives, under which lawyers qualified in one Member State may practice the profession in another Member State by way of temporary provision of services or permanent establishment.
5.12An update of the Directive in 2013 provided clarification that the 2005 Directive allowed for the obligation that professionals have the necessary language skills to practice, and that responsible authorities, such as the NHS, were permitted to apply language controls after recognition of professional qualifications had taken place.
5.13The 2013 update of the Professional Qualifications Directive also introduced a mutual evaluation exercise between the Member States of all their regulated professions. This exercise found that assessing the proportionality of new measures presented a challenge to many Member States, and had not prevented the introduction of new restrictive measures without, or with only very superficial, assessment of proportionality.
5.14On 10 January 2017, to address these concerns, the Commission proposed as part of a wider services package a Directive for a proportionality test, which was to be conducted by Member States before they introduced new national regulatory measures or amended existing provisions. The Directive only applies to those professions within the scope of the Professional Qualifications Directive.
5.15The test requires Member States to assess whether proposed legislative, regulatory or administrative provisions that restrict access to or pursuit of a regulated profession are necessary and proportionate. Relevant stakeholders must be given the opportunity to comment on the proposed regulatory provisions. The results of any proportionality tests conducted should be entered into the database of regulated professions, and are to be made publicly available by the Commission. Member States and other interested parties may then submit comments to the Commission or to the Member State which has notified the provisions. The decision of what to regulate, and how, is left to Member States.
5.16In an Explanatory Memorandum submitted on 30 January 2017, the Parliamentary Under Secretary of State at the Department of Business, Energy and Industrial Strategy (Lord Prior) indicated that the Government had advocated the bringing forward of this proposal, and said that it would reduce barriers to cross-border trade “by ensuring a more transparent and thorough process of evaluation when making new regulations restricting access to a profession”. In a subsequent letter he informed the Committee that even after the UK left the EU, businesses and professionals would continue to benefit from the removal of disproportionate barriers, “particularly where Member States’ professional regulation does not discriminate between EU and third country nationals”.
5.17A General Approach was agreed by the Member States at Competitiveness Council on 29–30 May 2017. This did not constitute a scrutiny override because the Committee granted the Government a scrutiny waiver for the file during the General Election period. We requested additional information regarding the detail of the General Approach in its report on 13 November 2017.
5.18The Minister provided an update regarding the General Approach that was agreed at Competitiveness Council. He judged that the original proposal has not been significantly weakened by the amendments.
5.19The Minister summarised some of the key compromises which had been made:
5.20Regarding the European Parliament, the Minister stated that the rapporteur’s draft report was published in June and the Internal Market and Consumer Protection (IMCO) Committee considered its compromise amendments on 21 November. The Minister observed that there were differing views over whether healthcare professionals and cross-border service provision should be covered by the Proportionality Directive.
5.21In response to the Minister’s predecessor’s observation that WTO rules did not mean that a future UK-EU agreement on mutual recognition of professional qualifications would not have to be contained in an FTA, but that an FTA might be necessary to cover certain associated provisions, we sought further clarification regarding what type of provisions would have to be contained in an FTA. The Minister did not answer this question directly, but made the following general observation:
“The current arrangements underpinning the mutual recognition of professional qualifications are a key element of the EU’s single market for services. This is a broad system, with links to a wide range of sector-specific frameworks (for example, on legal services) and cross-cutting regulatory frameworks (for example, the Services Directive). The Prime Minister has been clear that we will pursue a bold, ambitious and comprehensive Free Trade Agreement, allowing for the freest possible trade in services with the EU. The precise shape of that agreement will be a matter for negotiation.”
5.22The Minister has written to the Committee to report rapid progress in trilogues, resulting in a compromise text that reflects the General Approach that was agreed by the Council as well as UK objectives. He asks that we clear the proposal from scrutiny ahead of a forthcoming Council.
5.23The chief developments in trilogues included:
5.24The Minister states that he considers the final text to be a compromise “that has stayed true to the Directive’s objectives, which the UK has supported from the inception of this proposal”.
5.25The Government’s sectoral analysis of the implications of Brexit for Professional and Business Services states that since 1997, over 26,000 UK qualifications have been recognised on a permanent basis in other EU countries. Over the same period, over 120,000 qualifications from other EU countries have been recognised on a permanent basis in the UK. A briefing by the British Institute of International and Comparative Law reports that between 2013 and 2015 the UK reported 51,800 positive recognition decisions; over 20,200 for nurses, followed by 13,500 for secondary school teachers and 8,500 for doctors. Table 1 illustrates these figures.
Table 1: Total number of decisions by host country
Source: European Commission database on regulated professions
5.26The data show that the UK is almost unique within the EU in term of the volumes of professional qualifications that it recognises (per capita, Belgium appears to be the only state issuing comparable levels of recognitions). Given that nurses, secondary school teachers and doctors account for over 80% of the positive decisions, it appears that this imbalance can principally be attributed to the reliance of certain sectors of the UK economy on labour from other countries for recruitment. Additional data on the Commission’s website show that in other respects the UK is middle-ranking in terms of the proportion of positive decisions that it issues — the proportion of negative decisions is low across the system — as well as the speed with which it processes requests. The UK issues a relatively high proportion of positive decisions “without compensatory measures”.
5.27In evidence given to a House of Lords report, Brexit: trade in non-financial services, KPMG highlighted the dependence of regulated PBS, such as law and accountancy, upon “the level of professional mobility—i.e. mutual recognition of qualifications, registration, and licensing for regulated professions”. It said that “loss of mutual recognition would hamper the mobility of [firms’] professionals.” In the same report, the Professional and Business Services Council accepted that the Professional Qualifications Directive could be better implemented, but said that it was important that leaving the Single Market did “not result in currently recognised qualifications becoming unrecognised”. Industry representatives from the NHS Confederation, the Royal Institute of British Architects, and accountancy and audit, also called for continued mutual recognition of qualifications.
5.28In the absence of alternative arrangements, when the UK leaves the EU, both the Professional Qualifications Directives and sectoral legislation regarding other professions will cease to apply. Member States will process the requests of UK nationals for recognition of their professional qualifications in line with national legislation. The deterioration in access will be significantly greater in those professions to which automatic recognition applied (e.g. doctors, nurses, architects), or in which specific sectoral regimes for recognition of qualifications existed (e.g. lawyers, accountants, auditors).
5.29In addition, professionals who provide cross-border services on a temporary basis to the EU27 or UK from one another’s territory on the basis of Title II of the Professional Qualifications Directive will no longer be able to do so. In relation to legal services specifically, the Article 50 Task Force’s slides on services noted that UK lawyers would no longer be guaranteed the freedom to establish or provide cross-border legal services using their home country title, and would no longer be guaranteed the freedom to set up law firms, agencies or branches in Member States. National rules would apply.
5.30Regarding recognition of professional qualifications, paragraph 32 of the negotiators’ Joint Report stated that:
“Decisions on recognition of qualifications granted to persons covered by the scope of the Withdrawal Agreement before the specified date in the host State and, for frontier workers, the State of work (either the UK or an EU27 Member State) under Title III of Directive 2005/36/EC (recognition of professional qualifications where the person concerned was exercising the freedom of establishment), Article 10 of Directive 98/5/EC (lawyers who gained admission to the host State profession and are allowed to practise under the host State title alongside their home State title) and Article 14 of Directive 2006/43/EC (approved statutory auditors) will be grandfathered. Recognition procedures under these Directives that are ongoing on the specified date, in respect of the persons covered, will be completed under Union law and will be grandfathered.”
5.31This proposal has been translated into legal text in the form of Chapter 3 (Professional qualifications) of the draft Withdrawal Agreement. All of the text in this chapter was highlighted as green, meaning that it was agreed at negotiators’ level and would only be subject to technical legal revisions in the following weeks. The key effects of this text are that a UK or EU27 national who has had his or her professional qualification recognised, in either the United Kingdom or the EU27 country where he or she currently resides or, for frontier workers, where he or she works, will be able to continue to rely on any recognition decision which has taken place before the end of the transition period, for the purpose of carrying out the professional activities linked to the use of those professional qualifications.
5.32In addition, if he or she has already applied for the recognition of his or her professional qualifications before the end of the transition period, his or her application will be processed domestically in accordance with the EU rules applicable when the application was made.
5.33This applies for recognitions of qualifications under the Professional Qualifications Directive (a very wide range of professions, including, those with harmonised minimum training conditions, including nurses, midwives, doctors, dental practitioners, pharmacists, architects and veterinary surgeons), those covered by the “general system”, such as teachers, translators and real estate agents; those covered by the lawyers’ Establishment Directive, the Statutory Audit Directive, and a Directive on intermediaries involved in trade and distribution of toxic products.
5.34Professions under specific legislation which are not referenced in the draft Withdrawal Agreement include insurance intermediaries, sailors, aircraft controllers, and other transport professions.
5.35Mutual recognition of professional qualifications which have not been confirmed or requested before the end of the transition period, and which are not therefore covered by the draft Withdrawal Agreement, is a matter for the future relationship, and as such, subject to negotiation. In her Mansion House speech on 2 March 2018, the Prime Minister said that:
“So we want to limit the number of barriers that could prevent UK firms from setting up in the EU and vice versa, and agree an appropriate labour mobility framework that enables UK businesses and self-employed professionals to travel to the EU to provide services to clients in person and that allows UK businesses to provide services to the EU over the phone or the internet. And we want to do the same for EU firms providing services to the UK.
“Given that UK qualifications are already recognised across the EU and vice versa — it would make sense to continue to recognise each other’s qualifications in the future”.
5.36The European Council’s guidelines for the framework for the future economic partnership state that:
“The future partnership should include ambitious provisions on movement of natural persons, based on full reciprocity and non-discrimination among Member States, and related areas such as coordination of social security and recognition of professional qualifications.”
5.37Some of the EU’s preferential trade agreements with third countries facilitate cooperation on professional qualifications:
First Report HC 301-I (2017–18) chapter 3 (13 November 2017); Thirty-third Report HC 71–xxxi (2016–17),(1 March 2017).
88 Proposal for a Directive of the European Parliament and of the Council on a proportionality test before adoption of new regulation of professions
89 Directive on the recognition of professional qualifications, as amended by Directive on the recognition of professional qualifications and administrative cooperation through the Internal Market Information System.
90 Explanatory Memorandum from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
91 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
92 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
93 HM Government, Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community highlighting the progress made (coloured version) in the negotiation round with the UK of 16–19 March 2018 ().
94 HM Gov, PM speech on our future economic partnership with the European Union ().
95 European Council, Guidelines — 23 March 2018 .
96 A by the British Institute of International and Comparative Law, based on European Commission data, reports that between 2013 and 2015 the UK reported 51,800 positive recognition decisions; over 20,200 for nurses, followed by 13,500 for secondary school teachers and 8,500 for doctors. The Government’s professional and business services sector states that “since 1997, over 26,000 UK qualifications have been recognised on a permanent basis in other EU countries. Over the same period, over 120,000 qualifications from other EU countries have been recognised on a permanent basis in the UK.”
97 Text of the Comprehensive Economic and Trade Agreement — .
98 For example, the draft Withdrawal Agreement makes no mention of on the mutual recognition of seafarers’ certificates issued by the Member States, which is addressed in a Task Force 50 . The Commission’s online of ‘recognition of professional qualifications in practice’ also references specific legislation on transport professions, insurance intermediaries and aircraft controllers, none of which are referenced in the draft Withdrawal Agreement.
99 Directive as amended by Directive .
100 See European Commission, Internal Market Directorate General, Recognition of professional qualifications in practice, temporary mobility .
101 Directive on the recognition of professional qualifications, as amended by Directive on the recognition of professional qualifications and administrative cooperation through the Internal Market Information System.
102 See recital 26 of Directive on the recognition of professional qualifications and administrative cooperation through the Internal Market Information System
103 Directive on the recognition of professional qualifications and administrative cooperation through the Internal Market Information System.
104 Proposal for a Directive of the European Parliament and of the Council on a proportionality test before adoption of new regulation of professions
105 Explanatory Memorandum from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
106 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee (28 March 2017).
107 First Report HC 301–i (2017–18) chapter 3 (13 November 2017).
108 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
109 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee )
Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
110 Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee Letter from the Minister, BEIS, to the Chair of the European Scrutiny Committee ().
111 HM Government, Professional and business services sector report ().
112 British Institute of International and Comparative Law, FAQ: Professional Qualifications after Brexit ().
113 The table is taken from the European Commission’s , cited in the British Institute of International and Comparative Law, FAQ: Professional Qualifications after Brexit ().
114 European Commission, Professional Qualifications (accessed 5 March 2018).
115 House of Lords, 18th Report of Session 2016–17, Brexit: trade in non-financial services, pp36–37 ().
116 NHS Confederation, Submission to the Lords EU Internal Market Sub-Committee on the inquiry Brexit: future trade between the UK and the EU ().
117 Royal Institute of British Architects (RIBA), Submission to the Lords EU Internal Market Sub-Committee on the inquiry Brexit: future trade between the UK and the EU ().
118 The Institute of Chartered Accountants in England and Wales (ICAEW), Submission to the House of Lords EU Internal Market Sub-Committee inquiry into the future of trade between the UK and the EU in non-financial services ().
119 European Commission, Article 50 task force, Internal preparatory discussions on the framework for the future relationship — services ().
120 HM Government, Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union ().
121 HM Government, Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community highlighting the progress made (coloured version) in the negotiation round with the UK of 16–19 March 2018 ().
122 European Commission — Fact Sheet, Questions & Answers: Publication of the draft Withdrawal Agreement between the European Union and the United Kingdom ().
123 Directive (EC) of the European Parliament and of the Council of 16 February 1998 to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained.
124 Directive (EU) of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts.
125 Directive (EEC) of 4 June 1974 on the attainment of freedom of establishment and freedom to provide services in respect of activities of self- employed persons and of intermediaries engaging in the trade and distribution of toxic products.
126 HM Government, PM speech on our future economic partnership with the European Union ().
127 European Council, Guidelines — 23 March 2018 .
128 Swiss Confederation, Agreement on the Free Movement of Persons .
129 Text of the Comprehensive Economic and Trade Agreement — .
Published: 24 April 2018