Policy options for future migration from the European Economic Area: Interim report Contents

5Other free trade options

88.Under free trade agreements there are a wide range of options for immigration policy—whether as part of an association agreement or a free trade agreement. This chapter explores some of those options, drawing on the examples of Canada’s free trade agreement (known as ‘CETA’), and Ukraine’s Association Agreement.

89.Any kind of ‘deep and comprehensive free trade agreement’ will, based on precedent, require at least a minimum of immigration provisions—mode 4, business visitor visas, tourist and students. The Government has recognised this in its proposals for the White Paper which refers to those minimum provisions. Beyond that, free trade agreements can potentially include a wide range of immigration options with different implications for market access.

90.A trade deal with the EU could be negotiated in line with existing off-the-peg arrangements, such as within an Association Agreement or as a standalone free trade agreement (FTA). EU deals with Ukraine and Canada respectively are often used as examples of these types of agreements which include market access (to different degrees) while not requiring the free movement of people. Negotiations on immigration policy could be kept largely separate from negotiations on trade and economic co-operation, as suggested by Lord Green and David Goodhart,104 with the acceptance that any hope of deep involvement with the single market would likely be off the table.

Ukraine-style Association Agreement

91.The White Paper states that the Government intends for the future relationship between the UK and the EU to “take the form of an Association Agreement” that would provide an “overarching institutional framework” and include “components of the economic partnership such as a core Free Trade Agreement”. As set out in the White Paper, the proposed structure draws on precedents including both the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Ukraine Association Agreement, the economic component of which is called the Deep and Comprehensive Free Trade Area (DCFTA).105

92.An Association Agreement is a treaty between the European Union and a non-EU country that creates a framework for economic and political cooperation between them. Its legal basis is defined in Article 217 of the Treaty of the Functioning of the EU which provides for “an association involving reciprocal rights and obligations, common action and special procedures”.106

93.Under the DCFTA that provides the framework for the economic component of the EU-Ukraine Association Agreement, the EU and Ukraine have reciprocal access to each other’s markets to a far deeper extent than a typical FTA, including near complete access to the Single Market in goods and significant access to services. Ukraine is not a party to the EU’s customs union, common commercial policy or external tariff regime or the free movement of people. The agreement offers gradual access to the Single Market with access to the different segments of the Single Market dependent on its alignment (or “approximation”) to EU relevant acquis.

94.The DCFTA does not entail the free movement of people and nor does it include a substantive provision on labour mobility. The immigration issue is dealt with by subjecting the movement of labour to a visa liberalisation and work permit system. The Committee was told by Professor Barnard that “there are provisions on migration in that agreement but they are incredibly light-touch”.107 It is noteworthy, however, that the specific circumstances in which the DCFTA was struck, as part of the EU’s “neighbourhood policy” with Eastern European states, do not apply to the UK.

95.The Institute for Government note that the DCFTA provides “opportunities for unprecedented levels of access to the EU’s Single Market—particularly in financial services—for a non-EU country” while proving that such integration is “technically and legally possible without undermining the functional integrity of the Single Market”.108 In a presentation to the European Council on 15 December 2017, Michel Barnier included the DCFTA with Ukraine as a model for a future UK-EU relationship that was precluded by the UK’s red lines on ‘no ECJ jurisdiction’ and ‘regulatory autonomy’, but which satisfied the UK Government’s red line on ‘no free movement’.109 Despite initially expressing reservations to us that Ukraine could be a model for future UK-EU relations as ‘the aim of the Ukraine is to enter the European Union’, Guy Verhofstadt later told the Committee that, provided UK negotiators altered their red lines, “you will never have a problem with [a similar agreement] because we did it with the Ukraine”.110 When asked whether a deal that provided the same level of integration with the single market would be a possible option for the UK-EU future partnership, he confirmed that it would.111

96.Guy Verhofstadt explained that the EU had many different Association Agreements with different countries, including Chile and Mexico, as well as Ukraine.112 He told us that the benefit of an Association Agreement was that the detail of the content could be negotiated, but that it had a single ratification process and governance structure:

An Association Agreement is a framework, in our opinion, with four pillars. Inside the trade and economic pillar there could be an EEA. There could be a customs union. There could be a combination of both. There could be the single market. There could be only a small trade agreement. The economic pillar of an association agreement gives a lot of flexibility for a very small partnership or a very broad, intense partnership.113

The advantage of the Association Agreement is not that it gives you a solution for what the trade or economic relationship should be between the EU and the UK. The advantage of the association agreement lies in the fact that you create one governance structure in all co-operations. You also create one ratification cycle in this, so that you don’t have 10 agreements that need to be ratified in all 27 member states.114

97.The DCFTA negotiated between the European Union and the Ukraine provides a precedent for partial integration in the single market without requiring the free movement of people. Despite the European Commission’s repeated claim that there can be no ‘cherry-picking’ of the four freedoms of the single market, this is a political judgement rather than a technical or legal obstacle. We note that the EU-Ukraine package was agreed in the context of Ukraine moving towards the EU, rather than away, and the European Commission has so far insisted that, for the UK-EU negotiations, the four freedoms of the single market are indivisible.

Canada-style FTA

98.On 1 March 2018, Michel Barnier outlined the Commission’s view that the UK’s red lines (no single market, customs union or ECJ oversight) had left a free trade agreement as the only available option. A free trade agreement (FTA) is an agreement between countries to reduce barriers to trade between them.

99.Modern FTAs often cover areas such as technical barriers to trade (eg. technical standards and regulations). Such barriers can be reduced by countries agreeing to have the same standards (harmonisation) or recognising each other’s standards (mutual recognition). Despite the move towards deeper trade agreements, they do not go as far in removing barriers to trade when it comes to financial services.115 As Mr Barnier has previously warned, in a free trade agreement “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist”.116

100.Free trade agreements generally only have limited immigration provisions, so a relationship based on an FTA would allow the UK room to design its own immigration system. Pauline Mathewson, from Fragomen LLP, explained that immigration provisions within an FTA fall into three main categories: intercompany transfers, business travellers and independent service providers.117 Fragomen LLP point out with regard to the Canada-EU FTA that “as favourable as the CETA immigration rules may be, they are nowhere near the rules that will be needed between the EU and the UK to avoid major economic disruptions”. They note that CETA only tackles temporary migration directly linked to the free provision of services, which would limit the UK-EU movement of people for business purposes to certain categories of people, and it does not address long-term work-related migration.118 FTAs also typically do not include low-skilled workers. TechUK caution that FTAs are negotiated on the basis that any provisions with an FTA reached with a current negotiation partner are likely to be included in future FTAs with other parties:

For the EU, this presents a significant risk in the UK negotiations as providing a preferential system to the UK could mean having to offer similar terms in subsequent negotiations, including with countries outside of Europe. [ … ] The same is true for the UK. However, for businesses seeking to recruit from across the world, there may be value in establishing a model that could be replicated in other future FTAs, with countries such as India. However, this would mean offering countries with which we have previously had restricted migration significantly liberalised terms. This would likely have political implications.119

101.There are a wide range of options for immigration rules within a free trade agreement. So far there have not been many proposals put forward on how EEA migration should operate in future if the UK is outside the scope of single market provisions. Options would include a points-based system, other forms of preferential rules for EEA recruitment, or extending the existing non-EEA Tier structure.

102.A free trade agreement along the lines of CETA would only require limited immigration provisions. However, such an outcome does not remove the need for the Government to make decisions about long-term migration from the EU. UK universities will still want to take on students from EU Member States, employers will still want to be able to recruit the—to use the Government’s phrase—‘brightest and best’, as well as low-paid workers in key sectors, and family migration will remain of huge importance. It is not the case, therefore, that an FTA would necessarily mean limited migration. A number of complex, important and inter-related policy decisions would still need to be made by the Government.

Extending the Non-EEA tier structure

103.Controls already in place for non-EEA nationals involve obligations for businesses that may include an application for a sponsorship licence, a resident labour market test, an immigration skills charge and ongoing compliance and reporting requirements. The employee may need to pass an English language test and achieve sufficient points to pass the threshold of the UK’s points-based immigration system. Points are allocated according to qualifications, English language skills, sponsorship, expected earnings and available funds. Visas for family reunion are subject to strict conditions and students wishing study in the UK must satisfy criteria including self-sufficiency and proficiency in English. In September 2016 the Prime Minister appeared to rule out a points-based system for EU nationals.120

104.Businesses want to minimise costs and bureaucracy around immigration procedures. Many employers warn against extending the non-EEA system to cover EEA nationals. In their submission to the MAC, the CBI describe the non-EEA system as “not just burdensome for business, but arduous for individual applicants as well”.121 Pauline Mathewson from the immigration law firm Fragomen LLP told us that it was too complex.122 Employer representatives, such as the Institute of Directors, raised particular concerns that small businesses do not have the resources to cope with a system for EEA nationals that would have similar bureaucratic structure to the Tier 2 approach.123

105.Fears of an increased administrative cost and burden is one of the reasons that many, but not all, employers were also calling for preferential treatment of EEA workers. However, the Advertising Association told us that “If a skill shortage can be addressed then nationality should not be a concern so in principle it would make no sense to differentiate between EEA and non-EEA citizens post-Brexit”, but they caution that replicating the Tier 2 system for EEA workers “would drastically reduce the attractiveness of the UK to young professionals wanting a career in advertising or other creative industries”.124

106.Lord Green suggested that the non-EEA ‘Tier’ structure should be extended to include EEA nationals but with temporary arrangements in crucial sectors, such as construction, which would face an immediate shortfall if limits were suddenly imposed. In such arrangements Lord Green proposed that employers would be heavily taxed and the workers become increasingly expensive to incentivise training and investment in the domestic labour market.125

107.Lord Green argued that extending the non-EEA system has the advantage that it is already familiar to employers.126 However, while some large employers, and universities for student applications, may be used to dealing with the non-EEA system, there are many employers, particularly small and medium-sized enterprises, who may have no experience employing non-EEA nationals and who would find the non-EEA obligations burdensome if replicated for EEA nationals. For example, the Federation of Small Businesses points out: “It is crucial that small firms will be able to take on employees from the EU easily and with as few financial costs, administrative burdens and risks as possible [ … ] Small businesses are often not equipped with HR departments to manage a complicated or costly process”.127 Indeed, dislike of the Tier 2 structure was one of the issues that came out most strongly in the written evidence we received. Professor Barnard told us that:

the reality is that if we go for very strong controls and a very bureaucratic system, employers, local abattoirs and small businesses who have never employed non-EU staff before, will have to set up a whole complex system in their own businesses to manage the applications for visas. I do some of this work in my own college and so I have a taste of just how complicated it is. We have a whole team of people at the university to support us in applying for these visas. At the moment that applies to only non-EEA nationals but if it is extended to all EEA nationals as well, there will be a significant administrative load.128

108.Lord Green, while recognising the potential for additional burdens on businesses and organisations, suggested that this could act as an incentive for employers to take on and, where necessary train and develop, UK workers.129 As we set out below there are many businesses, particularly in the low-paid sector who fear they might struggle if EEA citizens were included within the Tier 2 structure. It should also be noted that incorporating EEA nationals into the non-EEA system would also significantly increase the burden on the Home Office visa and enforcement teams.

109.We note the many complaints we have received about the existing immigration policy toward non-EEA nationals. Whatever the Government’s intention for post-Brexit immigration policy it should include an overhaul of the UK’s immigration arrangements for non-EEA nationals.

110.There was consensus amongst our witnesses that there should be no restrictions on EEA nationals travelling to the UK as visitors and that residency rights should be available for workers, students, family members and the self-sufficient. Professor Portes commented that whilst the UK could choose to end preferential immigration arrangements for EEA citizens, there could be unwelcome consequences:

A fully-fledged visa regime for EEA nationals would be hugely disruptive to trade, travel and tourism, even leaving aside the obvious point that this would mean UK nationals would require visas to travel to continental Europe. Moreover, it would mean that they were treated materially worse than, for example, Americans or Australians, who do not need a visa to enter the UK.130

Alternative bespoke options

111.We have heard some evidence of alternative bespoke options aimed at particular sectors of the labour market. We note that the White Paper included reference to “temporary mobility of scientists and researchers, self-employed professionals, employees providing services, as well as investors”.131 These could also be preferential arrangements for EEA citizens linked to the economic partnership, or geographical proximity, or they could be arrangements that operate more widely.

112.We did not hear convincing arguments as to how low-paid yet vital sectors, such as social care, could cope if their ability to recruit EEA workers was restricted. In their March 2018 Interim Report, the Migration Advisory Committee notes that wages are not irrelevant to an employer’s ability to recruit and retain staff: “individual employers would almost always be able to recruit resident workers if they paid wages sufficiently above the going rate. More credible is the claim that small margins and rising other cost pressures mean that higher wages are unaffordable”.132

113.Lord Green acknowledged that the care system was one of the most difficult aspects of his approach of extending the non-EEA system. He suggested that one solution to sectors that could struggle with recruitment might be for them to do more to accommodate people who are currently underemployed and who seek more hours.133 Of 8.4million part-time workers, 1 million reportedly would like to find full-time work. In addition, nearly 800,000 18–24 year olds are not in employment, training or education.134

114.David Goodhart told us that demand in some of the low-paid sectors, particularly hospitality, could be accommodated by extending the Tier 5 temporary workers and youth mobility scheme for 18–30 year olds to include EEA citizens. Extending the youth mobility scheme is one of the proposals put forward in the Government’s White Paper. The existing youth mobility scheme is limited to two years. Successful applicants have no recourse to public funds. David Goodhart suggested that with the right incentives, such as an extension of two years, it might be possible to nudge youth mobility workers towards sectors with shortages such as social care.135 However, he explained that some parts of the country “may have to give up” on sectors such as fishing if they could not source labour in the future.136

115.Focus on Labour Exploitation and others raise concern over calls to replace free movement with more restrictive and temporary work visas, especially in low wage sectors. In their view visa restrictions “tend to heighten workers’ risk of exploitation by increasing worker dependence on their employer and reducing bargaining power”.137 They argue that workers on tied visas are more likely to accept poor working conditions and are less likely to make complaints about abusive employers if the loss of employment could result in loss of residency rights.

116.As we noted in our previous report, ‘Immigration policy: basis for building consensus’, we believe any future migration system should ensure that high-skilled—not just highly-paid—workers can come to the UK to provide skills that are needed in our economy, society and public services like the NHS. Immigration rules should allow UK businesses and organisations to attract easily workers from across the globe, with the skills they need in internationally competitive fields.

Seasonal workers

117.Many countries, including other EU countries, have some form of seasonal agricultural workers scheme that gives the agriculture sector privileged access to a source of labour that does not have many high-wage alternatives.138 In our report, Immigration policy: basis for building consensus, we referred to evidence from employers in the agriculture sector who said that they were struggling to recruit sufficient low skilled UK workers, particularly for seasonal work moving from farm to farm.139 Many employers in agriculture urgently want a seasonal workers scheme similar to the Seasonal Agricultural Workers Scheme (SAWS) that ended in 2013 but which will also allow for the employment of workers from outside the EEA. The National Farmers Union, for example, argues that: “The UK food supply chain will be substantially less competitive if restrictions are placed on labour after Brexit. For successful farm businesses, continued access to non-UK seasonal and non-seasonal workers on-farm is critical”.140

118.Matthew Fell expressed a general note of caution about sectoral deals on immigration, because of the interdependencies between some sectors such as logistics and the food sector.141 Dr Rolfe, whilst generally not favouring short-term seasonal visa schemes said that “there is probably a very strong case in the agricultural sector to have seasonal work visas”, a view echoed by both Lord Green and David Goodhart.142 The Association of Labour Providers suggest that a seasonal scheme could be extended to include beyond the tradition areas of agriculture and horticulture to include salad packing and meat and fish processing.143 While Focus on Labour Exploitation reiterate their concern that temporary visas increase the risk of worker exploitation. Sunder Katwala suggested that businesses employing seasonal workers should address the impact on the community of temporary migrant workers, saying that “employers have to step up and deal with those [local integration] impacts to make it politically a good and viable idea to have the seasonal schemes they will need.144 We note that the Migration Advisory Committee reported in 2013 that most parties had gained from the Seasonal Agricultural Workers Scheme (SAWS). It found that it was well managed by the Home Office, growers got a supply of efficient labour, migrants received a good wage, British workers were not displaced and integration issues were limited as SAWS workers usually lived on the farm.145

119.The Immigration Minister told the Scottish Affairs Committee on 27 March 2018 that the Government was “listening to the calls for a seasonal workers scheme very closely”, but explained that any such scheme would need to be tightly time-limited and restricted migrants to working in agriculture.146 We note the evidence we received in our previous inquiry into immigration that extended growing seasons can mean workers being required for up to ten months of the year. The Home Secretary told us in June 2018 that the Government was considering a range of options for the future immigration system, and that issues relating to needs for seasonal workers would be covered in the MAC’s report in September. He stated that “Should the need arise to introduce a Seasonal Agricultural Workers Scheme, the Home Office could introduce the necessary changes to the Immigration Rules within approximately six months”.147

120.In our previous report we noted that there was more public support for low-skilled workers in sectors in which the UK public do not typically wish to work, such as seasonal farm work. We concluded that there was already evidence that access to UK and EEA labour markets was insufficient to meet current demand. We also noted that the New Zealand seasonal scheme was held in high regard. The New Zealand High Commission reports that its introduction has led to a more stable workforce and better quality and more productive workers.148 In our report, ‘Immigration policy: basis for building consensus’, we called on the Government to consider a new Seasonal Agricultural Workers Scheme. We noted evidence that access to the EEA labour market is already insufficient to meet demand. We are concerned that the Home Secretary has said that no new scheme will be introduced until after the transition period. We believe this is far too late—it should be introduced as soon as possible. We also recommend that it should be accompanied by measures to prevent seasonal workers being exploited, such as increased funding for the Gangmasters and Labour Abuse Authority, and enforcement of Modern Slavery legislation.

Regional immigration system

121.There have been calls for the Government to adopt a regional immigration policy, particularly from the Scottish and Welsh Governments and the Mayor of London.149 Our predecessor Committee took evidence on this issue and heard, for example, how the current Scottish Government wanted different post-Brexit immigration arrangements for Scotland. These arrangements included the continuation of freedom of movement and the flexibility to tailor non-EEA rules to Scotland, for example by reducing salary thresholds for spouse and Tier 2 workers and to introduce a post-study work visa.150

122.In our report, Immigration policy: basis for building consensus, we noted that much of the British public want to have a say over the volume and type of immigration in their own area, and that different priorities exist in different parts of the country.151 We recognised that any regionally-specific policies must address any public concerns about their credibility and workability, so as to build broader consensus on immigration. We welcomed the Home Office’s commissioning of the MAC to examine regional distribution in its work on the contribution of EEA workers, and recommended that the Government remain open-minded to regional immigration approaches until the MAC has concluded its work.152

123.An IPPR report noted that attitudes to EEA immigration vary considerably by region and local area, and concluded that building regional flexibility into the immigration system for EEA (and non-EEA) nationals could therefore effectively reflect the divergent attitudes to EEA immigration across the country. Phoebe Griffith, Assistant Director at the IPPR, told us that in general, the IPPR had been a leading proponent of a more regionalised approach to immigration, in part to address geographical imbalances such as the disproportionate flow of skilled migration to London and the South East of England.153

124.The results of a survey published by the CIPD in February found that only 5% of employers would be in favour of a regional immigration policy that gives preferential arrangements to some areas over others but many of the written submissions we received suggested that a regional approach merited consideration.154 Concerns that were raised included challenges in identifying regional need, and additional complexity to the enforcement and administration of the system. Migration Observatory conclude “that whether regions have more say over immigration policy is more a matter of principle and politics than of economics”.155

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105 HM Government, The future relationship between the United Kingdom and the European Union, Cm 9593, 12 July 2018

106 The Institute for Government explains in a briefing on Association Agreements on its website that the EU has more than 20 association agreements, mainly with its neighbours.

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108 Institute for Government, Association Agreements, 7 February 2018

109 EU Commission, Slide presented by Michel Barnier, European Commission Chief Negotiator, to the Heads of State and Government at the European Council (Article 50) on 15 December 2017

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115 House of Commons Library Research Briefing, Brexit: trade aspects, 9 October 2017

116 Politico, Michel Barnier Financial services excluded from Brexit trade deal, 19 December 2018

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118 Fragomen LLP, Is CETA a model for EU-UK business migration post-brexit?