164.The ONS collects data on two categories of creative services trade. The first is ‘intellectual property’—payments received for the use of trademarks, design rights, and copyrighted works, including music recordings, films and television programmes. The second category is ‘personal, cultural and recreational’, which measures services and fees associated with the production of films and television programmes and the use of museums and libraries. We received a wide range of evidence from witnesses representing creative services and, in this chapter, focus on common concerns across the creative industries, including EU market access, the protection of intellectual property rights, and access to skills.
165.In 2015 the UK’s global exports for these two categories of services amounted to 9% of all exports in non-financial services, or £13.9 billion, while global imports were valued at £11.3 billion, resulting in a surplus of £2.6 billion. Although only 35% of trade in intellectual property services and 24% of personal, cultural and recreational service exports went to the EU, the UK’s surplus in trade with the EU totalled £2.1 billion (see figure 7).
166.John McVay, Chief Executive of Pact, described UK creative services and the creative industries as “a runaway success story during the past years”. In 2015 the Government published a report on the importance of the creative industries to the UK’s economy, defining them as “those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property”. Although this definition is broader than that we have adopted for the purposes of this chapter (and includes many digital services), the report underlines the value of creative industries to the UK’s economy: in 2014 the creative industries were worth £84.1 billion to the UK economy, representing 5.2% of Gross Value Added (GVA). In 2014 there were 1.8 million jobs in the creative industries, an increase of 5.5% from 2013. The report also found that the UK’s global trade in services from the creative industries grew by 3.5% between 2012 and 2013.
167.COBA (the Commercial Broadcasters Association) explained that the UK was a “leading international hub for global media groups”. This brought numerous benefits, “ranging from job creation to helping build the critical mass that enables the UK to compete internationally”. This, they noted, “creates a virtuous circle, with investment in skills, content, and infrastructure incentivising further investment”. Adam Minns, COBA’s Executive Director, described a recent survey of COBA members, which asked why the UK was such a successful media hub:
“What came back from that survey that was interesting was that the UK is very strong in creative skills, and the English language is a good advantage. In every other category, the UK is not as strong as I was expecting it to be … Infrastructure, corporation tax and the regulatory regime—all the different factors you would look at as to where you base yourself—were considered, but the key thing was that [the UK] did not have any weaknesses … other markets that you might want to invest in … could be stronger in terms of labour costs, in that they are cheaper, but the infrastructure might not be very good … That was very important.”
168.The Government has also published a report on exports from the creative industries, breaking down trade into different categories of services with different global trading partners. Some 55% of the UK’s exports in fashion, product and graphic design services went to the continent of Europe in 2014, as did 57% of the UK’s exports in film, TV, video, radio and photography services. The Creative Industries Federation confirmed these conclusions, noting that “wealthy countries closer to home, in particular in Europe, are far more significant consumers of our export products than large developing nations. We export more creative goods to Poland than we do to India.”
169.Trade in creative services often takes the form of cross-border supply of services (GATS mode 1), whereby services are supplied from one country to another electronically. Alice Enders, Head of Research at Enders Analysis, referred to the example of “sales of programming abroad”, such as “British films that are distributed on the continent, in the US or elsewhere”.
170.Creative services businesses also frequently establish a commercial presence in other countries, in order to sell services locally through a foreign affiliate or subsidiary (GATS mode 3). Ms Enders said that “transactions between UK companies and the subsidiaries of UK companies in the EU and US” were an important source of trade, which had “not been brought out” in the statistics. Developing this point, she said that a lot of foreign direct investment (FDI) into the UK’s creative industries had “focused on serving not just the EU but what is referred to as EMEA [Europe, Middle East and Africa]”.
171.Trade in creative services also occurs through consumption abroad (GATS mode 2), whereby consumers travel to the location where the service is provided. For example, a UK citizen could travel to Paris to go to the opera, or visit museums and galleries.
172.Finally, trade in publishing, design and fashion services often also includes trade in goods. Trade in goods is addressed in this Committee’s recent report on Brexit: trade in goods.
173.Witnesses questioned whether a UK-EU FTA could provide access to the Single Market equivalent to that currently enjoyed by the sector. Discovery Communications Europe Ltd said that “a free trade deal equivalent to EEA membership will be challenging for the UK negotiators to achieve”, while Ms Enders said: “It is extremely difficult to ask businesses in the creative industries to invest for a future trade agreement that does not exist yet and whose provisions with respect to the audio-visual industry would seem at first glance anyway to be difficult to obtain.”
174.The Government has said it will focus on ensuring the “freest possible trade” between the UK and the EU, including “supporting the continued growth of the UK’s broadcasting sector”. The Audiovisual Media Services Directive, which underpins the Single Market in broadcasting, is described in Box 9.
The Directive governs the EU-wide coordination of national legislation on all audiovisual media, including both traditional (referred to as ‘linear’) broadcasts and on-demand (‘non-linear’) services. The Directive establishes minimum regulatory standards that Member States and national regulators must implement, which aim to preserve cultural diversity, protect children and consumers, safeguard media pluralism, combat racial and religious hatred, and guarantee the independence of national regulators.
The Directive uses the ‘Country of Origin’ principle, meaning that a broadcaster only has to obtain a license and observe regulatory standards in any one Member State in order to be able to offer its services in the others without being subject to any additional requirements. Member States cannot restrict which broadcasts the public can receive or what programmes broadcasters from other Member States can retransmit in their country. This removes the obligation for broadcasters to meet multiple regulatory regimes when trading across borders.
The Directive requires broadcasters to promote the production of, and access to, ‘European works’, both for linear and on-demand services. The Directive defines ‘European works’ as audiovisual works that either originate in EU Member States, or in states party to the European Convention on Transfrontier Television. Works that are co-produced between the EU and third countries are also included.
For linear (television) services, the Directive requires Member States to ensure that broadcasters, “where practicable”, reserve a majority proportion of their transmission time for European works, excluding the time allotted to content such as news, sports events and advertising. Broadcasters should reserve at least 10% of their transmission time, or alternately allocate at least 10% of their programming budget, for European works created by independent producers. Member States are given flexibility as to how they choose to promote European works, and there is wide variation. The Directive is to be reformed as part of the Digital Single Market Strategy. One proposed change is to require non-linear, online and on-demand broadcasters to preserve 20% of their content for European works.
175.Enders Analysis said the EU’s ambition to boost the production of audio-visual content had been “a fantastically successful effort … since 1990, the development of the UK’s [audio-visual] group has been greatly stimulated by the implementation of the Single Market for [audio-visual] in the UK and in other EU Member States, along with tax credits and EU funding programmes.”
176.Discovery Communications Europe Ltd described the UK as “the pre-eminent hub for international broadcasting in the EU”. Adam Minns said that “we are something in the region of double or maybe triple our nearest competitor in the number of channels that are established and based here in the UK”. He added that “by very conservative estimates” the UK had 1,100 channels licensed by Ofcom, and that “the next biggest country in Europe is France, which has 400”. Mr Minns pointed out that 650 channels were “licensed not for the UK at all but for non-domestic markets. They are based here, employing people here and investing here, but broadcasting into other European markets”. This critical mass created “a cluster effect that attracts further investment”.
177.Witnesses told us that continuing access to the Single Market in broadcasting would be vital. In the absence of such access, Sky warned that “broadcasters are unlikely to be able to rely on their Ofcom licences to broadcast” to other Member States. Discovery Communications Europe Ltd said broadcasters would need “a local broadcasting licence and establishment of a local office every time a channel was launched”, which would be “prohibitively expensive”. Moreover, Article 2 of the AVMSD states that a firm “shall be deemed to be established in the Member State where a significant part of the workforce involved in the pursuit of the audiovisual media service activity operates”. As Ms Enders pointed out, this is “not just about having a brass plate on the continent. It is about having people, resources, the regulatory people, the whole nine yards”. Mr Minns noted that “there is an obvious direct risk to jobs in the UK”. He knew of “at least one international company that is looking at moving people from the EU to the UK”, but added that there was now “a question mark over whether that would happen going forward”. We recognise that other Member States may have an interest in attempting to attract these businesses away from the UK.
178.Ms Enders acknowledged that the cluster effect, to which we have referred, would be “very helpful” in “insulating us to some degree” from the impact of reduced market access, but noted that this effect was “the product of the very regime that we are moving away from”. Pact noted that audiovisual services were excluded from almost all EU trade deals, due to the ‘exception culturelle’ (or cultural exception), which is outlined in Box 10.
During the Uruguay Round of negotiations, the EU and Canada wished to exempt any product or service that was related to culture from the WTO agreements (such as the GATT, the GATS and the TRIPS). Although the texts of the WTO agreements do not mention the ‘cultural exception’, member countries used the flexibility allowed in determining their schedules under all three agreements not to list restrictions, and not to commit to liberalisation, in those ‘cultural’ goods or services. Under the GATS, this meant that countries decided not to remove restrictions on the use of quotas or government subsidies. The WTO Secretariat has commented as follows: “Audio-visual services is one of the sectors where the number of WTO members with commitments is the lowest (30, as of 31 January 2009).” The ‘cultural exception’ extends beyond WTO trading rules to FTAs, and explains why the EU has been reluctant to include audiovisual media services in FTAs.
Source: Mira Burri, Trade versus Culture: The Policy of Cultural Exception and the World Trade Organization, in Pauwels, Donders and Loisen (eds.), Palgrave Handbook of European Media Policy, Palgrave Macmillan, (2013) pp 479–492 and written evidence from Enders Analysis ()
179.Ms Enders pointed out that even in CETA (“the most ambitious FTA for services”), the EU’s negotiating mandate made it “clear that ‘audiovisual and other cultural’ services were excluded” from negotiations. Discovery Communications Europe Ltd said that the only exceptions to this had been the inclusion of audiovisual media services in the EU-South Korea FTA and the CARIFORUM-EU EPA. Even these included only “limited and specific concessions around market access for animation and other content—falling far short of the access broadcasters currently enjoy under the Single Market regime”.
180.Mr Hancock said the Government wanted “as open as possible a deal with the rest of Europe”, and there were “big advantages to the rest of Europe in having as open a deal as possible in this space with us”. Asked about the risk that businesses might relocate outside the UK to maintain their ability to trade with EU Member States, Dr Norman told us:
“It is very easy for people to say that if Brexit goes wrong, these people can be relocated … [but] I do not think they have any idea how difficult it is even to take the culture of a factory floor, which is highly automated, with a set of existing investments and union relationships, and transport that to another country. Try to do that in the broadcasting world, where people interact in the most intimate way and choose to cluster together—it is extraordinarily difficult.”
181.As well as provisions for broadcasting, witnesses also said the Government should support UK collaboration with EU partners on production of content, through co-production treaties. Such bilateral treaties permit the co-production of audiovisual content producers from two states. Mr McVay told us that “the UK has been very good at signing co-production treaties with major territories”, for example by selling “formats” for programmes such as Masterchef internationally. Ms Enders agreed that this was an important form of market access, but noted that it would mean collaboration, rather “than the sort of product that would be 100% UK-made”.
182.In relation to content production, Mr Hancock said: “I am confident that we can remain this amazing, globally leading country for content production that we have developed into over the last 15 or 20 years”. He argued that the UK’s success had been “driven by our cultural values and investment in cultural institutions, by our system of education, by the hubs that we have built up … [in] different parts of the industry”. While Europe was “an important market”, it was “only one”. The UK’s film industry was global and it was aligned with the US and China—it was not a sector “where we have to focus only on the EU relationship”.
183.COBA told us it was important that “UK-made television programmes continue to qualify as ‘European works’ for the purposes of EU quotas”, and Pact agreed that ensuring that “UK-originated content continues to count towards [EU] broadcasting and video-on-demand quotas” would mean that “broadcasters and buyers across the EU will continue to invest in UK content”. Without this, UK-created content would be in direct competition with other third country providers, including the US.
184.In response, Mr Hancock said: “I can be cheerful on that … [as] the Prime Minister likes to say, we are leaving the EU but we are not leaving Europe. In this case, that is not only physically true … but is actually technically true.” He concluded that the Government had “no intention to change” the definition of European works. We note that this will also be a matter for the EU, and that it will be subject to negotiation.
185.The British Fashion Council described the EU legal regime for protecting intellectual property (IP) rights as “a highly effective and efficient framework for [the] registration, exploitation and enforcement of IP rights”. A key part of this legal regime is the EU’s Regulation on Registered and Unregistered Community Design, which is explained in more detail in Box 11.
The Regulation established a one-off procedure for registering designs with the European Union Intellectual Property Office (EUIPO), granting exclusive rights to the use of those designs for up to 25 years across the EU for those who register.
The Regulation also provides for Unregistered Community Designs (UCD), which under certain conditions can also benefit from protection from deliberate copying without prior registration with the EUIPO. This right can cover the appearance of the whole or part of a design, including lines, contours, colours, shape, texture, materials, and features of ornamentation. Many cases brought before the courts (or which are settled between the parties) relating to copycat designs are based on UCD. In both cases, to be eligible for protection, designs must be new and must have an individual character.
186.The British Fashion Council said the protection afforded by UCD was particularly important to the fashion industry, because all designs were protected “automatically, thereby saving on the costs of registering all designs across a portfolio (which can be substantial)”. After the UK’s withdrawal, they were particularly concerned that UK designers would only be able to benefit from the EU’s protection for registered and, more importantly, unregistered designs, if the “relevant designs are first disclosed in the EU”. This could lead to “effectively closing down London Fashion Week as a platform to promote British businesses”. The Creative Industries Federation agreed that this was a possibility: “Companies would enjoy less protection by first showing their work in the UK than in the EU.” The British Fashion Council added that asking designers to register design rights in the EU before a fashion show would be “costly across an entire portfolio, making that option uncompetitive”.
187.Witnesses also felt that the domestic protections for intellectual property were weaker than those in the EU. The Design Council said that the UK’s equivalent to the UCD right was “not an equitable right for UK designers”, because it did not protect novel surface design (for example, the look of a shirt rather than how that shirt was made). The Creative Industries Federation added that loss of UCD rights would “leave a gap in protection for our design and fashion businesses”.
188.Witnesses also emphasised enforcement. The British Fashion Council said the enforcement regime for intellectual property rights in the EU was efficient and effective: “Such rights can be enforced in a single action and may lead to pan-EU relief in the form of an injunction (and/or damages) across the EU.” Mr McVay told us:
“Enforcement should be part of all future free trade agreements. It is very important. We are a society that will be increasingly trading on IP-based products that are licensed. … We may not be making more cars but we will be licensing intellectual property rights to developing markets, which, unfortunately, do not often respect those rights.”
189.Witnesses from the creative services sector echoed other sectors in underlining the importance of maintaining continued access to the EU’s labour market to address skills shortages and to support continued growth. The Creative Industries Federation said the Migration Tier 2 Shortage Occupation List included 17 creative industries occupations, and that EU nationals made up 6.1% of the sector’s employed workforce. The Design Council said an inability to hire the same levels of skilled workers was “likely to cause short term market challenges, and may lead to longer term reductions in economic outlook”.
190.Mr Hancock said: “Undoubtedly, attracting the brightest and best in the creative industries and in digital is the main concern we picked up from industry, but that process must be managed properly so that the immigration system serves the national interest.” This meant “having control over the numbers”. Alongside this, he said, “We must make sure that we have domestic training in place and perhaps an extra focus on that.”
191.Discovery Communications Europe Ltd wrote, bluntly, that “WTO/GATS terms are extremely unattractive”. Ms Enders explained that the EU’s schedule of GATS commitments on audiovisual (AV) and other cultural services were typically excluded, thanks to the cultural exception.
192.For the same reason, Pact believed that EU Member States would “be able to impose discriminatory provisions on the UK, particularly with regards to the audio-visual sector”. Ms Enders said this situation would not be improved by the Trade in Services Agreement (TiSA), because the Commission had indicated that “the EU will continue to exclude AV and other cultural services in TiSA”.
193.Witnesses said the Transfrontier Television Convention could be considered as an alternative for UK broadcasters and content producers after Brexit, if appropriate provisions were not included in FTA. This is a Council of Europe Convention, establishing rules for the free circulation of television programmes between signatory states. It follows a ‘country-of-origin’ system for television broadcasts, and works originating from signatories to the Convention are considered to fall within the definition of European works for the purposes of the AVMSD.
194.COBA said that the Convention had “significant limitations”. The Convention excluded “a number of important EU markets” (including Denmark, Greece, Ireland, Luxembourg, the Netherlands and Sweden, which are not signatories). It also did “not apply to on-demand services at all”, which were “arguably the fastest growing part of the UK television industry”.Pact raised the issue of enforcement, noting that:
“[The Convention’s] implementation relies on the principles of mutual assistance and co-operation between the Parties. Any difficulties around the application of the Convention are discussed by a Standing Committee made up of parties to the Convention that seeks resolution of any difficulties. There is no recourse to, for example, any body such as the [CJEU]”.
Pact also observed that, in future, “any EU country might leave the Convention” and suggested that the Convention could become “side-lined” as “the industry evolves”. COBA concluded that “we do not consider it to be a viable alternative” to access to the Single Market.
195.The Minister, Mr Hancock, noted that the Transfrontier Television Convention had been agreed in 1993, and that, “in this space, that is a long time ago.” However, he recognised that the Convention only covered “satellite technology”, omitting on-demand services.
196.The WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement aims to promote effective and adequate protection of intellectual property rights by setting standards for their protection, to be provided by each signatory in each of the main areas covered by the agreement (such as copyright, trademarks, geographical indicators and patents). In practice, the WTO TRIPS agreement does not ensure effective IP enforcement, and the Commission has previously stated that “the implementation of TRIPS requirements in national laws has proven to be insufficient to combat piracy and counterfeiting”. It has also argued that “the TRIPS Agreement itself has several shortcomings”. The Creative Industries Federation concluded that the protection afforded by the TRIPS agreement would be less than that provided currently by the EU.
197.The UK is a global hub for creative services. The success of the UK’s creative services industry is bolstered by innovation in digital services and by a general business environment in which companies from different parts of the creative sector ‘cluster’ in the UK. Brexit presents different risks and opportunities to different types of creative services, and it is important that the Government agrees a comprehensive UK-EU FTA that sustains the UK’s global hub status.
198.Creative industries will need a comprehensive agreement on the protection of intellectual property rights. For example, in fashion, the continued protection of Unregistered Community Designs will be important to ensure that fashion designers are still protected when showing their designs for the first time in the UK. Without such protections, the viability of events like London Fashion Week could be called into question, posing a direct threat to jobs in the UK and, more broadly, to the standing of the UK’s fashion industry.
199.Without appropriate agreements to maintain access to the Single Market, we note that UK broadcasters would be unable to broadcast services to the EU. This would affect almost 60% of channels licensed by Ofcom.
200.The EU has excluded provisions on audiovisual media services from all FTAs, except the EU-South Korea FTA and the CARIFORUM-EU EPA. A UK-EU FTA would need to go even further than these agreements, in order to maintain the level of EU market access sought by UK broadcasters.
201.A scenario where the UK left the EU without an agreement would be damaging for the UK’s creative services. Audiovisual media services are excluded from the EU’s schedule of commitments at the WTO, and neither the Transfrontier Television Convention nor co-production treaties are viable alternatives for trade. Protections for intellectual property rights afforded by the WTO’s TRIPS agreement are considerably less than those currently enjoyed by UK businesses and citizens.