The future UK-EU relationship on professional and business services Contents

Summary of conclusions and recommendations

1.Professional and business services accounted for almost 12% (£224.8 billion) of the UK economy’s gross value added, 13% of the workforce (4.6 million jobs), and 23% of all registered businesses in 2019. But the disparateness and manifold complexity of the sector mean that its interests are often overlooked. (Paragraph 18)

2.Of the more than 600,000 professional and business services providers in the UK, the average number of employees is fewer than four. While London is a hub for the industry, it is also spread across the UK with two thirds of those working in professional and business services based outside of London and the South East. (Paragraph 19)

3.In total, professional and business services provide 32% (£96 billion) of the UK’s service exports and 15% of all UK exports. 6.7. The EU is the UK’s largest market for exports these services, accounting for 37% of professional and business services exports. The UK had a trade surplus of £12.4 billion with the EU on professional and business services in 2019. (Paragraph 20)

Cross-border supply of services

4.Future UK-EU arrangements for the cross-border supply of services will significantly affect the UK’s professional and business service sector, particularly smaller operators, who may not to have a commercial presence in the EU. (Paragraph 61)

5.Through national reservations, EU Member States can impose various regulatory barriers to cross-border imports of professional and business services from non-EU/EEA countries at a national level. These include economic needs tests requiring some proof that demand cannot be met by existing local providers, and requirements making market access conditional upon local presence. (Paragraph 62)

6.We are concerned that barriers to the provision of services on a cross-border basis could lead to a drift of economic activity away from the UK. Given that it is possible to move the delivery of services overseas, this drift of activity could have a detrimental effect on the UK’s professional and business services sectors in the long term. While this will apply to firms both large and small, we are particularly concerned that requirements of this type could place a disproportionate burden on UK SMEs. (Paragraph 63)

7.To mitigate these risks, a UK-EU agreement should contain robust commitments on cross-border supply, addressing the full range of potential barriers. We welcome the Government’s proposal that the UK and EU should explicitly commit not to tie market access to local establishment or residency, and urge the Government to press for inclusion of such a commitment in an agreement with the EU. (Paragraph 64)

8.Although the UK and EU draft legal texts are broadly aligned on cross-border supply of services, there is little room for complacency until clarity emerges on any national reservations to a UK-EU agreement. The example of the EU’s trade agreement with Canada shows that these reservations can be wide-ranging and affect a number of professional and business services sectors. (Paragraph 65)

9.When we spoke to the Minister on 16 July 2020, there had been little UK-EU discussion on potential national reservations. This is a source of serious concern. The Government should publish comprehensive explanatory material on any national reservations on services attached to the agreement to enable proper parliamentary scrutiny and give professional and business service providers—in particular SMEs—clear guidance on the position across Member States. (Paragraph 66)

10.The Government should continue to engage with the EU and individual Member States to reduce, and if possible, remove any barriers to cross-border supply through national reservations to the agreement. (Paragraph 67)

11.The Government has not sought bespoke UK-EU arrangements on public procurement. The Minister was confident that the EU’s schedules of commitments under the WTO GPA would give UK professional and business service providers sufficient access to Member States’ public procurement markets. However, we received evidence that this might not be the case in all sectors. We urge the Government to work with like-minded signatories to the WTO GPA to broaden the scope of the agreement. (Paragraph 68)

Rights of establishment

12.Without a UK-EU agreement ‘locking in’ adequate liberalisation, UK professional and business service providers would become subject to a broad range of restrictions, including caps on the amount of capital they may hold in an EU company, requirements to partner with a local investor or service provider, and restrictions on the types of corporate forms that they may use when establishing a commercial presence in the EU. We urge the Government to ensure that an agreement with the EU minimises these barriers. Member States may also seek carve-outs from any liberalisation commitments agreed between the UK and EU through national reservations. This further underlines the importance of engagement with the EU and individual Member States to minimise such reservations. (Paragraph 82)

13.Restrictions on corporate form would particularly affect the legal and audit sectors in the UK. We strongly encourage the Government to continue to seek an agreement that removes the potential for limitations on corporate forms, such as LLPs. (Paragraph 83)

Business mobility

14.Professional and business services sectors rely on the ease of business travel between the UK and EU, and firms’ ability to redeploy staff flexibly to their offices across Europe. Any significant barriers to UK-EU business mobility, therefore, risk a loss of competitiveness and innovation. We urge the Government to ensure that temporary mobility is covered by an agreement with the EU, and that arrangements in this area are as ambitious and comprehensive as possible. (Paragraph 89)

15.We strongly support the Government’s efforts to secure a maximum length of stay of 90 days in any six-month period for short-term business visitors, compared to the 90 days in 12 months offered by the EU. (Paragraph 106)

16.The efficacy of any UK-EU arrangements on short-term business visitors will ultimately depend on the type of activities that these visitors will be allowed to carry out when visiting their clients. The negotiating parties have not yet disclosed their proposals in this area. We urge the Government to press for minimal restrictions, particularly the inclusion of paid work in any list of permitted activities under a UK-EU agreement. As in a number of other areas, we are concerned about the potential for national reservations to the agreement that could create additional barriers to the delivery of services, such as economic needs tests for mobility on a temporary basis. (Paragraph 107)

17.While we recognise that free movement between the UK and EU will end, and that the UK will pursue its own independent immigration policy, it is in the UK’s economic interest to agree comprehensive business travel facilitations with the EU as part of a future relationship agreement. Several witnesses advocated visa-free travel for short-term business travel, covering short-term business visitors and independent professionals. Any new administrative arrangements should ensure that these sectors can maintain their agility. We ask the Government to clarify whether this is part of its offering to the EU and, if it is not, to explain its reasoning. (Paragraph 108)

18.Access to talent from the EU is and will remain important to the UK’s professional and business service sectors. We encourage the Government to work with businesses, including through the Professional and Business Services Council, to understand how the UK’s future immigration system can best support their needs. (Paragraph 113)

Recognition of professional qualifications

19.In some professional and business services sectors, the recognition of qualifications by third country authorities is crucial to enabling cross-border trade. We reiterate the recommendation in our March 2017 report, Brexit: trade in non-financial services, that an agreement reached with the EU should include provisions facilitating the continued recognition of UK professional qualifications in the EU, and vice versa. (Paragraph 122)

20.Bespoke arrangements, in addition to an FTA, are likely to be required in some professional and business services sectors. This is one area where a bad deal, which prevents the agreement of bilateral supplementary agreements on mutual recognition, could be worse than a no deal. We urge the Government to ensure that an agreement explicitly allows for the conclusion of supplementary bilateral arrangements on the mutual recognition of professional qualifications, including at the Member State level. (Paragraph  133)

21.The mutual recognition of professional qualifications is one area where the Parties’ negotiating stances differ fundamentally. The Government has proposed that mutual recognition should be the default position. The Commission’s proposal allows UK and EU-wide professional bodies to negotiate sector-specific mutual recognition agreements which would have to be approved by a Partnership Council, as under CETA. Our witnesses were unanimous that CETA’s mutual recognition provisions have been ineffective so far, having failed to produce a single mutual recognition agreement. We welcome the Government’s efforts to secure inclusion of its more ambitious proposals in any final UK-EU agreement. (Paragraph  141)

22.With the UK’s exit from the Single Market, UK legal professionals will lose some of their existing rights, such as the ability to advise on EU law under their home state title and represent clients before EU courts and institutions. It may not be feasible, in our view, to preserve these rights as part of the current negotiations. Nevertheless, the Government’s efforts to secure some form of recognition of legal qualifications is welcome. We urge both negotiating parties to come to an understanding on this matter, given the potential reciprocal benefits for UK and EU legal professionals, businesses and citizens. (Paragraph  142)

Intellectual property

23.While current EU trade marks will be transferred onto the UK register at no extra cost, we are concerned that at the end of the transition period UK companies could face additional charges if, next year, they are required to register new trade marks at both the UK IPO and EU IPO. (Paragraph 149)

24.The Government has proposed that unregistered designs presented in the UK should receive protection in the UK and throughout the EU27, and vice versa. We urge the Commission to give the UK’s proposal serious consideration. (Paragraph 157)

Equivalence and regulatory cooperation

25.We encourage both Parties to adopt decisions on the equivalence of each other’s audit frameworks and adequacy of competent authorities well ahead of the deadline of 31 December 2020, irrespective of developments in the broader negotiations, to avoid unnecessary complexity and uncertainty, particularly for auditors and their clients. (Paragraph 173)

26.The UK and EU should come to an agreement on a structured process for any regulatory divergence in areas covered by the equivalence and adequacy regimes, including under the Statutory Audit Directive. Both sides should also agree a dispute resolution mechanism for the structured withdrawal of equivalence with suitable notice periods. (Paragraph 174)

27.Given that trade in professional and business services is dependent on good regulatory practices, we welcome both sides’ commitment to ensuring continued regulatory dialogue. This will help to provide certainty to businesses and ensure best practice is shared.(Paragraph 183)

28.The governance arrangements for regulatory dialogue should include a dedicated UK-EU committee on professional and business services, which could help to ensure that these sectors are not overlooked. (Paragraph 184)

Data flows and digital trade

29.The free flow of data between the UK and EU is vital to professional and business service providers. Reciprocal UK and EU data adequacy assessments would be the most effective way to support such data flows. While their absence would not pose an absolute barrier, the alternative arrangements prescribed by the GDPR, in particular Standard Contractual Clauses, can be cumbersome to implement and would expose businesses to the risk of sanctions and fines. All of this could add complexity to, and potentially reduce, UK-EU digital trade in professional and business services. We reiterate the conclusion in our July 2017 report Brexit: the data protection package that the reciprocal granting of adequacy decisions is by far the preferred mechanism to support continuing UK-EU data transfers.(Paragraph 202)

30.We are concerned that there is a possibility that the Commission may not grant the UK a data adequacy decision. We call on the Government to push for the assessment to be concluded as soon as possible, to give businesses in the UK and EU legal certainty and time to prepare. We note that the UK has granted the EU data adequacy on a transitional basis. (Paragraph 203)

31.Smaller operators in the UK remain unprepared for the possibility of no adequacy decision, with some unaware of the potential requirement for standard contractual clauses. We welcome the work already done by the ICO to inform businesses, including SMEs, about the implications if no decision to grant adequacy is forthcoming, but call on the Government and ICO to step up their engagement efforts in coming weeks. (Paragraph 204)

32.Separate to the data adequacy process, the Government and EU are negotiating provisions aimed to reduce barriers to data transfers for business purposes as part of a future relationship agreement. We welcome the fact that both Parties are seeking a commitment not to impose data localisation requirements, which were highlighted in evidence as a potential barrier to trade and innovation in the professional and business services sectors.(Paragraph 209)

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