Scrutiny of international agreements: UK-Australia free trade agreement Contents

Chapter 2: Services trade, digital trade and investment

Services

9.Services dominate the UK economy, accounting for about 80% of total UK economic output and employment.3 It is therefore important that any new trade deals support the services sectors.

10.The Government’s Negotiating Objectives for services included securing ambitious market access commitments; and agreeing rules for services sectors; as well as enhancing opportunities for business travel and supporting the Mutual Recognition of Professional Qualifications (MRPQs).4

11.The Government has been successful in achieving these objectives. As with all new trade agreements, we will nonetheless need to wait for implementation to judge the precise impacts these provisions will achieve.

Box 1: UK services trade with Australia

Services trade between the UK and Australia was worth £9.3 billion in 2019, with £6.7 billion of UK exports to Australia and £2.6 billion of imports from Australia. The UK’s key services exports to Australia were other business services, travel, and insurance and pension. The key imports from Australia were other business services, travel and financial services.

Australia was the UK’s 10th largest export market for services.

Source: ONS, ‘UK trade in services: service type by partner country, non-seasonally adjusted’, (28 April 2022): https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/datasets/uktradeinservicesservicetypebypartnercountrynonseasonallyadjusted [accessed 22 June 2022] Note: we have decided to provide data for 2019 as the nearest pre-pandemic comparator

12.Services provisions appear across a range of chapters, including those on cross-border trade in services,5 professional services and recognition of professional qualifications,6 and temporary entry of business persons.7

13.The agreement liberalises services by providing commitments which match either side’s best offerings on services. Under the ‘most favoured nation’ provision, if either Party provides more liberal access to their markets for other countries, they will extend it to each other.8 Australia will provide market access commitments at the sub-federal level for the first time.9 The agreement also uses a negative listing approach, which means that all sectors are liberalised by default and must follow the commitments in the services and investment chapters, unless they are listed explicitly as reservations or exceptions.10

14.Overall, the evidence from stakeholders in services has been positive, including from the legal, financial, professional business services and technology sectors.11

Professional services

15.The Professional Services and Recognition of Professional Qualifications chapter encourages the recognition of professional qualifications and establishes a Professional Services Working Group (PSWG) to enable co-operation. The Royal Institute of British Architects welcomed this, noting that the lack of mutual recognition of qualifications is the biggest non-tariff barrier affecting architects.12 The Professional and Business Services Council and the Law Society of Scotland also welcomed the establishment of the working group, but noted that the agreement only sets out the framework for mutual recognition and that both Parties will need to use the framework to reap the benefits.13

16.For legal services, the agreement contains guarantees that UK lawyers will be able to practise the law of the other Party, other foreign law (to the extent qualified) and international law in Australia using their home qualification.14 This meets a key request from the Law Society of England and Wales.15 The agreement further establishes a regulatory dialogue for legal services to share expertise, discuss regulatory matters, and issues affecting the re-qualification of lawyers seeking to practise in the other country,16 which Penelope Nevill of Twenty Essex Chambers welcomed. 17

Financial services

17.The financial services chapter includes commitments on non-discrimination and market access, which provides legal certainty and locks in market openness for financial services.18 The Financial Services Regulatory Co-operation Annex sets out the groundwork for future regulatory dialogue.19

18.Witnesses were positive about the financial services provisions. The City of London Corporation emphasised the importance of regulatory co-operation to reduce trade barriers and welcomed the commitment to regulatory dialogue. It also told us that the financial services chapter sets a useful ‘best practice’ precedent for the insurance and re-insurance sectors in future trade deals.20

19.We welcome the provisions facilitating services trade, including those in relation to legal and financial services, which represent a significant benefit to the UK. We highlight, in particular, the guarantees that UK lawyers will be able to practise the law of the other Party, other foreign law (to the extent qualified) and international law in Australia using their home qualification.

20.The establishment of a Professional Services Working Group (PSWG) to facilitate discussions on the mutual recognition of other professional qualifications is a positive step, though this is a framework and does not yet secure such mutual recognition.

21.The Government should continue to hold discussions with Australian counterparts and support UK regulators in securing mutual recognition. We ask the Government to clarify whether discussions will be needed with regulators at the sub-federal level in Australia; and, if so, what steps it is taking to engage with individual states.

Mobility

22.The agreement should make it easier for UK professionals to work in Australia and vice versa. Witnesses explained that the current process of obtaining visas to enter Australia for business purposes can be time-consuming, bureaucratic and a barrier to greater investment and exchanges.21

23. The Temporary Entry for Business Persons Chapter22 allows UK suppliers of legal and architectural services, for example, to enter and temporarily stay in Australia to supply those services without the need for any further eligibility criteria. Businesses in Australia will no longer have to prove that they cannot find an Australian to temporarily supply a service before they sponsor a visa for a UK professional.23

24.The agreement also widens the youth mobility scheme, under which 18 to 30-year-olds can travel to the UK or Australia. It now raises the age to 35 , which is in line with arrangements Australia had previously negotiated with France, Canada and Ireland.24 UK applicants also no longer have to meet any specified work requirements when applying for an extension of their visa for a second or third year.

25.The Explanatory Memorandum acknowledges that changes to the UK’s immigration rules will be required to implement these new provisions.25

26.We welcome the improvements in mobility arrangements, which can increase services trade. While it is difficult to quantify their impact at this stage, Australia’s removal of an economic needs tests and skilled occupation list for UK professionals should increase the movement of UK professionals and delivery of services in Australia.

Digital and data

27.The Government’s Negotiating Objectives on digital trade included facilitating the free flow of data; preventing data localisation requirements; reducing restrictions on access to the Australian digital market; abolishing customs duties on electronic transmissions; promoting consumer protections online; and protecting users from emerging online harms.26 The Government has been successful in incorporating these into the agreement, but some concerns remain regarding personal data protection.

28.The Digital Trade Chapter27 introduces several novel provisions that go further than the commitments included in the UK-Japan trade agreement. They are mostly about improving co-operation on digital matters. New provisions include those on digital identities,28 regulatory co-operation, and data innovation. Dr Emily Jones et al noted that these provisions draw extensively on the Australia-Singapore Digital Economy Agreement.29

29.Although ‘soft’ commitments, these undertakings to co-operate could lead to further gains. The Professional and Business Services Council told us, “the true value of the digital trade chapter is likely to result from the regulatory dialogue that the FTA will establish between the UK and Australia”.30 We will, however, only be able to judge whether they have had a positive effect once the agreement has been implemented. The impact assessment provides little detail on the potential impacts of the digital trade provisions, both in terms of economic impacts on UK industries and consumers, and on the UK regulatory framework.

30.Other key provisions include the free flow of data, a ban on requirements to localise data or transfer source code, and the legal recognition of electronic contracts and signatures. These are standard provisions in modern free trade agreements and have been welcomed.31

31.The City of London Corporation noted that Australia does not have a data adequacy ruling from the UK Government, which means that Australia’s data protection regime is not interoperable with that of the UK.32 Dr Emily Jones and her team from the Blavatnik School of Government at the University of Oxford further pointed out that Australia does not have data adequacy from the EU. This could present challenges to UK firms when transferring data to Australia, the UK is obliged to safeguard EU data transfers and must be careful not to inadvertently transfer EU data.33 Data adequacy with the EU is important for UK businesses, enabling personal data to continue to flow freely from the EU to the UK, avoiding any new legal barriers. It will be crucial that the Government closely monitors the implementation of the Australia agreement for any developments that could put the EU’s adequacy decision at risk.

32.It is unclear how UK consumers’ data will be protected after being transferred to Australia, as the agreement only commits Parties to implement their own domestic frameworks for data protection. The consumer rights group Which?, while welcoming the focus on online consumer protection, was concerned that UK consumers’ data could be subject to lower levels of protection when transferred on to a third Party via Australia.34 A footnote to Article 14.12 states that compliance with the personal data protection provision can be met in various ways, including through the enforcement of voluntary undertakings of businesses,35 an approach which Emily Jones et al state “is much weaker than the UK GDPR regime”.36

33.We welcome the agreement’s provisions on digital trade. The ban on data localisation requirements should benefit many sectors, including financial services. The Government’s Impact Assessment did not quantify the potential impacts of the digital trade provisions. Given the importance of digital trade, we call on the Government to strengthen their assessments and ensure that it is included in Impact Assessments in future.

34.Some questions remain regarding the protection of personal data, given the differences between the UK and Australia’s data protection regimes. We ask the Government to explain how it will ensure that UK citizens’ personal data exchanged under the agreement will be protected and offer commitments that digital trade provisions in new FTAs will not risk losing the UK’s data adequacy decision with the EU.

Investment

35.The UK is the third largest direct investor in Australia and the second largest recipient of Australian foreign direct investment, making investment a significant part of the trading relationship. In 2019, UK individuals and companies had over £39 billion directly invested in Australia.37

36.The Government’s Negotiating Objectives sought to establish rules to guarantee UK investors in Australia the same rights and protections they would receive in the UK, and to maintain the UK’s right to regulate in the national interest, including to protect the NHS.38 The Government has been successful in writing these objectives into the agreement.

37.The Investment Chapter includes market access commitments and rules on the fair treatment of investors.39 Annex I contains national treatment provisions for fair treatment of investors and raises Australia’s foreign investment screening threshold for UK investors for non-sensitive investments to 1.25 billion Australian dollars.40 Raising the investment screening threshold had been sought by witnesses during the negotiations41 who welcomed the outcome.42

38.However, the UK Trade Policy Observatory (UKTPO) noted that Australia’s investment liberalisation commitments were more restrictive than its commitments on services, with the agreement containing 37 non-conforming measures, or reservations, related to investment, compared to 24 non-conforming measures for cross-border services.43

39.The NHS Confederation and Friends of the Earth welcomed the non-inclusion of investor state dispute settlement (ISDS) provisions, under which individual investors could file complaints against governments and do not have to rely on their home governments to seek redress.44 Instead, the Dispute Settlement Chapter contains a traditional state-to-state dispute settlement mechanism whereby only governments can challenge each other.45 Civil society organisations had been vocal about their concerns over ISDS at the outset of the negotiations.46 Campaign group Keep Our NHS Public raised concerns that ISDS could have a ‘chilling effect’ on the government’s right to regulate in the public interest.47

40.The Government’s position on ISDS in trade agreements has yet to be clarified, though it has stated in the past that the UK was “one of the world’s top users of the investor state dispute resolution mechanisms” and “not a single case has been successful against the UK”.48 While this agreement does not include ISDS, the CPTPP agreement the UK is seeking to join does.

41.We welcome the investment provisions in the agreement.

42.However, Government policy towards investor-state dispute settlement (ISDS)—though not included in this agreement—remains unclear. We call on the Government to clarify its policy towards ISDS, including its position on other mechanisms for investment protection. The absence of a clear policy begs the question whether the omission of ISDS in this agreement was sought by the Government, or whether it assented to an Australian request to exclude it.


3 House of Commons Library, Service industries: Key Economic Indicators, Research Briefing, SN02786, 13 June 2022

4 DIT, UK-Australia: Free Trade Agreement, The UK’s Strategic Approach (July 2020):https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/901886/uk-strategy-australia-free-trade-agreement.pdf [accessed 21 June 2022] Subsequently: Strategic Approach.

5 Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and Australia, CP 689 Volume 1 (17 December 2021), Chapter 8: Cross-Border Trade in Services: https://www.gov.uk/government/publications/ukaustralia-free-trade-agreement-cs-australia-no12022 [accessed 21 June 2022]. Subsequently: UK-Australia FTA

9 Article 8.3 National Treatment, UK-Australia FTA

10 The reservations and exceptions are listed in the schedules of non-conforming measures for services and investment. Each Party has its own schedules, which are provided in Annexes I-III to the UK-Australia FTA.

11 Written evidence from The City of London Corporation (AUT0053); The Professional and Business Services Council (AUT0047) and Q 66 (Penelope Nevill)

12 Written evidence from Royal Institute of British Architects (RIBA) (AUT0030)

13 Written evidence from The Professional and Business Services Council (AUT0047) and The Law Society of Scotland (AUT0045)

14 Article 10.7 Legal Services, UK-Australia FTA

15 Written evidence from the Law Society of England and Wales (AUT0001)

16 Article 10.8, UK-Australia FTA

17 Article 10.7, UK-Australia FTA and Q 78 (Penelope Nevill)

18 Chapter 9 Financial Services, UK-Australia FTA

20 Written evidence from The City of London Corporation (AUT0053)

21 Written evidence from the Royal Society of British Architects (AUT0011) and London Market Group (AUT0015)

24 Joint Declaration on Agriculture and Agribusiness Workers, UK-Australia FTA. See also: Australian Government Department of Home Affairs, ‘Latest news’ (1 June 2022): https://immi.homeaffairs.gov.au/what-we-do/whm-program/latest-news [accessed 21 June 2022]

25 DIT, Explanatory Memorandum on the Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and Australia (16 December 2021), paras 5.7 and 5.8: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1040885/uk-australia-free-trade-agreement-fta-draft-explanatory-memorandum.pdf.[accessed 21 June 2022] Subsequently: EM

26 Strategic Approach, p 10

27 Chapter 14: Digital Trade, UK-Australia FTA

28 Digital identities are a way for people to quickly and easily prove their identity using digital methods, such as a username and password, instead of traditional physical documents such as passports and driving licences.

29 Written evidence from Emily Jones, Danilo Garrido Alves, Beatriz Kira, and Rutendo Tavengerwei (AUT0055)

30 Written evidence from The Professional and Business Services Council (AUT0047)

31 See, for example, written evidence from techUK (AUT0027), the Federation of Small Businesses (AUT0032) and the Professional and Business Services Council (AUT0047).

32 Written evidence from The City of London Corporation (AUT0053)

33 Written evidence from Emily Jones, Danilo Garrido Alves, Beatriz Kira, and Rutendo Tavengerwei (AUT0055)

34 Written evidence from Which? (AUT0046)

36 Written evidence from Emily Jones, Danilo Garrido Alves, Beatriz Kira, and Rutendo Tavengerwei (AUT0055)

37 EM, p 2

38 Strategic Approach, p 11

39 Chapter 13: Investment, UK-Australia FTA

41 Written evidence from the City of London Corporation and TheCityUK (AUT0019) and Octopus Group (AUT0006)

42 Written evidence from the Professional and Business Services Council (AUT0047); Royal Institute of British Architects (AUT0030) and The City of London Corporation (AUT0053)

43 Written evidence from the UKTPO (AUT0056)

44 Written evidence from NHS Confederation (AUT0042) and Friends of the Earth (AUT0038)

46 Written evidence from Trade Justice Movement (AUT0009); Compassion in World Farming (AUT0012) and Keep Our NHS Public (AUT0008) One of the main concerns raised about ISDS was that it would have the effect of constraining the Government from introducing public interest regulatory measures for fear that overseas investors will bring arbitration cases in response.

47 Written evidence from Keep Our NHS Public (AUT0008)

48 Oral evidence taken before the International Trade Committee,  6 March 2019 (Session 2017–19), Q 822 (Dr Liam Fox)




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