Cross-border trade in services

What does the Trade Agreement say?

• There is a commitment that no new ‘behind the border’ trade barriers will be applied to service suppliers, including numerical quotas; economic needs tests; joint venture requirements; equity caps; restrictions on corporate form; nationality requirements for senior managers or boards of directors; or performance requirements such as restrictions on export.

• There will be no requirement to establish or maintain a local presence, or to be a resident in either territory, in order to supply a service.

• There will be ‘national treatment’ of service suppliers to provide for non-discrimination between UK and EU businesses.

• ‘Most favoured nation’ provisions to ensure the treatment of service suppliers keeps pace with either party’s future FTAs.

• Provisions to allow UK solicitors, barristers and advocates to advise on home country and international law across the EU.

• While the general commitments in the main text are broad, in practice there are extensive member state reservations in the annexes across a range of sectors which take precedence. For instance, despite the generic provisions, the supply of insurance in Germany, Hungary and Lithuania requires the establishment of a local entity; maritime freight handling services in Italy are subject to an economic needs test; suppliers of construction services in Cyprus must be of Cypriot nationality; and architects in France have limitations on the type of legal entity under which they can establish.
  

How does this compare to what was expected?

The UK was aiming to:

• Ensure service suppliers do not encounter new trade barriers such as economic needs tests and numerical quotas.

• Agree national treatment so that UK service suppliers do not face discrimination against EU providers.

• Secure guarantees on local presence so that UK service suppliers are not required to establish themselves as a legal entity within the EU.

Seen in this context, the UK has negotiated a positive outcome in each area it set out to achieve. However, the true measure of success will be borne out in the impact of country-specific reservations, which are extensive and broad.

What are the actions for business?

• Services businesses operating in EU member states should check for any exemptions in the FTA relevant to their sector in the country they wish to serve and undertake immediate contingency planning for potential new trade barriers.

• Where service requires professional qualifications, there will no longer be mutual recognition so this could present a barrier to provision. See our Mutual Recognition of Professional Qualifications (MRPQ) alert for more information.

• Services requiring physical presence to perform them, or entailing business travel, will still need to adhere to new work permit and immigration rules. See our Temporary entry and stay for business purposes alert for more information.
  

To discuss specific support with your Brexit preparations based on this latest development contact: Deloitte Brexit Insights.