UK lawyers and accountants risk losing in EU Brexit deal, warns report
“More than four and a half million jobs depend on this sector. We are concerned they have been overlooked”
Avocat Reporteur
PROJECT COUNSEL MEDIA
13 October 2020 (Paris, France) – The UK’s £225bn professional services industry is in danger of losing valuable EU business after Brexit, even if the government strikes a “Canada-style” trade deal, a parliamentary committee has warned.
In a report published today, the House of Lords’ EU services subcommittee said Britain’s professional firms – including accountants, lawyers and recruiters – had been ignored in negotiations with Brussels over future trade terms. It concluded that contracts and jobs would remain at risk unless a bespoke agreement for exporting UK services could be reached. Committee chair Baroness Donaghy said:
“More than four and a half million jobs depend on this sector and it contributes almost £225bn to our economy. This sector, and the people who depend on it for their livelihoods, will suffer if its needs are not reflected in the UK’s negotiations with the EU. We are concerned that they have been totally overlooked.
Without a UK-EU agreement, UK lawyers may become unable to operate in the EU under UK-specific corporate structures, in particular limited liability partnerships”.
In recent months, UK prime minister Boris Johnson has indicated that he preferred an EU trade deal similar to Canada’s – which avoids tariffs and quotas – when Brexit transition period ends on December 31. However, the committee stressed that this would not be enough to prevent damaging restrictions on exports of professional services to Europe.
Under the EU-Canada Comprehensive Economic and Trade Agreement (Ceta), European countries can still use “national reservations” to protect their services firms from competition — and this could apply in a UK deal. These carve-outs can include demands that foreign professionals become resident in a certain country, adopt domestic corporate structures or demonstrate that a talent is not available locally. That would potentially make it much more difficult for UK lawyers, real estate agents and university study programmes to operate in the EU.
At the same time, accountants might find themselves adversely affected if the EU were not to recognise UK regulations as an equivalent standard, the peers found. As we noted in a previous post, that issue is being negotiated separately from free trade.
Auditors in Britain could find their checks on accounts of UK companies whose securities are listed in the EU no longer comply with European law, for example. Britain’s audit regulator could similarly be blocked from inspecting work carried out by auditors in an EU jurisdiction working on components of a UK group. On BBC Radio 4 this morning John Boulton, director of technical policy at the Institute of Chartered Accountants in England and Wales, said:
“The hope is that more sensible minds prevail … but that is the reality of EU law suddenly pulling away.”
In the committee’s report, Helen Brennan, a director of KPMG UK, said a lack of equivalence in audit oversight “could contribute to a gradual erosion of trust in the audit itself”.
Mutual recognition of professional qualifications will also be required to enable UK firms to provide EU services after January 1. The report warned that the Ceta deal had been ineffective. Lawyers would again be at risk, it cautioned, although it acknowledged UK government efforts to secure some recognition of legal qualifications.
Travel restrictions may even make it impossible for UK professionals to spend time in the EU. In its report, the committee pointed out that Ceta allowed EU countries “to impose reservations on short-term business visitors” – limiting their stays to 90 days a year – and visas might take up to 90 days to process.
The General Agreement on Trade in Services (GATS)
One important point is how GATS, WTO Agreement in force for the past 25-odd years, fits in all of this. GATS sets out a series of commitments by WTO Member States to eliminate discriminatory restrictions on the delivery of services by nationals from other Member States, and to eliminate quantitative restrictions in respect of the delivery of such services, across four separate “modes” of services delivery. Jack Welby of Deloitte Legal set it out as follows for me:
Most modern FTAs (including the CETA) reaffirm and deepen such commitments. So in that sense both the WTO and FTAs like CETA do cover services. But what the WTO and modern FTAs do not do – unlike the EU Single Market – is put in place a detailed set of commitments for mutual recognition of qualifications, and domestic legal presumptions favouring recognition of professional qualifications from other States. Nor to they solve issues mentioned in this article such as treatment of social security payments while working in another State.
In practice, this means that a Canadian professional under the CETA no longer faces domestic German laws that might say, for example, “one needs to be a resident in Germany to provide service X”. So he or she can come to Frankfurt and offer service X on a temporary basis. But that service professional might still need to obtain some kind of license to carry out the service in Germany – just like any other professional seeking to offer that service in Germany. In practice, this licensing requirement, while non-discriminatory (applies to everyone) becomes an additional barrier.
It’s these kinds of non-discriminatory barriers the EU has painstakingly been seeking to eliminate, in particular with the Services Directive of 2006. This legal regime means, precisely, that a UK qualified service provider can perform that same service relatively seamlessly across the EU. That is what UK services providers will lose, among other things, in a goods-only Brexit.
And by the way, every time goods are sold, there is almost always a follow-up services component. Not being able to provide that service makes the goods less attractive.
And by the way, it is difficult to conceive of a services-only FTA between the UK and third party countries (i.e. outside of the EU). There are multilateral efforts at deepening GATS within the WTO, but they’re not getting very far. Precisely because all of the mutual-recognition aspects of services trade are awkward to overcome other than on a detailed sector-by-sector, specialist discussion basis between partners who trust each other. This is the EU’s great accoplishment thus far in the services sector. Ridiculous for the UK to be throwing this away.
Social media explodes
There has been a lot of reaction across social media on this issue (naturally). Here are a few comments:
*It says a lot about the UKIP Tory understanding of the UK economy and their poor negotiating skills with the EU that they:
– Focus on saving from extinction UK Manufacturing / Physical goods, 20% of UK value-add and where we have a massive trade deficit (ie we’re relatively not very good). Deficit of GBP 95 billion in goods in 2017 with EU.
– Allow Services to die, which are 80% of UK value-add and where we had a massive trade surplus of GBP 28 billion in 2017 with EU (which mainly pays for the deficit on manufactured goods).
Fabulous logic.
Analogous to choosing to take A Levels in your worst result O Levels instead of your best !
As others have said, the EU Services Free Trade is far from perfect, but is the best in existence in the world currently.
*This is nuts. Operationally, it is the services that really needs Freedom of Movement, not goods. And operationally, SM (EU standards and regulations and ECJ ruling) + CU – FoM would work. But politically, allowing a third country free access for goods to their internal market means allowing the third country to export unemployment. However, in the case of the EU-UK trade in goods (but not in services), it is the EU who exports more to the UK than the UK exports to the EU, even for cars, and the UK that exports far more services to the EU. But I think the reality is that goods cannot really be isolated from services.
*Well, surprise, surprise. One can speculate only but the fact that the predominant sector of the UK economy (service) failed to match the lobbying effort support of manufacturing shows you what happens. In financial services, the city may be “Europe’s banker” but it did not take seriously that part of its business book. Also, the Tory politics are excruciating. Institutions involved in EU services are often affiliates of EU or US institutions, many of them employing a very diverse staff – meaning no UK voters. On the other side of the spectrum, there are many firms working extensively with off shore money and off shore clients and that business is rather concerned with post-Panama papers regulation in the EU and staying out of the next turn of regulation might appeal to many. After all, when your money is off shore and taxed on repatriation (consumption) only … eh, what the use. “Thrown under the bus” is a particularly apt metaphor for what is about to happen to the services sector. Specifically, a red one with an implausibly large number painted on the side.
*Which explains why all those U.S. law firms (and a few UK law firms) were beefing up their Dublin and Paris offices the last two years. They knew. Losing Freedom of Movement means that UK citizens are likely to require work permits where delivery of a service requires on – site work. Not only are work permits an additional unnecessary cost in time and money, but the mechanism itself massively distorts the market in favour of “natives”. If we look further afield, we will still have to get work permits, but the impact and costs of travel increase. Yes, I get it. Arguably the bigger issue for “regulated professions” (e.g. lawyers, accountants etc) is mutual recognition of qualifications. But if this goes then it’s back to my main point: unless you are locally qualified in the country you provide services in, you can’t provide them. Irish lawyers are probably celebrating their good fortunes because they will remain the only country in the EU to operate under common law.
*Hmm. While software development is not a “regulated profession”, arguably it might be, according to some of the white papers floating around Brussels re: the new EU digital agenda. How does that fit in the goods/services divide?
*Brexiteers example of stupidity #49,234 (actually, I lost count. The Brexiteers never dismissed economics but said a free trade deal with the EU would be “easy peasy”. They were right we could get a Canada type deal but they failed to understand the benefits of the customs union.
*My firm had significant business working directly for the Commission and or EU agencies/ EU funded programmes. But even more substantial was the credibility this gave us in bidding for UK/EU private sector work and also more global projects. We lost 85% of that business because our EU client base said the end result of Brexit was too “iffy” and they’d look to EU native talent. We cut 65 staff (from what was a total of 160). My firm is not alone. Leaving the EU, inter alia, represents the destruction of a massive amount of intellectual and human capital.
*This should be no surprise here. This has been known for 3 years, if you track the select committee meetings about this topic on the parliamentary website. There is no “risk of losing out” what they have already lost because we in effect had no deal on the table in any of these sectors. I suggest you read/watch Ivan Rogers lecture “The ghost of Christmas yet to come” which you can find here.
I’ll close this out with one final social media comment:
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The EU-Canada Comprehensive Economic and Trade Agreement (Ceta)
The CETA on National Treatment in Cross-Border Trade in Services, and the related paragraph confirming that notwithstanding non-discriminatory treatment, a variety of formal requirements for the delivery of that service still apply.
It’s elements of the latter, particularly 9.4(a), that the EU has sought to soften as between EU Member States.
ARTICLE 9.3 National treatment
1. Each Party shall accord to service suppliers and services of the other Party treatment no less favourable than that it accords, in like situations, to its own service suppliers and services.
2. For greater certainty, the treatment accorded by a Party pursuant to paragraph 1 means, withrespect to a government in Canada other than at the federal level, or, with respect to a government of or in a Member State of the European Union, treatment no less favourable than the most favourable treatment accorded, in like situations, by that government to its own service suppliers and services.
ARTICLE 9.4 Formal requirements
Article 9.3 does not prevent a Party from adopting or maintaining a measure that prescribes formal requirements in connection with the supply of a service, provided that such requirements are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination. These measures include requirements:
(a) to obtain a licence, registration, certification, or authorisation in order to supply a service or as a membership requirement of a particular profession, such as requiring membership in a professional organisation or participation in collective compensation funds for members of professional organisations;
(b) for a service supplier to have a local agent for service or maintain a local address;
(c) to speak a national language or hold a driver’s licence; or
(d) that a service supplier:
(i) post a bond or other form of financial security;
(ii) establish or contribute to a trust account;
(iii) maintain a particular type and amount of insurance;
(iv) provide other similar guarantees; or
(v) provide access to records.
