EU-UK Draft Agreement-3

This is the third of our commentaries on the Agreement that we plan to post. Title II of Part I focuses on services, which are more significant in the UK economy, and – so the commentaries tell us – are less thoroughly treated in the Agreement, as by the EU generally.

PART TWO: TRADE, TRANSPORT, FISHERIES AND OTHER ARRANGEMENTS

Title II: Services and Investment (pages 74-116)

The UK’s export of services is both important to the economy and relatively successful; however, they are not much enhanced, or indeed inhibited, by this Agreement though they are inhibited by other factors (see our comments under Chapter 5 below).

Article SERVIN.1.1 sets the scene with the objectives and many exclusions. The first objective, “affirm their commitment…”, is probably necessary politically, though without any practical or legal meaning. The second objective, “reaffirm the right to regulate within their territories”, is more substantial and marks the change that Brexit has brought about. Points 6 and 7 concerning state purchases and subsidies (see the extracts below) are excluded probably because they are the subject of more detailed measures later.

The definitions, under Article SERVIN.1.2 (k), include useful clarification of the term “legal person of a Party” – they don’t appear to have to be citizens of the EU or UK but must have ‘substantial’ connections with respect to their business operations or shipping interests.

Articles SERVIN.2.3 and 2.4 set up some mutual rights and obligations for investors in each other’s territories, as well as opportunities for disputes, probably unavoidably, because they can override international agreements relating to standards and to double taxation; though these measures are new and do not apply retrospectively.

The next Chapter 3: Cross-border trade in services, and Chapter 4: Entry and temporary stay of natural persons for business purposes, continue the mutual rights and obligations.

Chapter 5: Regulatory framework contributes more to the mutual rights and obligations, and applies to measures by the Parties relating to licensing requirements and procedures, qualification requirements and procedures, formalities and technical standards. For the purposes of this Section, the term ‘technical standards’ does not include regulatory or implementing technical standards for financial services, which we have to assume are detailed among the annexes. This may or may not create potential difficulties for the UK, whose economy majors in financial services.

Article SERVIN.5.13 allows each party to specify “necessary professional qualifications” in its territory. Point 2 may enable organisations to specify qualifications that include language or other requirements that effectively exclude professionals from one party from working in the other; this would probably be asymmetrical and disadvantage UK individuals in practice. This article appears to dissolve the mutual recognition of professional qualifications established in the EU. We must look elsewhere in the Agreement to find whether similar restrictions apply in financial services.

Article SERVIN.5.23 permits a telecommunications company from one party to operate in the territory of the other. Article SERVIN.5.25 requires telecommunications companies in one territory to give access to organisations in the territory of the other party. We interpret Article SERVIN.5.36 to mean that UK citizens will no longer be able to take advantage of EU restrictions on roaming charges when they visit the EU.

We focus more closely on Section 5 as it concerns financial services, which form about 80% of the UK’s commercial export activities.

Financial and legal services

Article SERVIN.5.37 introduces the scope of this section and Article SERVIN.5.38 defines what is meant in this context by ‘financial services’. In particular “new financial services” are defined as those that are provided in the territory of one party but not the other, perhaps giving scope to regulate exchanges of services across the border.

Article SERVIN.5.39 indicates how “prudential” arguments may be used in future to limit cross-border provision of financial services, while Article SERVIN.5.41 uses what was a powerful term in UK law but has proved a rather weak expression in treaties with the EU – “best endeavours” – to commit the Parties to adhere to international standards. It will be interesting to see how “best endeavours” is interpreted, generally and when disputes come before the independent arbitrators. Article SERVIN.5.39 has been widely interpreted, in the UK at least, as enabling EU centres for financial services, notably Frankfurt, Paris and Brussels, to disable such services from the UK, notably London, in order to attract organisations to its own territory.

The non-recognition of professional qualifications and abandonment of mutual recognition of financial services, the strongest of all UK services, are more likely to enhance Singapore, Hong Kong and New York than the prospects of Paris or Frankfurt, despite some forced transfers of staff and capital by UK-based firms to enable them to continue existing business within the EU.

Article SERVIN.5.47 describes the scope of legal services and states that each party is entitled to do its own thing in this area, provided that they do so “in a non-discriminatory manner”. It is difficult to judge how this article will affect the provision of legal services between the Parties, as many organisations based in the EU use company law and legal services provided from the UK. Again there is a possibility of bias, so we will have to wait to see how this condition is applied in practice.

Conclusion

The deal shows its last-minute nature and is obviously provisional, with much discussion and disagreement still to come. Nevertheless, the deed is done and, if it’s true that Britain has escaped the clutches of the CJEU, then we can relax a bit, at least until the first dispute is launched by one side or the other.

We remain concerned about the scope for amending the Agreement, directly following disputes or indirectly by the Partnership Council (PC) and its many subsidiaries, notably this from the Preamble: “the Parties may supplement this Agreement with other agreements forming an integral part of their overall bilateral relations“, which emphasises the provisional nature of the Agreement but continues the negotiations as if there was no such agreement [1]. This is obviously a political insert that both sides have agreed to but why has no one mentioned it and its implications? It reminds us of the Joint Committee of the WA though we haven’t yet seen it stated that the PC can overrule either parliament [2].

Extracts from the Trade and Cooperation Agreement document

PART TWO: TRADE, TRANSPORT, FISHERIES AND OTHER ARRANGEMENTS

Title II: Services and Investment

Article SERVIN.1.1: Objective and scope

1. The Parties affirm their commitment to establish a favourable climate for the development of trade and investment between them.

2. The Parties reaffirm the right to regulate within their territories to achieve legitimate policy objectives…

6. This Title does not apply to any measure of a Party with respect to public procurement of a good or service purchased for governmental purposes, and not with a view to commercial resale…

7. Except for Article SERVIN.2.6 [Performance requirements], this Title does not apply to subsidies or grants provided by the Parties, including government-supported loans, guarantees and insurance.

Article SERVIN.2.3: National treatment

1. Each Party shall accord to investors of the other Party…treatment no less favourable than that it accords…to its own investors and to their enterprises, with respect to their establishment and operation in its territory.

Article SERVIN.2.4: Most favoured nation treatment

1. Each Party shall accord to investors of the other Party…treatment no less favourable than that it accords…to investors of a third country and to their enterprises, with respect to establishment in its territory.

Article SERVIN.5.13: Professional qualifications

1. Nothing in this Article shall prevent a Party from requiring that natural persons possess the necessary professional qualifications specified in the territory where the activity is performed, for the sector of activity concerned.

2. The professional bodies or authorities, which are relevant for the sector of activity concerned in their respective territories, may develop and provide joint recommendations on the recognition of professional qualifications to the Partnership Council.

Article SERVIN.5.23: Authorisation to provide telecommunications networks or services

1. Each Party shall permit the provision of telecommunications networks or telecommunications services without a prior formal authorisation

Article SERVIN.5.25: Access and use

1. Each Party shall ensure that any covered enterprise or service supplier of the other Party is accorded access to and use of public telecommunications networks or public telecommunications services on reasonable and non-discriminatory27 terms and conditions.

Article SERVIN.5.36: International mobile roaming

4. Nothing in this Article shall require a Party to regulate rates or conditions for international mobile roaming services.

Section 5: Financial services

Article SERVIN.5.37 Scope

1. This Section applies to measures of a Party affecting the supply of financial services in addition to Chapters 1, 2, 3 and 4 of this Title, and to Sections 1 and 2 of this Chapter.

Article SERVIN.5.38: Definitions

(a) “financial service” means any service of a financial nature offered by a financial service supplier of a Party

(b) “financial service supplier” means any natural or legal person of a Party that seeks to supply or supplies financial services…

(c) “new financial service” means a service of a financial nature including services related to existing and new products or the manner in which a product is delivered, that is not supplied by any financial service supplier in the territory of a Party but which is supplied in the territory of the other Party;

Article SERVIN.5.39: Prudential carve-out

1. Nothing in this Agreement shall prevent a Party from adopting or maintaining measures for prudential reasons… (footnote: For greater certainty, this shall not prevent a Party from adopting or maintaining measures for prudential reasons in relation to branches established in its territory by legal persons in the other Party.)

Article SERVIN.5.41: International standards

The Parties shall make their best endeavours to ensure that internationally agreed standards in the financial services sector…are implemented and applied in their territory.

Section 7: Legal services

Article SERVIN.5.47: Scope

1. This Section applies to measures of a Party affecting the supply of designated legal services in addition to Chapters 1, 2, 3, 4 of this Title and to Sections 1 and 2 of this Chapter.

2. Nothing in this Section shall affect the right of a Party to regulate and supervise the supply of designated legal services in its territory in a non-discriminatory manner.

[1] EU-UK Draft Agreement-1

[2] Draft Withdrawal Agreement: a Fatal Flaw

Note, from Wikipedia on GATS: en.wikipedia.org/wiki/General_Agreement_on_Trade_in_Services

commitments are one-way and are not to be wound back once entered into “; even though not directly applicable to EU-UK trade perhaps, is the EU acting contrary to the spirit of GATS (to which it is signed up)?


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