Brexit and Ireland – Impact on UK service providers of leaving without a deal
Brexit and Ireland – Impact on UK service providers of leaving without a deal
If the UK leaves the EU on 31 October 2019 without a deal, the UK will become a ‘third country’ to the EU. Trade with the EU would be based on the rules of World Trade Organisation (WTO) and in particular under the General Agreement on Trade in Services (GATS). UK service providers will also be required to comply with rules set by individual Member States. This will impact Ireland given the high level of cross-border provision of services by businesses from the UK into Ireland.
The WTO trading system provides a broad global framework for continued liberalisation of trade in services. GATS sets the baseline for liberalisation of services trade. It prohibits discrimination between members, and requires national treatment of foreign providers, as well as transparency and objectivity of national regulations. Members of the WTO commit to opening markets in specific sectors.
What are the main consequences of a no-deal Brexit for the provision of services from the UK trading?
1. Absence of mutual recognition
Mutual recognition of regulatory regimes will cease.
UK service providers will not be treated as if they were local businesses in the Member State where they offer their services.
Such UK businesses will be treated as from any other third country provider (e.g. the US) and will have to abide by host state rules of each Member State (as opposed to the current single set of EU rules).
2. Compliance with host state rules
UK service providers would need to comply with host state rules of each Member State (e.g. Irish rules) rather than, as currently, a single set of EU rules.
Host state rules would apply to both UK businesses wishing to sell services across the EU and willing to establish themselves in a Member State (e.g. in Ireland).
Member States tend to have their own set of rules on business and property ownership, visas for third country nationals and recognition of third country educational qualifications - there is no uniform EU external services trade policy towards non-EU members.
There are some common requirements for third country providers into the EU which include the below. However, these measures don't apply to Ireland.
A Long Term Residents Directive
A Blue Card (an EU work permit) for certain skilled workers (including under the Intra-Corporate Transfers Directive)
3. GATS rules
UK service providers seeking access to the EU would be subject to the access rules set by the GATS.
These rules are limited and are nothing like as extensive as the Single Market freedoms.
UK service providers cannot enforce GATS provisions in national courts.
4. UK regulatory framework and EU law
As the UK regulatory framework would not be recognised under EU law in the same way as it is now, services from the UK will not be regarded as automatically compliant in the EU under EU law.
Authorisations or licences to provide a service and observe quotas may be needed by UK service providers.
Compliance with local business regulations (e.g. insurance, company law) would be required.
Regulated sectors with EEA nationality requirements might limit UK service providers in the EU (e.g. prior recognition of professional qualifications).
5. Establishment in and travel to a Member State
UK nationals looking to set up a business may be subject to more stringent authorisations or licencing requirements (e.g. ownership of property, company law restrictions and nationality/residency residency/equity ownership requirements).
Mutual recognition of professional qualifications (e.g. engineers, architects, doctors and other professions) would no longer apply - qualifications would need to be recognised in each Member State (e.g. Ireland) according to their own rules.
Business travel and visa requirements may be subject to different host state rules (e.g. affecting companies and the self-employed).
If formally approved by the EU under Regulation 2018/1806, the UK may be included in a list of countries whose nationals do not need a visa to enter the EU – this would grant UK nationals who are British citizens visa-free travel to the EU after Brexit, provided the UK also grants reciprocal and non-discriminatory visa-free travel to EU citizens travelling to the UK after Brexit.
6. Financial services
The UK’s financial services sector is the largest in the EU. EU banks and insurance companies operate in London, as UK companies do in the EU, under a system of passports. Any company authorised in a Member State can operate in any other Member State under its passport. This passport system would no longer apply on a no-deal Brexit.
7. Services and the impact of Brexit on trade with third countries
Without a deal, the UK’s trade in services with the rest of the world would be governed by GATS and the UK’s own trade agreements.
Access to the EU market would be limited as a result of Brexit and access to markets of EU free trade agreements with third countries such as Singapore, Canada, Japan and Switzerland would depend on the UK either converting the EU's free trade Agreements (FTAs) into UK FTAs or the UK agreeing entirely new FTAs.
There is no certainty that that the UK would easily (or at all) be able to convert EU FTAs into UK-friendly FTAs with such third countries given the specificity of these FTAs.
What are the main principles underlying trading services under GATS?
At this stage (and things may change closer to 31 October 2019), it seems that the main frame of reference for the provision of services traded from the UK will be the application of GATS.
The UK is a Member of the WTO and that will continue post-Brexit. WTO trading relies on a global framework for trade liberalisation in services under GATS – there are few compulsory rules. WTO Members have committed to opening service markets in specific sectors under GATS. WTO Members can opt to trade under more liberal conditions than their specific WTO commitments. There are GATS obligations and principles, which bind all WTO Members, and there are country-specific commitments to liberalise certain sectors. GATS has four modes of trading services:
i. supply across borders
ii. consumers crossing borders
iii. a commercial presence in another country
iv. service providers crossing borders
The main GATS principles which bind all WTO Members are:
Most favoured nation (MFN) treatment (i.e. all trading partners are treated equally (whether with some or no restrictions) and without discrimination). MFN status applies to services in the same way as it applies to trade in goods under the WTO rules but there is flexibility to apply exceptional treatment than for goods;
National treatment (i.e. foreign service providers must not be treated worse than the domestic service providers)
Transparency (i.e. all applicable rules and regulations must be clearly described to avoid hidden barriers to trade)
National regulations have to be objective and reasonable.
Ireland will trade in services with the UK in a post-Brexit no-deal scenario under the WTO rules (and in particular under GATS). This is less clear and less comprehensive than the framework for the provision of services under the EU rules (e.g. no mutual standards, no mutual recognition and less clear enforcement mechanisms). There will be much uncertainty, hidden barriers to trade and scope for potential confusion (at least in the early days of Brexit and probably beyond). A frequently ignored aspect of Brexit is that trade in goods often depends on parallel trade in services – this mixture will add to the confusion. Irish business and users of UK services in Ireland should prepare in the event of a no-deal Brexit if they have to rely on WTO rules to trade with the UK.
For queries or for further information on this topic please contact Alan McCarthy, Partner, EU, Competition & Procurement, or any other member of A&L Goodbody's EU & Competition team.