UK Brexit Proposal: Services and Investment
Freedom of businesses and professionals to provide services anywhere within the European Union(EU) is a core principle governing the EU Single Market for Services. And the EU single market has been good to UK service providers –
- UK firms provided over 14% EU audit and accountancy imports in 2016; and
- UK-located banks underwrote about ½ of the debt and equity issued by EU businesses
The above figures are provided in the UK’s Brexit Proposal and intended to show not only the interconnectedness of EU and UK services markets in key areas, but also their interdependence.This is why, as with the UK Brexit proposal on trade in goods, its proposal on trade in services and investments aims to preserve core benefits of EU membership.
To replace UK participation in the EU single market for services, the UK government has proposed to negotiate a Free Trade Agreement in Services. Its goal will be to arrive at “new arrangements” that will “preserve the mutual benefits of integrated markets” and replace free movement with “ease of movement” for UK citizens.
Proposal for EU-UK Free Trade Agreement in Services
The proposed Free Trade Agreement in Services would incorporate –
- Broad coverage of services sectors with supplementary provisions for professional and business services, e.g. permitting joint practices between lawyers and continued ownership of accountancy firms;
- Minimal barriers to the four modes by which services are traded across national bordersso that UK firms could continue to be established and do business freely in the EU and vice versa;
- No restrictions on numbers of services providers;
- Commitments on “National Treatment” so that UK and EU service providers are treated as local providers in each other’s markets;
- Provisions on digital trade and e-commerce that include the continued free flows of personal data between the UK and the EU;
- System for mutual recognition of professional qualifications along the lines of the EU’s Mutual Recognition of Qualifications Directive; and
- New economic and regulatory arrangements for financial services.
A 2016 EU Briefing Paper, Brexit: the United Kingdom and EU Financial Services describes the interconnectedness of the UK and EU financial services sector. 50% of the world’s financial firms have based their European headquarters in London. In 2015, the financial sector earned about 11% of the UK’s GDP, half of which related with doing business in the EU. 46% of the EU equity is raised in London. 78% of European capital markets and investment banking revenues in the EU wholesale market are based in the UK, 55% of which originate from continental EU clients. The paper notes that London’s importance as the world’s leading global financial center predates the single market. By the nineties, however, the city was benefiting from its participation in the EU single market, the paper continues. Through their use of “regulatory passports”, banks have been able to cost-effectively operate within the single market without the expense of setting up full-fledged subsidiaries. This passporting regime disappears once the UK leaves the EU single market.
The UK Brexit proposal acknowledges this loss. It also argues that the UK and the EU have established a partnership that provides the institutional and regulatory framework to manage financial stability, and that this partnership needs to continue. This would be done, the UK proposes, through an enhanced version of the EU third-country equivalence regime. The EU uses equivalence regimes to assess the extent to which the regulatory and enforcement regime of a non-EU country seeking to access the EU internal market for financial services is equivalent to that of the EU. The proposed EU-UK equivalence regime would incorporate mechanisms for bilateral discussions on rule changes, information-sharing, and “reciprocal supervisory cooperation”.
The EU’s chief Brexit negotiator has rejected this proposal as an attempt to create a system to be run jointly by the EU and the UK. The UK Brexit proposal has also displeased its financial services sector. Any arrangement on post-Brexit trade in services between the EU and UK will turn on the ability to agree on the future of the financial services sector. However, anticipating the lack of agreement, banks have already begun moving staff to new European locations.
Framework for Mobility
Freedom of movement and residence within the single market is a fundamental right of EU citizenship.The UK Brexit Proposal recognizes that UK citizens will lose this right as of December 2020 when the UK leaves the EU. Nevertheless, the UK proposes to maintain some benefits of free movement, including –
- Visa-free travel between the UK and the EU for tourism and temporary business activity;
- Continued use by UK citizens of the European Health Insurance Card to receive healthcare while on holiday;
- Continued access by UK youth to EU universities and cultural exchanges; and
- Arrangements to allow UK citizens living in the EU to continue to benefit from their pension entitlements and healthcare.
In return, the UK will have to be prepared to give to EU migrants some of the access and rights that Brexiters voted to deny them.
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