The Temporary Movement of Service Sector Workers After Brexit

Johanna Jacobsson (IE Law School)

Public discussion on Brexit has focused more on goods than services. That is understandable considering that trade in services is harder to explain and harder to put in numbers. It is also harder to liberalize than trade in goods. However, explaining services is worth the effort considering that the UK is currently enjoying a significant surplus when it comes to international trade in services. Much of this surplus comes from financial services, but a big role is also played by business services, including professional services such as legal services and management consulting services, as well as from information and communication services. UK is one of the countries that clearly stands to benefit from further liberalization of global services trade. Such free trade in services is, however, not in sight. While tariffs between WTO members are at an historical low, services still face significant barriers when traded across the borders. This is especially true for the so-called Mode 4, which in WTO terms refers to the movement of people providing services (the first three modes referring to other forms of service provision). Mode 4 is one of the topics that the International Trade Committee of the UK House of Commons chose for analysis in its inquiry concerning UK trade in services, launched in November 2018. This author appeared as a witness in an oral evidence session regarding Mode 4 on 26 June 2019.

When services move, people often move too. Most international trade agreements recognize this by providing specific commitments for people who, for temporary periods, move between countries to provide services. They may be carrying out service contracts or traveling to set up a business. They may also be intra-company transferees who move between the offices of international companies. Mode 4 currently covers only a small part of international services trade, mainly because it remains so poorly liberalized. Even if these kinds of workers are distinctive from labour immigration, countries remain hesitant to take international commitments that would oblige them to give a certain level of access and residence rights to foreign nationals. However, Mode 4 is of key significance to international business. Smooth cross-border service provision, whether in the area of financial or transport services, often requires occasional movement of people between locations in different countries. That is the case especially for professional services such as legal and accounting services. The UK has a strong interest in making sure that lawyers, auditors and accountants working for UK professional firms can continue to travel and provide their services outside the UK.

Conceptually, Mode 4 covers also the movement of less-skilled workers. Once the UK starts negotiating its own services agreements, it is likely to face requests to liberalize temporary movement of workers especially for contractual service suppliers in sectors such as health care, transport and construction. Many developing countries are pushing to liberalize Mode 4 to provide better market access conditions for their abundant labour force. For example, India wants better access conditions in IT and telecommunications services. While under Mode 1 services are provided digitally, under Mode 4 Indian IT professionals can move to other countries to serve in temporary projects or as intra-company transferees. The conditions and the length of their stay is usually strictly limited by the receiving state. The binding of more liberal conditions under Mode 4 is one of India’s key interests in any talks on services trade.

The members of the International Trade Committee were particularly interested to hear about the different visa regimes that EU countries have adopted for Mode 4 entrants. Many countries’ visa regimes do not reflect their international commitments and it is overly difficult for foreign service sector workers to understand which visa or residence permit to apply for. The EU Member States’ regimes are not homogenous in this regard. National residence permits are not harmonized even between the Schengen states. The UK actually stands out with a particularly clear regime as it has implemented a special “GATS visa” that can be applied for work carried out under international law. This temporary worker visa is available if the work is covered by the GATS (General Agreement on Trade in Services) or by “similar agreements between the UK and other countries”, referring to free trade agreements that include commitments for Mode 4.

One of the central questions that was addressed in the hearing was the difference between service supply taking place between EU Member States and between an EU Member State and a third state. The EU has an exceptionally deep internal market in services. It is not perfect but it provides for much better conditions than those granted by WTO members to each other. For example, a company established in one EU Member State can use that country as a springboard to access other Member States and be treated in the same manner as local companies. Service sector professionals can move freely, both for temporary (Mode 4) and permanent purposes (labour immigration). For service suppliers situated outside the EU, the situation is quite different. The EU’s internal market in services is far less harmonized than for goods and a variety of national conditions still remain. Instead of homogenous access rights across the Union, non-EU service suppliers have to respect the regime that is applied in each Member State.

This is especially relevant when it comes to the recognition of professional qualifications, which is as crucial as market access. Access to a country is of little value if one cannot practice one’s profession there. The EU has detailed rules for professional recognition but they do not apply to non-EU nationals. Under WTO law, very little exists in this regard. This means that without access to the EU’s single market, UK professionals risk losing their access to the EU’s recognition scheme as well. Therefore, when negotiating services with the EU, one of the key issues on the table, along with liberal entry and residence rights, should be the recognition of service suppliers’ university degrees, professional certificates and memberships in regulatory bodies. Some of the EU’s free trade agreements pave the way for mutual recognition of professional qualifications, but they stay far from the liberal recognition rules of the single market. The UK should aim to secure a current high level of recognition with the EU and similar less ambitious arrangements with non-EU countries while trying to avoid Mode 4 becoming a target of immigration sceptics.

Johanna Jacobsson is Assistant Professor at IE University in Madrid, Spain. Her main fields of expertise are international trade law and the EU’s internal market law and external trade relations. Johanna holds a PhD in European and international law from the European University Institute, Florence, Italy (2016) and LLB, LLM and BA degrees from University of Helsinki, Finland.