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Some important trade-related aspects of the EU–UK TCA:  A brief comparison with the EU’s four freedoms and WTO rules (Part II)

Some important trade-related aspects of the EU–UK TCA: A brief comparison with the EU’s four freedoms and WTO rules (Part II)

Having examined the issue of free movement of goods (Part I), this post (Part II) discusses the issues of free movement of services, free movement of workers, and free movement of capital.

Part I of this blog

Free movement of services

Restrictions on the freedom to provide services

EU law generally prohibits Member States from restricting the freedom to provide cross-border services. Thus, with some exceptions, suppliers may provide services in other Member States on a temporary basis. This freedom appears to have equivalent definitions under WTO law, namely Mode 1 (Cross-border), Mode 2 (Consumption abroad), and part of Mode 4 (Movement of natural persons) under the General Agreement on Trade in Services (GATS). Contrary to the EU approach, however, WTO law assumes that this freedom is restricted unless members have made explicit commitments to liberalise its market with regard to a particular service. This approach is also referred to as ‘positive’ lists because commitments to ensure freedom to provide services are ‘positively’ listed. In comparison, the EU–UK TCA and the CETA adopt a WTO-plus approach by including ‘negative’ lists to illustrate exceptions. In this way, restrictions on the freedom to provide services are, by default, prohibited by the EU–UK TCA and the CETA unless they are permitted under ‘negative’ lists. It is noteworthy that some regular TCA commitments, such as the ‘most-favoured nation’ clause, do not apply to the area of financial services. Moreover, access to the financial services market is further subject to a carve-out for prudential reasons, including in order to preserve financial stability or the integrity of financial markets. Given the lack of detailed provisions regarding regulatory cooperation on financial services in the TCA, a Memorandum of Understanding is to be agreed by March 2021 in order to establish a framework for cooperation covering such issues as equivalence decisions and regulatory initiatives.

Restrictions on the freedom of establishment

EU law also generally prohibits measures that prevent natural or legal persons from carrying out an economic activity in another Member State on a permanent basis. A similar WTO definition is Mode 3 (commercial presence) under the GATS which, however, does not cover non-services sectors such as manufacturing, agriculture, forestry, fisheries, or energy industries. In addition, contrary to the EU approach which, by default, prohibits restrictions on the freedom of establishment, WTO law assumes that such restrictions are permitted unless members have explicitly agreed to limit restrictions, which, as introduced above, is also referred to as ‘positive’ lists. In comparison, the EU–UK TCA and the CETA adopt a WTO-plus approach by (a) covering non-services sectors and (b) including ‘negative’ lists to illustrate the specific measures that are permitted to restrict the freedom of establishment in the form of annexes to these agreements.

EU

CETA

EU-UK TCA

WTO

Free movement of services

Restrictions on the freedom to provide services

generally prohibited

WTO-plus approach: ‘negative’ list

‘positive’ list

Restrictions on the freedom of establishment

WTO-plus approach: (a) covering non-services sectors and (b) including ‘negative’ lists

‘positive’ list;
non-services sectors are not covered

Free movement of workers

There is no equivalent idea of freedom of movement for workers under WTO law. Perhaps the most relevant WTO provisions could be found the field of trade in services, namely Mode 4 (Movement of natural persons) under the GATS. According to the attached annex on movement of natural persons supplying services, WTO members may commit to limit the restrictions on movement of employees of a foreign service supplier, though such commitments made under Mode 4 are limited in practice. Moreover, the same annex explicitly excludes the substantial freedom of movement for workers as protected under EU law, which includes measures regarding citizenship, residence, or employment on a permanent basis as well as restrictions on access to the employment market. Although the CETA and the EU–UK TCA incorporate the WTO exclusion to regulate the entry and temporary stay of natural persons for business purposes, these agreements adopt a WTO-plus approach by extending the WTO obligations on trade in services to the field of investment. Both agreements have similar definitions of natural persons for business purposes: business visitors for investment purposes, contractual service suppliers, independent professionals, intra-corporate transferees, and short-term business visitors.

EU

CETA

EU-UK TCA

WTO

Free movement of workers

restrictions on the freedom of movement for workers

generally prohibited

WTO-plus approach: extending the WTO obligations on trade in services to the field of investment

depending on the member-specific commitments, restrictions on movement of employees of a foreign service supplier could be covered

Free movement of capital

EU law generally prohibits restrictions on capital movements between Member States as well as between Member States and third countries. In comparison, WTO law only prohibits members from restricting cross-border movement of capital such as payments relating to their specific commitments to liberalise service sectors under the GATS. In other words, restrictions on capital movements are only required to be removed to the extent that such capital flows are essential to fulfil the member-specific commitments on trade in services. Thus, for instance, restrictions on the movement of capital related to the establishment and the continuation of a commercial presence or on the capital flows for performing service transactions are regulated under the GATS. The CETA and the EU–UK TCA adopt a WTO-plus approach by extending the WTO obligations on trade in services to the field of investment.

EU

CETA

EU-UK TCA

WTO

Free movement of capital

restrictions on capital movements between Member States as well as between Member States and third countries

generally prohibited

WTO-plus approach: extending the WTO obligations on trade in services to the field of investment

restrictions are limited to the extent that such capital flows are essential to fulfil the member-specific commitments on trade in services

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