Why lawyers and architects could be losers in UK-EU trade deal

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FT premium subscribers can click here to receive Trade Secrets by emailHello from Brussels. The spike in coronavirus cases in Italy has concentrated minds a lot here on the potential economic impact of the outbreak, but formulating a clear response is another thing. The G20 finance ministers and central bankers meeting in Saudi Arabia at the weekend were in watch-and-wait mode about further stimulus to respond to the threat of a pandemic. Regarding a longer-term structural response, the French finance minister Bruno Le Maire mused about whether globalisation had gone too far and production needed to return to base, but that’s pretty much the default reaction from Paris to anything.With the EU and UK due to adopt the negotiating mandates for their forthcoming trade deal talks this week, today’s main story is on the neglected issue of how services will be treated (tl;dr: not comprehensively). Today’s Tit for Tat is with Ebru Pakcan, Citigroup’s global head of trade for treasury and trade solutions, while our chart of the day looks at the US trade deficit with India ahead of US president Donald Trump’s visit this week.Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com.The first thing we do, let’s disbar all the lawyersIt’s unfashionable. It may be insanely optimistic even to try. But let’s have a shot at discussing something about Brexit other than fishing and car factories. In fact, let’s go wild and crazy and have a look not just at services but at services outside the financial sector.Services are getting on for half of total UK exports. The biggest single chunk of that isn’t finance or even Harry and Meghan (yet) but so-called “other business services”, including regulated professions such as lawyers, architects and accountants. A lot of those services go to the US, true, but the EU is still a big market.Problem: it’s going to be hard to replicate the current access that those professionals have to the EU market from the mutual recognition of their qualifications.Here’s why. Services are notoriously hard to put into trade deals. Most preferential trade agreements (PTAs) don’t go far beyond the (fairly feeble) multilateral World Trade Organization commitments. Regulations are harder to negotiate than tariffs.The EU internal market — thanks, in one of Brexit’s more pervasive ironies, to pressure from the UK as a member state — has an unusually developed degree of mutual recognition of professional qualifications. It’s patchy, yes. But in corporate law, for example, it is relatively easy for professionals qualified in one member state automatically to claim the right to practise across the EU. The only close equivalent anywhere else in the world is the Trans-Tasman agreement between New Zealand and Australia. Replicating this in an EU-UK PTA is going to be, as it were, a hard case to win. EU trade deals largely cover the “common commercial policy” — issues delegated to central EU authority, many of which can be negotiated over relatively easily and voted on en bloc. But the patchwork nature of mutual recognition of professional qualifications in the single market, with a lot of blocking powers for member states, is much harder for non-EU members to access through trade deals.Allowing regulated professionals to practise across borders means getting official regulatory bodies (legal bars, accountancy institutes) and sometimes national governments to recognise foreign qualifications as equivalent. They are generally loath to agree that a non-EU professional whose qualification is recognised by one member state can automatically practise across all of them, lest a single lax national regime act as a backdoor.

The experience of lawyers isn’t the same as that of architects when it comes to mutual recognition of professional qualifications in trade deals © Getty
The EU’s best attempts at mutual recognition of professional qualifications in trade deals, with the bilateral Canada, Japan and South Korea agreements, haven’t gone very far. The Canadian (Ceta) agreement set up a governance framework that individual professions can plug deals into. But Ceta went into force in 2017, and still the only professionals that have got anywhere close are the respective associations of architects, who for some reason always seem to get on.Lawyers, as you’d expect, are made of more disputatious stuff. Discussions between the EU and Canadian legal associations have made little progress. The South Korean trade deal set up a “foreign legal consultant” status whereby EU lawyers in South Korea could give advice to companies without gaining rights of audience in court. But it was only one-way: Korean lawyers did not get the same privileges in EU member states.The redoubtable Helena Raulus, who represents the UK legal profession in Brussels, said: “We would hope that a EU-UK FTA would set up a binding mutual recognition regime for business services. But it will be tricky.”For aforementioned reasons of national autonomy, there aren’t many signs of the EU wanting to do the UK a favour by treating it as an ersatz member state. UK professional associations will probably have to maintain access by a series of bilateral negotiations, sometimes requiring legislation. In Belgium, for example, EU citizenship is required to practise certain types of law: that would have to be changed.There you go, we did a whole Trade Secrets on Brexit and services. It gets about a tenth of the attention it ought to, partly because it’s so bitty. Even within professional services, the experience of lawyers isn’t the same as that of architects, and the issues for British lawyers in Belgium aren’t the same as in the Netherlands. There’s a lot of very tricky and detailed negotiating ahead, inside or outside a EU-UK bilateral PTA. It won’t get as much media attention as fish, but many more jobs are riding on it.Charted watersTrump is visiting Delhi today in his first trip to India, and trade watchers are cautiously hoping a limited trade deal could be signed with India’s prime minister Narendra Modi as part of the visit. A mini-deal could ease growing trade tension between the two countries after the US imposed tariffs on steel and aluminium in 2018, prompting retaliatory tariffs from India — though India’s surplus with the US has narrowed slightly of late.Tit for tatEbru Pakcan, Citigroup’s global head of trade for treasury and trade solutions, joins us to answer three blunt questions. What is the biggest threat to global trade this year?Geopolitical tensions and sluggish economic growth continue to be the biggest challenge for trade in 2020. But beyond more familiar challenges like US-China trade tensions and the coronavirus, we are increasingly seeing relatively new and more unpredictable risks emerging in the form of cyber security threats, growing concerns over climate change and severe weather conditions. As the world becomes more digitally connected and new technologies get deployed in every step of manufacturing, logistics and production cycles, the impact of cyber attacks is likely to be more severe, and therefore many companies cite cyber security as one of their top risks.Are you seeing concerns over the impact of the coronavirus on supply chains, and are companies looking at adapting to become more resilient if things like this happen again?Since the Sars experience, most companies have taken steps to diversify their suppliers as well as putting in place procurement contingencies. Many companies also have an international sales strategy discouraging over-reliance on one specific market. However, economic pressures and limited profit pools force companies to maintain imperfect supply chains with vulnerabilities. Given China’s position in terms of global trade flows, the dependency on suppliers in China and such vulnerabilities are almost unavoidable. On the other hand, we see the positive impact of digitisation over the last decade as most companies are able to continue to operate the activities of their white-collar workers efficiently without employees being physically present at the office.Are current regulations able to cope with the boom in cross-border digital trade? What should regulators be looking at in this area?Current trade rules and regulations also apply to cross-border digital trade, but these are often either not sufficient or unintentionally cumbersome. The speed at which digital trade is growing and accelerated application of technologies such as cloud computing and the internet of things make it difficult for regulators to keep up with a holistic response. While we see many markets making reasonable progress with local data regulations and cyber security policies, interoperability is a key requirement for these regulations to be effective. Collaboration and co-operation between international regulators will be critical in achieving this.Don’t missEU governments will make a final push this week to toughen the bloc’s negotiating position ahead of the opening of trade talks with the UK, even though British officials claim that the EU27 countries are “divided” over their stance.Read moreThe spiralling supply disruptions from China’s coronavirus outbreak have hit the global economy at one of its most vulnerable points in years, as global manufacturing inventory levels hit an eight-year low.Read moreAnd in fresh pharma supply chain concerns, the coronavirus outbreak is causing supply problems for India’s drugmakers and exposing pharma groups’ dependence on Chinese materials.Read moreTokyo talkThe best trade stories from the Nikkei Asian ReviewHow China’s virus-fuelled slowdown will transmit across Asia: every country will be hit, but in different ways.Read moreSamsung Electronics and other South Korean companies are increasing investment in Vietnam against the backdrop of slowing exports resulting from trade friction between the US and China.Read more

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