Brexit, Travel Services and WTO Rules

  • As part of their travel law specific Brexit series, Nick Parkinson of Travlaw LLP discusses the potential impact of the World Trade Organisation rules on the travel & leisure industry.

Brexit, Travel Services and the WTO Rules

  1. Introduction
  2. What is the WTO?
  3. What are the WTO Rules?
  4. Which Nations are members of the WTO?
  5. UK Travel Companies dealing in the EU after Brexit under WTO Rules
  6. Can the EU simply discriminate against UK travel companies post-Brexit?
  7. Can I start a legal action if WTO Rules have been breached?
  8. Why do I have to rely on the UK government to bring an action under WTO Rules?
  9. Who resolves disputes over a breach of WTO Rules?
  10. Where does the WTO resolve disputes?
  11. What powers do the Dispute Body of the WTO have?
  12. How Long Does It Take To Resolve a WTO Dispute?
  13. What about dealing with countries outside of the EU?
  14. Conclusions

1. Introduction

The UK is currently facing the possibility of leaving the EU on 29/03/19 without a ‘withdrawal agreement’.  This type of Brexit is often referred to as a ‘Hard Brexit’ where WTO Rules apply and, of course, they will apply by default if the UK leaves on 29/03/19 ‘without a deal’.   Much has been discussed in the media about how WTO Rules might affect trade in goods; however much less has been said about how WTO Rules might affect trade in services.  Where trade in services are discussed, the main talking point is often in relation to the UK’s, very important, finance industry and the ability for finance firms to use their EU ‘passporting rights’ to sell services across the EU.  But what about other companies that sell services across the EU?  How will a Hard Brexit affect the Travel Industry?

There are of course many areas of concern for the travel industry being discussed in relation to a Hard Brexit scenario such as the Free Movement of Tourists, Open Skies Agreement, the TOMS VAT scheme and economical factors hitting the pockets of would be travellers as set out in an earlier Travlaw Article in October 2018 here.  However, for the purpose of this article we intend to focus on how a Hard Brexit scenario might affect some of the other rights enjoyed by UK travel companies in that, as a member of the EU, UK based travel companies are currently able to:

  • provide or receive services in any other EU country[1]
  • establish a company or office in any other EU country[2]
  • move workers to and from any other EU country[3]

So, we already know that these rights will disappear automatically in the event of a Hard Brexit.  The question therefore is what rights or restrictions will travel companies be left with under ‘WTO Rules’? But hang on, before we even get to that, what exactly is the WTO? Where is it? How does it work? What if an EU Country or business ‘break the rules’?  What can your company do about it?  To put it simply, when it comes to travel services, this Article will cover all of the basics as to what life might be like in a post-Brexit WTO World.

2. What is the WTO?

The WTO is the short name for the ‘World Trade Organization’.  The WTO deal with rules of trade for goods and services between nations.  Their stated objective is to ensure that trade flows as smoothly, predictably and freely as possible[4].

3. What are ‘WTO Rules’?

In the event of a ‘Hard Brexit’ the UK’s trading relationship for ‘goods and services’ with other countries will default to ‘WTO Rules’[5].  WTO Rules provide guidance[6] on the ability for:

  1. UK companies to supply services to other WTO nations (such as the EU)
  2. Other WTO nations to purchase services from UK companies
  3. UK companies to establish a business or office in countries outside of the UK
  4. Employees or agents of UK companies to enter and stay in other countries temporarily in order to supply a service

The reverse situation is also covered, i.e. the ability of say French companies to provide services to the UK.  However, this article will focus on the implications on the UK’s outbound travel market.

4. Which Nations are members of the WTO?

The vast majority of countries are members of the WTO.   You can find a map showing all of the countries that are WTO members here.

5. UK Travel Companies dealing in the EU after Brexit under WTO Rules

How exactly do UK travel companies operate under WTO Rules?  This is the big question!  Each member of the WTO is obliged to set out a list (known as a Schedule of Commitments) setting out any rights and restrictions in relation to each trade sector (e.g. travel).  The EU have set out a list of rights and restrictions in relation to the following travel related activities:

  • Travel agencies and Tour Operators
  • Travel Guides Services, and
  • Hotel, Restaurant & Catering Services

So, let’s consider what rules have been laid out for…

Travel agencies and Tour Operators

Travel agencies and Tour Operators (including tour managers) have the following rights/restrictions in relation to EU countries under WTO Rules[7]:

  1. Supplying services to EU Countries: There are no restrictions.
  1. EU Countries purchasing services from UK companies: There are no restrictions.
  1. Establishing a business or office in an EU Country: There are no restrictions with three exceptions:

Belgium – a permanent base must be established in Belgium and the person directing the daily operations (or asking for the authorisation) must be an EU national

Portugal – a commercial company (similar to a limited company on Companies House) must be established with a corporate base in Portugal

Italy – the travel company must pass an ‘economical needs’ test

  1. Free movement of workers: There are no restrictions on the ability of employees or agents of UK companies to enter and stay in other EU countries temporarily in order to supply a service with one exception:

Greece – access is limited to two persons per company

As we can see from the above, on the whole, most EU countries do not want to discourage companies based outside the EU from selling or supplying travel services to or in the EU.  There are, however, some important exceptions to be aware of as highlighted above!

Similar rules apply in relation to Travel Guides Services and Hotel, Restaurant & Catering Services.  If these might affect your business, feel free to get in touch.

6. Can the EU simply discriminate against UK travel companies post-Brexit?

Not easily.  Under the ‘Most Favoured Nation’ Rule the EU have to treat every other WTO nation equally.  This means that if, for example, they let USA companies supply services in to the EU they have to let UK, Japanese etc companies do so also.    The EU cannot easily change their list of rights and restrictions in order to ‘keep out’ or put up extra restrictions against UK travel companies.  To do so, they would need to justify why one or more nations are ‘favoured’ over any other nation.  The UK could, for example, try to justify preferential treatment to Irish companies due to the close historical connections between the two countries.  Of course, that could be challenged by other countries.

The EU can, however, give preferential treatment to any country that they have a ‘free trade agreement’ with (see point 13 below).

7. Can I start a legal action if WTO Rules have been breached?

Strictly speaking, the answer is NO.  However, the UK government are able to take action against the nation that is alleged to have breached WTO Rules.

8. Why do I have to rely on the UK government to bring an action under WTO Rules?

Unlike EU Regulations and Directives, the WTO Rules do not have ‘direct effect’.  This means that individuals or companies are unable to personally bring an action against WTO Members if they feel that their rights under the WTO Rules are being breached.  Each nation is free to pass their own laws to enable WTO Rules to be ‘directly effective’; however the major trading members of the WTO have not done so[8] (i.e. the US, the EU, Canada, Japan, China, and so on) and they are unlikely to do so any time soon.

9. Who resolves disputes over a breach of WTO Rules?

The General Council of the WTO act as the ‘Dispute Settlement Body’ (or DSB) for any WTO related disputes[9].  The DSB is represented by ambassadors from the government of each WTO Member.

10. Where does the Dispute Body of the WTO resolve disputes?

Disputes are resolved at the headquarters of the WTO at the ‘William Rappard Centre’ in Geneva, Switzerland.  So, if you were ‘fed up with being told what to do by Brussels’, fear not, after Brexit you will be able to redirect your anger to Geneva instead!

11. What powers do the Dispute Body of the WTO have?

The only power that the Dispute Body of the WTO have is to direct a WTO Member (e.g. the EU) to change their laws, regulations or policies to make them compliant with WTO Agreements.  The Dispute Body will give the WTO Member a ‘reasonable period of time’ to do so.   The DSB will NOT therefore:

  • Punish the infringing member (e.g. with a fine), or
  • Order a WTO Member to pay compensation[10] (although in practice sometimes a WTO member may volunteer compensation to resolve a dispute[11])

Travel companies may therefore rightly be concerned that by the time it takes to resolve a dispute they could already have lost substantial revenue, or possibly even have gone insolvent, with no means of compensation for damages or legal costs at the end even if they win!

12. How Long Does It Take To Resolve a WTO Dispute?

According to the WTO, their target is to settle disputes within 1 year[12], or within 1 year and 4 months in the event of an appeal against the first decision.

13. What about dealing with countries outside of the EU?

It is worth bearing in mind that the EU has a number of free trade agreements with countries outside the EU.  Typically, these trade agreements are focused on goods rather than services.  However, if you are selling or suppling services in or to any country outside of the EU it may be worth considering whether you will lose any rights under one of the EU’s free trade agreements.  Information about the EU’s free trade agreements can be found on the EU Commission’s website here.

14. Conclusions

So there we have it.  The WTO Rules do set out a list of rights and restrictions that will apply in the event of a Hard Brexit.  For the most part, there shouldbe minimal impact on UK companies selling travel services in or to EU countries.  This makes sense in that most countries are keen to encourage inbound tourism to boost local jobs and their economy.  However:

  1. There are some important exceptions in relation to certain EU counties to be aware of as highlighted above
  1. How the WTO Rules should be played out in theory may not pan out in practice. If that happens:
  • Will EU countries introduce subtle restrictions via the local travel regulatory bodies such as licenses, background checks etc? Will these carry an admin fee that will add to your annual operating costs? Will these restrictions slow down business efficiency? Are these a breach of the WTO Rules?  Even if they are, will the industry elect to ‘take it on the chin’ rather than declare war via the WTO?
  • What is the confidence that the UK government will take action on behalf of your company or the travel industry if necessary?
  • Do you have any confidence that any dispute referred to the WTO will be resolved within 12 months as per the WTO’s target?
  • Are you confident that the ambassadors of the WTO Dispute Body are suitably qualified and independent to a similar standard that we would expect of the UK judiciary (typically former solicitors and barristers)?
  • Are you concerned that the WTO are unable to award you compensation? Could your business have gone insolvent by the time any dispute is resolved?  Could other countries know this and use this tactically?
  • Are you confident that there is nothing to worry about because most EU countries are keen to maintain inbound tourism in order to protect local jobs and their own economy? Or are you concerned that, say, the French government could perceive UK travel companies as competition and take steps to put French travel companies in a stronger position in the market?

Brexit is, of course, a highly complex and fast moving (sometimes) issue. We would be delighted to discuss and engage on any travel law related issue – feel free to reach out to Nick@Travlaw.co.uk or any of the Brexit Team – Matt@Travlaw.co.uk, Stephen@Travlaw.co.uk & Farina@Travlaw.co.uk.

Nick Parkinson, Solicitor , Travlaw LLP

References

[1] Article 56 of the TFEU

[2] Article 49 of the TFEU

[3] Article 45 of the TFEU

[4] https://www.wto.org/english/thewto_e/thewto_e.htm

[5] (unless and until a ‘free trade agreement’ is reached with specific counties)

[6] https://www.wto.org/english/tratop_e/serv_e/guide1_e.htm

[7] EU’s Schedule of Commitments (GATS/SC/31) – page 82

[8] http://www.ejil.org/pdfs/25/1/2458.pdf

[9] https://www.wto.org/english/tratop_e/dispu_e/dispu_body_e.htm

[10] In comparison with EU disputes, the CJEU will refer a matter back to the national court (e.g. the UK) which will then be free to make an award for compensation or legal costs as they see fit

[11] Article 22 of the WTO’s DSU – https://www.wto.org/english/tratop_e/dispu_e/dsu_e.htm

[12] https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm