Advertising Association Response to UK trade in services inquiry

Transcription

1 Advertising Association Response to UK trade in services inquiry Executive Summary 1. The UK s advertising industry, renowned throughout the world for its excellence and creativity, benefits the country s economy and society in a number of ways. It has a huge impact on economic performance, supports the growth of small- and medium sized businesses, generates large-scale employment and makes a considerable contribution to UK exports. Advertising conveys important information about products and services and, as explained in our submission, interacts with goods in a number of areas. 2. Restrictions on advertising tend to be rooted in domestic regulation and stronger horizontal disciplines in any trade agreement would be helpful to the exports of UK advertising. If UK advertising services providers are put at a disadvantage compared to local firms, the UK s advertising industry which does so much to fuel the economy - will suffer, leading to diminished choice for brand owners and less opportunity for them to market their goods and services. 3. We therefore see merit in the UK identifying and pursuing offensive interests for the advertising industry, where appropriate, through a new trade liberalisation agenda that is balanced against the need to protect specific domestic defensive interests i.e. around broadcasting. We believe this can be achieved through a combination of bilateral, plurilateral and multilateral trade deals, as well as via broader trade instruments. The UK s trade strategy has the potential to strengthen the sector further by facilitating even higher exports than what we deliver today. About the Advertising Association 4. The membership of the Advertising Association is very broad and includes the associations representing industry sectors, such as the advertisers (through ISBA), the agencies and advertising production houses (through the IPA and APA), all the media (from broadcasters and publishers, cinema, radio, outdoor and digital) and marketing services such as direct marketing, promotions and market research. Given the broad membership of the Advertising Association it is important to set out that this submission focuses on the case for the advertising industry and not related industry sectors (for example, UK broadcasters take a different view on trade liberalisation given the need to maintain the UK s unique television ecology built up around the PSB system). 5. Advertising is a driver of economic growth and competition. Every pound spent on advertising returns 6 to GDP. Advertising spend will be over 23.5 billion this year and this results in over 130bn to GDP, supporting 1 million jobs across the UK. 6. According to Deloitte research carried out on behalf of the Advertising Association, the one million jobs supported by advertising can be broken down as follows: 350,000 jobs in advertising and the in-house (brands) production of advertising 76,000 jobs in the media sectors supported by revenue from advertising 560,000 jobs supported by the advertising industry across the wider economy 7. The UK is a world-class hub for advertising, with the latest available figures also showing exports of British ad services reached a record high of 5.8bn in 2016.

2 8. Please contact Konrad Shek for further information on any of the points raised in this submission. Our response What are the main barriers faced by UK services exporters? 9. Advertising informs, entertains, persuades, dissuades and helps to enhance the perception of value. Its effects stretch across the economy, with roles ranging from an enabler of efficient markets to a significant supporter of the creative industries Turning to trade, restrictions on the distribution and placement of advertising services in third markets could delay the introduction of a company s commercial message, and hence impact the introduction of new goods or services to that market. These restrictions may affect the competitiveness of foreign advertising services providers compared to domestic firms, but also brand owners suffer as a result of diminished choice. 11. According to the WTO 2, advertising services have been committed by 51 WTO Members, counting EU Member States individually, which together represent slightly over 80 percent of world merchandise trade. 12. However, the advertising industry s main hurdle when accessing third country markets is predominantly caused by domestic regulation. In particular the advertising industry are concerned about encountering barriers such as: Restrictions on the importation and broadcast of foreign-produced television commercials; Residency requirements for advertising production professionals filming in some countries and/or for employees of the advertising firm; Requirements for local participation in the production of advertising transmitted through an electronic medium; Requirements for local-post production work (e.g. editing, music, sequence editing); Equity limitations on foreign ownership of advertising firms; Requirements that host-country nationals hold managerial positions in foreign-owned advertising firms; Requirements that program services carried by cable or satellite be local in order to carry certain advertising. To what extent, and in which sectors, do goods and services exports interact? 13. For advertising, goods and services interact in three core areas: the advertising of products and brands; the temporary import of equipment to film or produce advertising campaigns on location; and the use of the commodity newsprint by the publishing industry. a) Whilst in principle it is possible to build a brand or entering a foreign market without spending on advertising, in reality it is not straightforward. Brands typically compete on the mental and physical availability of a product 3, and foreign brands will invariably need to compete with local brands too. Research suggests that advertising has an important role in the initial launch of a new brand 4 and that it has a pronounced effect on short term sales DP.aspx?language=E&CatalogueIdList=96559,76656,61261,35136,20387&CurrentCatalogueIdIndex=3&FullTex thash=&hasenglishrecord=true&hasfrenchrecord=true&hasspanishrecord=true 3 B Sharp. How Brands Grow: What Marketers Don t Know 2010 p180 4 S King. Advertising as a Barrier to Market Entry. The Advertising Association 1980.

3 This would imply that advertising can play an important role in increasing the sense of mental availability in a local market. Hence, restrictions on the distribution and placement of advertising services in third markets could delay the introduction of a company s commercial message, and hence impact the introduction of new goods or services to that market. b) Advertising production crews often require temporary import permits in order to bring their equipment to film on location. Therefore, it would important to them to have provisions for the duty-free temporary admission of goods, regardless of their origin to cover the following categories: i. professional equipment, including equipment for the press or television, software, and broadcasting and cinematographic equipment; ii. goods intended for display or demonstration; iii. commercial samples and advertising films and recordings; c) The UK publishing industry is a net importer of newsprint which is used in the production of print newspapers, other publications and advertising material. The majority of the UK demand deficit is supplied by EU/EFTA paper mills. Currently this is imported tariff free from the EU and non-eu sources. Post Brexit, the industry is keen to maintain this current tariff schedule otherwise it would significantly affect its overall price competitiveness. Moreover, it is important to the industry that these goods are not subjected to additional bureaucracy or customs clearance procedures that would delay delivery to the production supply chain. UK demand for newsprint in 2017 was 900,000 tonnes. Currently the maximum domestic production available is 525,000 tonnes and of this approximately 10% is nonstandard newsprint grades which leaves around 470,000 tonnes of standard newsprint production; meaning that the UK is only around 50% self-sufficient. Hence the UK is a net importer of newsprint. To what extent should the UK seek to liberalise international trade in services through: preferential trade agreements; plurilateral agreements (e.g. the Trade in Services Agreement, TiSA); and/or through other mechanisms? 14. Ideally the global trade rules would be based on a single multilateral system such as the WTO. But given that progress in liberalisation and rulemaking has stalled, we recognise that alternative channels should be pursued. We believe that the UK should use a combination of preferential trade agreements, plurilateral agreements and the WTO. Each agreement being considered on a case by case basis, with full analysis conducted on the potential benefits versus potential trade-offs. 15. The collapse of the Doha Development round has seen a marked increase in preferential trade agreements at the bilateral level. Since 1990, the number of Regional Trade Agreements (trade agreements with two or more parties) in force globally has grown six-fold from fewer than 50 to nearly Bilateral trade arrangements can provide deeper levels of market access and, from a narrow economic point of view, they are beneficial to the signatories. However, there is some debate on whether they are by nature discriminatory or non-discriminatory towards other countries, as some of these concessions may or may not be available to other WTO members. The risk is that the increase of these preferential trade agreements could result in a more fragmented global trading system which would be difficult to manage and arbitrate. 5 L Wood. Short-Term Effects of Advertising: Some Well-Established Empirical Law-Like Patterns 2009 p

4 17. An ADB working paper 7 argues that plurilateral agreements that are issue-based can be complementary to the WTO and help drive the liberalisation and global rulemaking agenda. The Information Technology Agreement (ITA), Financial Services Agreement, Basic Telecommunications Services Agreement and Anti-Counterfeiting Trade Agreement (ACTA) are good examples of this. However, plurilateral agreements are typically more complex and take longer to negotiate, extending beyond most political cycles. There is some legal uncertainty on whether plurilateral agreements can come under the auspices of the WTO, as it would need agreement from all WTO members, but the text would still need to be consistent with WTO rules nonetheless. 18. According to the European Commission, the Trade in Services Agreement (TiSA) is a plurilateral agreement based on the General Agreement on Trade in Services (GATS) architecture. It is being negotiated by 23 members of the WTO, including the EU, and will account for 70% of world trade in services 8. TiSA includes provisions being negotiated on transparency, domestic regulation, telecommunications, e-commerce, localisation, temporary entry and stay of highly skilled professionals (mode 4) and other annexes that include government procurement. Liberalisation in these areas would likely to have a net positive impact on the advertising industry. 19. Another approach, which the UK is actively considering, is pursuing regional trade agreements such as the Comprehensive & Progressive Trans Pacific Partnership (CPTPP). If the UK was able to accede to the CPTPP, it would provide ready-made access to countries that the EU, and by inference the UK, does not already have an FTA with. Vietnam, a CPTPP signatory, is an interesting case study. Predominately an exporting country, it agreed a number of concessions vis-à-vis non-tariff barriers such regulations about trade, customs, intellectual property, and labour in order to join CPTPP. This was in return for the bigger prize of lower tariffs and greater market access to key markets such as Japan. 20. CPTPP s horizontal provisions on e-commerce, for example, are broadly welcomed as it tries to address potential discrimination of digital products, facilitates cross border data flows, prohibits data localisation and arbitrary requirements to hand over source code. It also recognises the importance of online consumer protection, makes commitments to step up cooperation in cyber security, encourage private sector self-regulation and encourage electronic signatures. This should contribute to increased data flows between CPTPP members. 21. Also, worth noting is a number of CPTPP signatories are not yet full members of the Government Procurement Agreement (GPA), hence the CPTPP provisions on public procurement provides access to more central government and sub federal procuring entities, greater transparency and accountability between signatories. 22. Where the UK is not yet at a stage to start FTA negotiations, Joint Economic & Trade Committees (JETCO) and Economic & Financial Dialogues (EFD) have a useful role in setting the ground work, exchanging information and building up mutual trust among Parties. 23. However, it is worth noting that FTAs can be notoriously complex and take years to be realised. We therefore encourage the UK government to look into a range of other measures that could help facilitate trade including industry-led initiatives (such as sector-specific trade missions, trade fairs and festivals) and export support measures and in that view, welcome the question below on additional policy tools. 7 Plurilateral Agreements: A Viable Alternative to the World Trade Organization? 8

5 What approach(es) should the UK take to negotiating market-access commitments across different modes of supply, regulatory disciplines (including on transparency and sectorspecific anti-competitive practices) and mutual recognition (e.g. of qualifications) in its international agreements covering trade in services? 24. There appears to be no preferred method among countries as to whether a positive or negative list approach should be adopted during trade negotiations. The EU has varied its approach depending on the country. We would argue the UK should seek ambitious commitments, where appropriate, but recognise that there may be a need to take a case by case approach. 25. GATS is the most widely cited example of a positive list approach. However, since 2000 regional FTAs have tended towards negative lists which have the benefit of being easier to read. Although the negative list approach automatically grants Most Favoured Nation (MFN) and National Treatment (NT) to new services, countries can adopt reservations or nonconforming measures that serve to protect its market from liberalisation measures. In this type of scenario, it may make sense to add standstill clauses, so that Parties commit to keeping the level of liberalisation at least the same as it was at the time of the agreement, or a ratchet clause, whereby Parties commit to a forward-looking agreement such that any future unilateral liberalisation is locked in. 26. The Australia-China FTA is an example where two different approaches can co-exist. In this agreement Australia used a negative list whereas China used a positive one. 27. TiSA uses a hybrid approach whereby a negative list is applied to National Treatment commitments and a positive list for Market Access commitments. Other countries have used hybrid approaches across different modes of supply. 28. For advertising services, we would welcome a negative list approach across all modes of supply. That said trade in services, far more than trade in goods, is affected by a variety of domestic regulations 9. Hence, rather than just taking a sector specific approach it would be arguably better to combine this with stronger horizontal disciplines, in addition to the core NT and MFN provisions, such as investment transparency competition domestic regulation IP cross-border data-flows cross-border trade in services e-commerce temporary entry of business persons government procurement What other policy tools should the UK Government use to facilitate international trade in services, including both imports and exports? 29. In order to facilitate international trade, we think that the UK government could adopt some or all of the following measures: Adopt a comprehensive data strategy, post Brexit, that facilitates data-flows and builds upon the UK s ambition to be a leader in the digital economy. Reduce bureaucracy at the border by simplifying the temporary import of goods and temporary entry of business persons. Continue to explore innovative means to attract FDI into the UK. 9 Is there a Better Way? Alternative Approaches to Liberalization Under the GATS, Low & Mattoo

6 Build up a comprehensive picture of global trade barriers by leverage the UK overseas network and British Chambers of Commerce. The EU s Market Access Database (MADB) gives information to companies exporting from the EU about import conditions in third country markets and the US Trade Representative publishes its annual National Trade Estimate which details trade barriers that US companies face overseas. In addition, the American and European Chambers of Commerce are effective lobbying organisations and depending on the size of the market, publish an annual position paper that lists local trade barriers. 30. It is also worth noting that the UK government already offers a number of initiatives that facilitate international trade by UK companies and we would recommend, at minimum, ringfencing these initiatives or expanding their coverage: UK Export Finance is currently available to UK companies wishing to export advertising or related professional business services. As exporting can be a huge risk to SME companies, UK Export Finance can be critical for a UK company to access working capital to fulfil a contract or insure against not being paid. The Department of International Trade (DIT) supports selected overseas trade shows through the Tradeshow Access Programme (TAP) that provides grants to eligible business to cover the costs of exhibiting at overseas tradeshows. DIT have been working in collaboration with trade associations and regional bodies to develop Online Export Accelerators. The GREAT campaign has been a successful marketing initiative to raise the profile of UK capabilities to overseas markets. 21