The authoritative source for independent research on UK-EU relations

05 Feb 2020

Economy

Relationship with the EU

Services

While the UK has now formally left the EU, thanks to the transition period little has changed (for now) in how the UK and Ireland trade and do business with each other.

While this temporary standstill is welcomed by businesses, many are still facing uncertainty over what the long-term future holds.

For members of the British Irish Chamber of Commerce, and for businesses more generally, the Withdrawal Agreement serves as a stepping-stone towards the much more important future trade talks.

It is these talks that will ultimately decide how businesses across these islands interact and trade with each other over the longer term.

While much of the discussion to date has been on how goods trade will function under a Free Trade Agreement (FTA), there has been far less focus on what a future deal might deliver for trade in services.

This is despite the importance of services to the economies of both the UK and EU. There is currently a high risk of new regulatory barriers being imposed after Brexit due to the gap in coverage and provisions between a traditional FTA and the EU single market for services.

The UK is a services-based economy. Service industries make up 79% of economic output and provide nearly 90% of jobs. The EU is the UK’s most important market in this sector, buying 41% of services exported from the UK.

Conversely, the UK is also an important customer for many EU member states: of the 27 remaining EU members, four export more services to the UK than to any other country in the world, while a further 11 list the UK in their top three export markets.

The evolution of the EU single market has resulted in the most integrated international services market in the world.

Common rules and mutual recognition of regulations and qualifications, coupled with the free movement of people and capital, has resulted in a market where most services are generally traded free from discrimination or barriers between member states.

Such an environment has been crucial to the development of what are known as ‘embodied services’ – those services intrinsically linked to the production of a good.

This newly emerging category of services directly supports jobs in the EU, and a quarter of all jobs supported by international trade between the EU and UK.

Protecting this trade and the jobs it supports is of great importance to members of the British Irish Chamber of Commerce. It is for these reasons that the Chamber has published its most recent paper, How to Make Brexit Work for All Part 2: Signposts for Services.

In this paper, we set out a roadmap for trade in services between the UK and the EU after Brexit. We propose a package of five major Signposts to be considered by negotiators when entering talks on the future trading relationship between the UK and EU.

First, a ‘negative listing’ approach should be taken: talks should begin with all currently traded services on the table, and line items should only be removed where agreement can’t be reached.

Second, ‘embodied services’ should be included.

This would include such things as provisions for maintenance contracts sold as part of the sale of a good (like the installation and maintenance of wind turbines sold to foreign markets), or the supply of services integral to the development and build of a good (like R&D for in-built technologies such as mobile phones).

Third, a framework for mutual recognition of professional qualifications should be established, to ensure that qualified professionals can continue to work and do business in other jurisdictions.

Fourth, a visa waiver scheme is needed to facilitate the temporary movement of workers to other jurisdictions for the purpose of delivering a service, including provisions for companies to move staff between offices.

Finally, both parties be broad and ambitious: consider including sectors usually excluded from FTAs such as broadcasting and government procurement contracts, recognising that their inclusion could lead to greater choice and reduced costs for consumers.

We also recommend a number of cross-cutting measures to underpin the trade relationship more generally.

The EU should grant an adequacy decision to enable the future exchange of data between UK and EU firms that is essential for both goods and services trade, and shared systems should be established, accessible by UK and EU businesses, to reduce administrative and compliance burdens.

Ongoing cooperation is needed between the UK and EU on the evolving digital services economy based on the EU’s Digital Services Market package.

Finally, UK participation should continue in EU-wide frameworks of critical interest for business and consumers in both areas, including aviation, energy and research

Adoption of these proposals would deliver a deal that reflects the ambition of the revised Joint Political Declaration.

While regulatory alignment might be necessary to achieve some of the proposed cross-cutting measures, different recognition/equivalence arrangements could be explored to give the same effect in other areas.

Regulatory alignment with other markets is highly likely  to be necessary for some UK businesses to a practical degree going forward: from our engagement with members and other businesses, we have yet to discover any specific current rules that they wish to diverge from.

The key is to establish a mechanism that fairly manages the introduction of future rules from either side with relevant policies in place in such areas as common consumer protection, subsidies and state aid.

Time is now the biggest obstacle facing negotiators.

An end of year deadline is ambitious but could be achievable if both parties commit fully to the process and the compromises that will be necessary to achieve an unparalleled deal on trade, including services.

Businesses were relieved when a cliff-edge exit was avoided with the ratification of the Withdrawal Agreement.

It is now vital that a second cliff-edge is avoided through the negotiation of a truly comprehensive FTA that covers both goods and services trade.

By Katie Daughen, Head of Brexit Policy, British Irish Chamber of Commerce.

MORE FROM THIS THEME

The ONS immigration figures are not as dramatic as they look

Beyond varieties of capitalism: a growth model approach

Can Sunak learn lessons from Germany on levelling up?

UK trade tracker: September 2022

Our economic challenges are structural – borrowing alone won’t solve them

Recent Articles