The UK needs to put a much higher priority on the interests of its services sector in future trade negotiations with both the EU and non-EU countries – or risk serious damage to a sector which makes up the bulk of the British economy.
This was the message emphasised by a series of witnesses giving evidence to the UK House of Common’s International Trade Committee in London on Wednesday (24 April).
Representing sectors as diverse as pharmaceuticals, insurance, law, film and TV, and rail manufacturing, the witnesses impressed upon MPs the importance of securing agreements on the key issues facing service providers after the UK leaves the EU and establishes new trade relationships with Europe and the rest of the world.
All witnesses agreed that a much more urgent focus was needed on issues such as rights of establishment, mutual recognition of professional qualifications, and free movement of skilled workers, in order to protect the interests of a sector which is widely reported to account for 80% of the UK’s GDP (or 65%, if government-provided services are excluded).
“The services sector needs to be included in any discussion with the EU,” insisted George Riddell, Associate Director of International Trade at consultancy business Deloitte. “Just looking at trade in goods does no favours at all to the UK economy. We have to look at both together.”
UK aiming for ‘regulatory autonomy’ in EU agreement
The UK services industry have been sounding the alarm over their perceived marginalisation within the UK’s nascent trade policy ever since the government published its ‘Chequers’ blueprint for a future trade relationship with the EU last July.
The outline Political Declaration on the future EU-UK relationship which was agreed by the two sides last November — but which the UK parliament has yet to ratify — urged “ambitious, comprehensive and balanced arrangements” on services. But it emphasised that “regulatory autonomy” would be preserved on either side, and offered a commitment merely to seek “regulatory approaches that are … compatible to the extent possible.”
Alison Hook, co-founder of legal consultancy Hook Tangaza, stressed that the success of businesses in the services sector depends as much on politically sensitive issues like freedom of movement as it does on more technical regulatory questions.
“For us, freedom of movement of people is vital – in both directions. If you have a project overseas and you need to go over there quickly, that can be difficult. It is also important that colleagues who need to come here should have easy access to visas.”
Movement of people in the context of a services deal is covered by Mode 4 under the WTO GATS agreement, and the EU-UK Political Declaration commits both sides to going “well beyond the Parties’ WTO commitments” in this respect. But there has been no agreement between London and Brussels as yet, and precious little guidance from the UK government on what its objectives are in this area.
Stan McCoy, President and Managing Director of the Motion Picture Association for Europe, pointed out that the GATS agreement included no fewer than 114 exemptions from normal Most Favoured Nation provisions for the audio-visual sector.
“The WTO doesn’t really help the audio-visual sector, as many large countries don’t make commitments in this sector. So it’s a regional and bilateral trade challenge,” McCoy said.
Even in manufacturing industries like the rail sector, services are seen as an increasingly important issue. Mike Hulme, Managing Director of Trains and Modernisation for train-maker Alstom UK told MPs that around 50-60% of the company’s export revenue at present is in the form of follow-up servicing contracts.
Mutual recognition critical for regulated industries
Meanwhile, Richard Torbett, of the Association of the British Pharmaceutical Industry, stressed that services agreements were not an optional extra in the context of Brexit.
“In heavily regulated industries like pharmaceuticals, you may not be able to provide a service at all if there is no mutual recognition of standards and qualifications,” Torbett commented. “The businesses in our industry have tried to cover every eventuality. But the current political indecision is now impacting them in terms of their preparations for the future.”
A similar message was put forward by Alastair Evans, Head of Government Policy & Affairs at insurers Lloyd’s of London. He pointed out that as a UK financial services business, Lloyd’s was likely to lose its ‘passport’ to operate freely within the EU single market after Brexit.
“Once we leave the EU we’ll encounter market barriers if we continue to trade from London. That has forced us into setting up a 50-strong subsidiary business in Brussels,” Evans told MPs.
Most of the witnesses told the Committee that they had been consulted by relevant UK government departments about their priorities for future trade agreements with countries such as the US and Australia after Brexit.
But Alison Hook was adamant that, for the legal profession, the most important thing was to secure continuity of business with the EU. “That’s much more important than any other trade deal,” she insisted.
Brexit causing ‘Huge reputational damage’
Hook was fiercely critical of the government’s handling of Brexit, saying that the current confusion was causing “huge reputational damage to the English legal sector”.
Within the EU, she said, business relationships were being “really seriously damaged” by the fallout from Brexit – and it was triggering a range of responses from the professional legal bodies in each member state.
“Initially there was a sense of pity — now it’s turned into irritation. Some Bar Associations see Brexit as an opportunity for them. Some are saying that their approach will be essentially protectionist and that they will try to keep us out of their market, while others will be more accommodating.
“In the rest of the world, meanwhile, there is complete and utter bemusement at what’s going on,” she concluded.