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Implications of Brexit for the UK’s trade in non-financial services with the EU

March 22, 2017

The EU Internal Market Sub-Committee, of which Lord Wei is a member, today published a report on ‘Brexit: trade in nonfinancial services’.

The report considers the potential impact of Brexit on trade in five services sectors: professional business services, digital services, creative services, air services, and, tourism, education and health-related travel services.

The UK is the second largest exporter of services in the world. The majority of these services are non-financial, encompassing a broad range of sectors such as ICT (information and communications technology), telecoms, broadcasting, fashion design, aviation, tourism, education, and professional services such as accountancy and law. These non-financial services are critical to the UK’s economy, fuelling growth, creating employment and supporting goods exports. At a value of £161.8 billion in 2015, they accounted for 32% of all the UK’s exports and generated a £33 billion surplus for the UK’s trade balance.

The EU is a significant trading partner—receiving 39% of the UK’s nonfinancial services exports. The UK generates a surplus in its trade with the EU in many of the high-growth industries of the future—such as professional business services, digital and creative services. This report puts forward recommendations to the Government to ensure the UK remains a world leader in services exports after it leaves the EU.

The report calls on the Government to negotiate a Free Trade Agreement (FTA) that secures market access and specific reciprocal arrangements in a number of areas. The following are examples:

Professional business services
A FTA should include significant provisions surrounding the mutual recognition of professional qualifications and regulatory structures. It should also include rights of establishment for all types of UK service providers in the EU and vice versa.

Data protection standards
In order to maintain the free flow of data, the UK should aim to secure an adequacy decision from the European Commission that recognises the UK has adequate data protection standards.

Intellectual property
Strong protections should be afforded to intellectual property rights, across the creative services sector, such as for registered and unregistered designs.

Aviation
UK airlines should be able to fly to any point within the EU and provide intra-EU services, either through full voting membership of the European Common Aviation Area (ECAA), or by means of a comprehensive UK-EU air services agreement. This will allow UK airlines to continue to offer the routes they fly today.

Trading under WTO rules
The report concludes that a ‘no deal’ scenario, or a deal that gave no special consideration to UK trade in non-financial services, would risk significant damage to these sectors. For instance, WTO rules do not provide for trade with the EU in aviation or broadcasting services at all.

While the UK’s global standing in services may mitigate some negative consequences, faced with a ‘no deal’ scenario, businesses could be forced either to re-structure or relocate in order to continue to operate in the way that they do today.

The Chair of the EU Internal Market Sub-Committee, Lord Whitty, said, “The UK is the second largest exporter of services in the world and the EU receives 39% of the UK’s non-financial service exports. This trade is critical to the UK’s economy as it creates employment and supports goods exports – we can’t afford to lose that.”

Download report here.

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