Brexit: Trade in Non-financial Services (EUC Report)December 18, 2017
My Lords, I thank the noble Lord, Lord Whitty, for tabling this debate. I, too, am a member of the sub-committee that produced this report. I pay tribute to our chairman and my colleagues for the work that has gone into it. I refer Members to my register of interests.
I welcome this report and the logical way it analyses the largest services sectors to get a more granular understanding of the issues involved. There is always a danger that you miss out details using this approach, both in the emerging but promising sectors and services not yet large enough to feature on our radar as well as in the nuance of day-to-day operations, but the report has identified the major risks and understandably argues for a need for a smooth handover period to avoid a cliff edge into WTO rules.
I am heartened that the report notes that we are the second-largest exporter of services in the world—a fact that cannot be attributed only to our membership of the EU—and by how the question of tariff barriers is less a factor here because, in many cases, service business are not majorly affected by them. As a nation with much of our growth and trading future tied to services, it is important that we take pride in the fact that we are a world leader in this area and have confidence that, whatever the outcome of the current negotiations, we will thrive because customers still want to consume British-produced content, from Harry Potter to Premier League matches, and tap into our expertise, from advanced manufacturing to professional services. In many cases, those delivering these services have established ways to overcome barriers, whether through licensing arrangements or local partnerships abroad, or by receiving third-party investment to help bring their offer into other markets globally.
The danger, of course, lies in non-tariff barriers and whether, in a post-Brexit world, Britain’s service providers could be de facto shut out of markets due to the non-recognition of our standards and the qualifications of the professionals who provide them. This is indeed a risk that needs to be monitored, particularly with the threat of protectionism rising globally. It should be noted, however, that progress in this area has been slow even within the EU, and as such it is not new.
One might argue that, with the prospect of flexibility to negotiate FTAs, we might be able to include non-tariff barriers in the deals we create with other countries, particularly those with little to lose from removing such barriers but much to gain from helping us source talent and services where we have shortages in internal capacity, such as healthcare and education. Indeed, in many industries our best bet may yet be to be first mover and stay cutting edge, rather than to rely too much on even FTAs or current arrangements to protect businesses. I say this because, whether the enforcement of such FTAs were to be under the WTO or arrangements similar to what we have now with the EU, it tends sadly to be only the larger organisations that can make use of the protections in place when abuses occur, and securing rulings can take a long time.
That brings me to my final point, where I agree with my noble friend Lady Noakes and depart from the implicit assumption of the report that “business as usual” is preferable in all circumstances, that there should be no rocking of the boat with a transition period and that we should stay as close as possible to the single market and customs union arrangement we have today. We need to remember what Brexit was about for many who voted for it—a cry from the low paid, the small and those who do not always feel that the centre cares about them, for whom “business as usual” has not worked. For many in this camp, the status quo is worth challenging and the cost of losses incurred during a shift, even the disruption, is worth it if Britain can gain flexibility and sovereignty to forge a different path.
I believe that we will have failed if we achieve just a smooth handover, or even if we negotiate new agreements under the WTO and/or with Europe, if we do not create new opportunities for small and medium-sized businesses and those who feel left behind to play a bigger role. This question was of course beyond the scope of the report, but I believe there is much that can be done in the coming months to look at what can be done, whether around unilaterally lowering tariffs to enable our markets to be exposed to more affordable goods to in turn trigger innovations and greater productivity in related British services, or to explicitly link service market opportunities to outbound goods export opportunities in FTA negotiations. For example, imagine supercharging trade in agricultural products between the UK and China using the recent rail link to Barking and how that could in turn impact our agtech and certification service exports.
Given our trade deficit in goods, it is going to be imperative massively to grow our non-financial services trade with the rest of the world. It will take more than “business as usual” to achieve this. We will need a bold and imaginative global services promotion strategy, linked into our future FTA negotiations, to supercharge our future services export growth. I would be interested to hear my noble friend the Minister’s views on the Government’s approach to services promotion post Brexit. This report highlights opportunities for us to minimise disruption to services during Brexit, but I believe that we can go much further so that, post Brexit, we can secure our lead as the best service-providing nation in the world.