A brexit deal for services

Any future relationship with the EU will need to ensure that the UK's service sector is not constrained in a post-Brexit world

IN last month’s column I examined the need for a Brexit trade deal which would allow Northern Ireland’s manufacturing companies to have a close and frictionless trading relationship with the European Union. Now I'll explore the need for a good trade deal for the services sector and where government progress has been made in that regard.

The Brexit debate is often dominated by the problems around the movement of goods - which is of course vitally important to Northern Ireland’s manufacturing, retail and agricultural sectors.

But the local economy, and indeed the entire UK economy, is dominated by services, so any future relationship with the EU will need to ensure that our service sectors (such as accountancy, legal services, communications, consultancy etc) are not constrained in a post-Brexit world.

In July, the UK government released a White Paper setting out its most detailed negotiating position to date, including services. The CBI believes that in some areas the government has made relatively good progress towards setting out its intentions for services trade. However, concerns remain for other areas where a lot more detail is needed.

The EU single market for services is not complete in the same way the single market for goods is. The rules for some sectors – like financial services and broadcasting – are deeply integrated between the UK and EU, while others rely on cross-sector rules to enable trade. This means that services need a deal that is different from the deal for goods, but not one that damages market access.

Using a red/amber/green rating system, the CBI has rated the government’s progress on five key issues that are needed to deliver a good deal for services post Brexit.

:: Avoiding a cliff edge (amber warning)

The biggest priority for services trade is securing a transitional period after the UK leaves the EU, to avoid a sudden drop off in market access. For many key services sectors, leaving the EU without a transitional period would mean a sudden inability to provide services legally across borders. The status of legal contracts agreed pre-Brexit must also be addressed.

Many local service companies are worried that their EU clients might use Brexit as a 'free pass' to walk away from contractual obligations, while EU clients have policies with UK insurers and banks are worried they will be prevented from receiving payments under claims or access loan facilitates agreed pre-Brexit. Both UK and EU negotiators must move quickly to agree the withdrawal agreement, including the legal status of contracts to provide clarity, certainty and continuity for services firms.

:: Negotiating mutual market access (red alert)

There are several highly regulated services sectors strongly affected by EU rules that allow them to trade. Without a comprehensive agreement, key sectors including broadcasting, energy, transport, financial services and professional and business services may be prevented trading between the UK and EU.

The government’s white paper seeks a new economic and regulatory arrangement with the EU, based on each side retaining autonomy over decision making. The white paper accepts this would mean the UK’s ability to provide services would face greater restrictions in the EU and vice versa. This indicates a desire for a more distant relationship with the EU on services, which has led to some confusion about its intentions for post-Brexit market access for services firms.

Although the white paper has signalled the government’s commitment to minimise barriers in the services sector, the government needs to provide more detail on how it intends to maintain access for UK based services businesses to the EU. Communication with concerned sectors needs to start immediately.

:: Movement of people is necessary for services trade (amber warning)

Services trade is done not by moving goods but by people, and people often need to move between countries to make cross-border trade in services happen. For example, legal services are regularly provided between the UK and the EU on a ‘fly in fly out’ basis. The scale of this trade is significant: one large global professional services firm reported that its employees undertook 17,000 business trips from the UK to the EU, and 10,000 from the EU to the UK in a single year.

The government’s white paper outlines welcome proposals for a mobility framework to allow people to move easily, and for their qualifications to be recognised across borders. If the details are negotiated well, this will go a long way towards delivering for legal firms, auditors, architects and many other sectors. However, the UK government hasn’t put immigration rules on the negotiating table. Doing so would go a long way towards achieving better trade terms overall.

Securing the free flow of data (green light)

From booking a hotel room to collaborating on medical research, data underpins international trade and the products and services that consumers rely on. Firms have strongly welcomed the UK government stating that it aims to secure an ‘adequacy decision’ to ensure that data can keep flowing between the UK and EU.

An adequacy decision must be assessed and granted by the EU Commission and is crucial to the economic and security partnership between the UK and EU, and to businesses of all sizes. This must be secured by the end of the transition period.

:: Maintaining the right level of influence over services rules (amber warning)

If the EU and UK are to keep similar rules after Brexit, there will need to be mechanisms to work together on the creation, implementation and enforcement of those rules. Working together would allow the UK and EU to continue to adopt best practice, ensure new regulations are appropriate for their respective economies, and allow both sides to ensure a level playing field can be maintained with a major trading partner.

Although the white paper outlines the UK will continue to participate in EU agencies that provide authorisations for goods in highly regulated sectors, it is not clear on how the UK will continue to influence rules for the trade in services. The government therefore needs to lay out more detail on how it will facilitate these links in any new relationship.

:: Angela McGowan is director of CBI Northern Ireland. Follow her at @angela_mcgowan

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