Services sector needs EU free trade agreement, Lords warn

Legal and other non-financial services are more at risk than manufactured goods if Brexit involves the UK leaving the European single market, according to the latest House of Lords Brexit report.

Brexit: future trade between the UK and EU in services, prepared by the EU Internal Market Subcommittee, focuses on trade in non-financial services and concludes that a comprehensive free trade agreement (FTA) with the EU is needed.

The committee believes that in the absence of single market membership it will be much harder to provide for liberalised trade in services than trade in goods, and "a range of complex mutual provisions" will be required to enable UK companies to continue to operate within the EU without serious non-tariff barriers such as non-recognition of professional qualifications. It also highlights the need to include rights of establishment, particularly for legal services, in the EU and vice versa.

"Under a ‘no deal’ scenario', the report concludes, "regulated PBS [professional business services] firms (such as legal and accounting firms) would face increased (and in some cases absolute) barriers to trading with the EU. Unregulated PBS, like management consulting, would be able to continue trading with the EU, although even they could be indirectly affected."

It further states that "strong protections" should be afforded to intellectual property rights across the creative services sector, such as for registered and unregistered designs.

If there is no deal, or one that gives no special consideration to UK non-financial services, it would risk "serious harm" to sectors such as professional business, digital, broadcasting, aviation, and travel services.

As regards aviation and broadcasting services, there is no adequate fallback position in the event that no deal is reached, and businesses could be forced either to restructure or relocate their operations to the remaining EU states. Provision will be needed to allow UK airlines to continue to fly the routes they do now.

An "adequacy decision" should be secured from the European Commission, recognising that the UK has adequate data protection standards, in order to maintain the free flow of data. This is particularly important for digital service providers.

The report also accuses the Government of underestimating the reliance of the services sector on the free movement of people, and states that immigration legislation must retain "sufficient room for manoeuvre to negotiate an agreement on this key issue".

Committee chair Lord Whitty commented: “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.

“To protect the UK’s status as a global leader of trade in services, the Government will need to secure the most comprehensive FTA that has ever been agreed with the EU. Walking away from negotiations without a deal would badly damage UK plc, particularly in sectors such as aviation and broadcasting which have no WTO rules to fall back on.

“Given the consequences of a 'no deal' scenario and the length of time agreeing an FTA will take, the Government must prioritise securing a transitional trading arrangement with the EU. This would operate as we leave the EU in 2019 until a full comprehensive FTA with the EU can be concluded. This reiterates the recommendation we made in our report, Brexit: the options for trade, published in December 2016.”

Click here to access the committee's report.