Brexit: trade in non-financial services Contents

Chapter 1: Introduction

Brexit: trade in non-financial services

1.Since the referendum on 23 June 2016, this Committee has published a series of reports on aspects of Brexit, including reports on the options for trade between the UK and the EU after Brexit, and on the implications of Brexit on financial services.1 This latest report focuses on non-financial services. It begins with a description of the main ways in which such services can be traded, and how that trade is measured (Chapter 2). Chapter 3 explains how the UK currently trades services with the EU as a Member State and compares this with how services would be traded under free trade agreements (FTAs) and World Trade Organization (WTO) rules.

2.Subsequent chapters focus on the UK’s largest exports to the EU in non-financial services. The chapters are ordered according to the size of the services’ contribution to the UK’s trade, and the issues raised by the different sectors. They cover professional business services (Chapter 4), digital (including telecoms) services (Chapter 5), creative services (Chapter 6), trade in aviation (Chapter 7) and tourism services (Chapter 8).

Figure 1: UK-EU trade in non-financial services in 2015

Bar chart of UK EU trade (imports and exports) in 6 areas

Source: Written evidence from the ONS (TAS0064). *Retitled from ‘Other business services. **Retitled from Telecommunications, Computer and Information services. ***This is an amalgamation of intellectual property and personal, cultural and recreational services.

3.Figure 1 uses the Office for National Statistics’ (ONS) Pink Book2 data to illustrate the value of the UK’s trade in non-financial services, grouped under six broad headings, in 2015.

4.The majority of our evidence was received in October and November 2016, prior to the Prime Minister’s speech on 17 January and the publication of the Government’s White Paper, The United Kingdom’s exit from and new partnership with the European Union on 2 February.3 At that time, witnesses favoured continued membership of the Single Market for services. Although witnesses were offered the opportunity to update their testimony, we only received a handful of responses outlining similar views to those already expressed. Accordingly, this report uses the evidence we received to outline what a ‘good’ comprehensive FTA between the UK and EU would look like for the sectors concerned.

5.Given the Prime Minister’s statement that ‘no deal is better than a bad deal’, each chapter also considers the implications for UK services firms of what would be, in the event that talks broke down, the fall-back position—namely, trading under WTO rules (and the General Agreement on Trade in Services (GATS)).4

6.A number of issues and sectors are outside the scope of this report. Although important, we do not consider trade in retail services.5 Nor do we comment on the implications of Brexit for consumer protection, competition, employment or public procurement law.

7.Nonetheless, given that membership of the Single Market affects consumers as well as businesses, we have highlighted the most striking instances in which failure to agree a comprehensive FTA may affect consumers either through reduced access to services or increased prices.

8.This report also discusses the link between trading services and the movement of persons either to provide or consume a service. We do not comment on domestic immigration law, as this issue has been covered in our recent report on Brexit: UK-EU movement of people.6 However, we do highlight the possible implications of changes to the movement of persons on trade in services.

9.The report concludes with an overall assessment of what a good UK-EU FTA would look like, and of the Government’s engagement with industry. We discuss the Great Repeal Bill, and the importance of an effective dispute resolution mechanism to police the UK’s future trade relationship with the EU.

The European Union Committee’s work

10.This report forms part of a coordinated series of inquiries undertaken by the European Union Committee and its six sub-committees following the referendum on 23 June 2016. It should be considered alongside a number of these other reports and inquiries, including our December 2016 reports on Brexit: the options for trade7 and Brexit: financial services.8 More recently, we have published two other relevant reports, on Brexit: trade in goods9 and Brexit: UK-EU movement of people.10 Our aim in all these reports is to explore and inform wider debate on the major opportunities and risks that Brexit presents to the United Kingdom.

Brexit: the options for trade

11.In our December 2016 report on Brexit: the options for trade we considered the different frameworks for trade available to the UK outside the EU. We noted that those frameworks that allowed the greatest possible access to the EU’s Single Market (becoming a non-EU signatory to the EEA Agreement, or remaining within the EU’s customs union) would also require the UK to continue to implement the relevant EU body of law (referred to as the acquis), and could also restrict the UK’s ability to negotiate FTAs with third countries. On the other hand, trading with the EU under a FTA, or under WTO rules, would grant only restricted access to the Single Market, but would give the UK greater flexibility in other respects.

12.We concluded that there was an inherent trade-off between liberalising trade and the exercise of sovereignty. We also concluded that if the Government wished to pursue a bespoke FTA, this would almost certainly take longer than two years to negotiate—a conclusion that has become particularly pertinent following the Prime Minister’s announcement on 17 January 2017 that the Government had ruled out Single Market membership, and would seek a “bold and comprehensive” FTA with the EU. In light of this, we reiterate the conclusion reached in our report on Brexit: the options for trade that agreeing a transitional arrangement for the UK and the EU to adapt to their new trading terms should be an early priority in negotiations.

This inquiry

13.The EU Internal Market Sub-Committee, whose members are listed in Appendix 1, met in October and November 2016 and January 2017 to take oral evidence from the witnesses listed in Appendix 2. The Committee is grateful for their participation in this inquiry. We also thank our Specialist Advisor, Dr Ingo Borchert.

14.We make this report for debate.

© Parliamentary copyright 2017