The UK is strong in services but trade agreements are not – particular focus needed
While the UK retains strong manufacturing capabilities, it is in services that we are considered to be particularly competitive. From science to financial services, professional companies to film production, we genuinely have world leading capability. Indeed, services account for 80 per cent of the UK economy, and nearly 50 per cent of exports.
Although some services are sold globally with few barriers, many are still easier to sell within a home region, in particular those related to movement of people. Services are traditionally poorly served by trade agreements, and the Trade and Cooperation Agreement is no exception. UK restrictions on visas that are now extended to EU citizens are already an issue for the UK services sector. With further restrictions from January 1 largely unaffected by the new agreement the UK Government must find other ways to support UK services exports to the EU.
Movement for Work
There has long been a Brexit contradiction between the demands to control immigration and the encouragement of services exports which are heavily dependent on the ability of individuals to be able to move freely. Freedom of movement between EU and UK will end on January 1 2021 and the provisions to support this in the agreement are limited to temporary movement for work in specific and limited cases. It should be noted that, while free movement is often associated with legal, financial or consultancy services, those likely to be affected include a diverse range of others including musicians and other cultural providers, travel reps, and sports players. If possible, the Home Office should be encouraged to make travel to the UK easier but, in the short term, this seems unlikely. For outward travel in general this is an issue for individual member states – but there are also agreements between the EU and a number of third countries which may be of future use.
It may be easier for the UK Government to prioritise the Mutual Recognition of Professional Qualifications, where an ambitious request for a continuation of the EU framework within the agreement was turned down by the EU. This will make it harder for UK employees with equivalent qualifications to provide services in the EU. The Trade and Cooperation Agreement merely provides a framework that may be used for specific mutual recognition arrangements in different sectors. The UK Government should seek to progress these in different sectors, as a priority ahead of similar agreements with further away countries less likely to be used.
There are many subjects that are related to cooperation in the field of people, including cooperation on social security, justice and policing. While not directly related to the subject of trade, these are also areas featured in the agreement, where future cooperation and development can be expected. Road transport, railway services and aviation are similarly included, and there may be opportunities to develop provisions further.
University and research co-operation
One of the most positive aspects of the Trade and Cooperation Agreement is the confirmation of UK participation in the Horizon Europe research programme, a world leader that the UK could simply not replicate. The UK will have to pay for participation, but doing so means we can continue to be at the heart of cutting edge scientific research. To do this, the UK had to sign up to ultimate oversight of the European Court of Justice, a useful precedent for other programmes or European bodies with which alignment may be beneficial.
The news that the UK had declined to take part in the Erasmus scheme was less encouraging. Thousands of UK students had taken advantage of the scheme each year for exchanges and work placements, delivering personal value to them, and greater value to the economy as a whole (reflected in polling suggesting the scheme to be popular in the UK).
The Erasmus programme also brought EU students to the UK, delivering both short-term financial gains (inbound travel counts as a services export) and longer-term gains through the development of networks of relationships. Such relationships may become particularly important as UK officials cease to spend much time with EU counterparts, even while EU laws remain important to us. The UK’s replacement ‘Turing’ scheme is so far unspecified, but it seems unlikely that it can replicate the benefits. It should be noted that Northern Ireland students will still have access to Erasmus, funded by the Irish Government, just as their rights to Irish passports will enable them to retain rights to work in the EU. This should provide a benefit to Northern Ireland but, alongside different goods regulations, will be another issue separating the province from the rest of the UK.
International cooperation on services trade
Given the UK is so strong in services trade, it is an area where it makes sense for us to try to work with all potential allies to remove barriers to this trade. One of the most problematic challenges is resolving a difference of opinion between the EU and US on data flows and data protection, which is giving rise to some concern that the UK will struggle to receive a data adequacy decision from the EU while also being able to transfer data to the US, Japan and other economies. It is in our interests to try to resolve the issue, as we stand to lose out if it continues. This will require work with both EU and US.
More broadly, negotiations at the WTO on a new Trade in Services Agreement stalled, in part over this difficulty, and talks over a new e-commerce agreement are proceeding slowly. For either to happen will require the UK to work with the EU. As in many other areas, the road to becoming Global Britain may need to go via a European Britain.