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Government must act to reduce barriers to UK-EU services trade

24 March 2021

The EU Services Sub-Committee has today published its report, Beyond Brexit: trade in services, which examines the future UK-EU relationship on trade in services.

Despite the agreement of the Trade and Cooperation Agreement (TCA), the UK and EU still have work to do in overcoming the significant challenges that remain for trade in services. It is in both sides’ mutual interests to ensure that UK-EU trade in services, which was worth £317 billion in exports and £217 billion in imports in 2019, continues to flow as smoothly as possible.

This is the main conclusion of a new report, ‘Beyond Brexit: trade in services’, published today by the House of Lords EU Services Sub-Committee.

Chair’s comments

Commenting on the report, the Committee’s Chair, Baroness Donaghy, said:

“The EU-UK trade agreement has secured important trade liberalisation in some areas of trade in services. However, there are some significant gaps. The EU hasn’t granted the UK the bulk of the financial services equivalence decisions required to enable transactions to flow freely. And the two sides are yet to agree on future regulatory cooperation.

“There will be real problems for UK professionals whose qualifications are not recognised in the EU under current arrangements. The TCA’s business mobility provisions haven’t been fully tested because of COVID-19 travel restrictions, but are a key concern for service providers. Opportunities available to students and universities are restricted without access to the Erasmus+ programme.

“The mobility provisions in the TCA will also make it very difficult for people working in the creative industries to tour in the EU. The Government must resolve this issue with the EU before international travel resumes.

“The services sector is at the heart of the UK economy, so it is essential that the Government and EU makes improvements to smooth UK-EU services trade. Too much is at stake if we don’t.”

Findings and Conclusions

Findings and conclusions from the report include:

Financial services

The UK-EU Trade and Cooperation Agreement (TCA) does not include substantive provisions on financial services, and delays to key decisions about the future relationship, particularly on equivalence, mean that the sector is still in a period of uncertainty. The UK’s exit from the passporting regime has led to the movement of some activity to the EU and firms facing the challenges involved in navigating different market access requirements in each Member State. The Committee is concerned that over time this may lead to a big shift of people and assets out of the UK. The Committee recognises that the UK and the EU will seek to change their regulatory regimes where it is in either party’s interests, but calls on the Government not to disregard the value of a close UK-EU relationship in financial services.

Professional and business services

The proliferation of national reservations in the TCA means that UK professional and business services providers face a patchwork of complicated rules that vary by sector and Member State. This fragmentation is likely to hit small operators the hardest. The lack of mutual recognition of professional qualifications in the TCA could have a serious impact on many sectors, so the Government and regulators should explore all options, including a side agreement to the TCA, to alleviate this issue. We regret the Government’s decision to defer establishing the Partnership Council and other governance arrangements under the TCA and urge them to review this.

Creative industries

The creative industries sector has been hit hard by the COVID-19 pandemic and its recovery will depend to some extent on getting the relationship with the EU right. The Committee is deeply concerned about the potential impact of mobility provisions in the TCA on the over two million people employed in the creative industries, which could make touring prohibitively bureaucratic and expensive. The Government and EU should work together to remedy this situation before international business travel resumes.

Research and education

The Government’s decision to associate with the Horizon Europe programme is welcomed by the Committee and the research and education sector. It will enable UK researchers to continue to participate in cutting-edge collaborative research. The Committee regrets the Government’s decision not to participate in the Erasmus+ programme on the basis of cost. It is concerned that the proposed budget will not cover the costs of the proposed domestic alternative, the Turing scheme. The Committee does not see the Turing scheme as a replacement for the Erasmus+ programme as it does not allow for inbound mobility and hopes that the Government will consider re-joining Erasmus+ in the future.

Digital trade

More positively, the TCA offers unprecedented cooperation on digital trade compared with other EU free trade agreements, and it is expected that the EU’s draft data adequacy decision will be confirmed in the coming weeks. Both sides should work together to ensure that these positive developments can be maintained to keep pace with innovation in the technology sector.

Further information