Trading under WTO rules

112.The Professional and Business Services Council said trading under WTO rules would affect most PBS services, and that “in many cases they may face an absolute barrier to trading, (as opposed to merely facing additional costs)”.153 In relation to legal services, Mr Laurans said the EU’s GATS schedule would require the UK to negotiate with 27 individual markets, of which “some … will not have third country lawyer status, so you will not be able to practise in that Member State”. In others, UK lawyers “will not be able to set up a law firm with local lawyers”; this would be another “significant setback for the legal services sector”.154 As for accounting and auditing services, EY said trading under the GATS “would constrain the ability of our business and our people to operate across the EU”.155

113.The UK Trade Policy Observatory referred us to the Services Trade Restrictiveness Index (STRI) compiled by the World Bank, noting that outside the Single Market, lawyers and accountants looking to provide services in the EU would be up against “major restrictions”.156

114.The Professional and Business Services Council added that while actual applied trade restrictions were “generally better” than what was included in GATS schedules, such a “favourable market access environment could change at any time, giving rise to considerable uncertainty”.157

115.For PBS such as management consulting, for whom mutual recognition of qualifications or regulatory frameworks is not necessary, trade under WTO rules could be subject to fewer restrictions. Even so, the Management Consultancies Association described international trade under WTO rules as “manageable” but “scarcely attractive”. They noted that there was a “risk that many of our global consulting companies, who have used UK consulting resources on projects within the EU, would simply equip their local EU offices to respond to local demands, reducing net UK consulting exports”.158

116.Witnesses acknowledged that trade between the UK and the US in PBS currently occurred only on WTO rules. However, Ms Jones said this trade incurred additional “frictional costs and administrative costs”, and that it was “materially harder” than trade with EU Member States. She concluded: “We would far, far rather, if we could, have the same freedom with the US than move Europe to a US model.”159 Mr Laurans agreed that trade in legal services with countries such as the US or Canada was possible, “but it is more complicated, more complex and it costs more”.160

Trade in Services Agreement (TiSA)

117.The negative effects of trading under WTO rules could be mitigated by the conclusion of negotiations on the plurilateral Trade in Services Agreement (TiSA), a broad global services agreement that seeks to improve on the terms of trade provided by the GATS. Although negotiations between the 23 WTO member countries (including the EU) started in 2013, there is no formal deadline for final adoption. Ms Jones recommended TiSA as “the way forward”, because it recognised “technological developments”, generally improved market access for PBS, and improved rules on data localisation and data flows. She also noted that TiSA contained “far greater mutual recognition of qualifications and regulatory coherence”. Ms Jones concluded that it was a “far better, more robust agreement”, which borrowed its approach from “much more recent free trade agreements”, and was “in some ways, best in class”.161

118.Nonetheless, TiSA will have some limitations. Mr Laurans said that while TiSA usefully “improved the transparency of … restrictions”, it did not amount to “a liberalisation of market access” for legal services.162 Comparing TiSA with FTAs, like CETA, Ms Jones said that the EU was “taking what is referred to as a CETA-minus approach to TiSA”. Thus the EU’s “TiSA offer is just a little bit less generous across the board than what it has agreed in CETA”. Nonetheless, she said even a CETA-minus position was “for most professional and business services—legal notwithstanding—significantly better than GATS”.163 The Professional and Business Services Council agreed, noting that TiSA “does not achieve everything the EEA achieves, and therefore would not be an alternative to an agreement with EEA style services provisions, but would be significantly better than nothing”.164 The Government’s White Paper said: “The UK continues to be committed to an ambitious TiSA and will play a positive role throughout the negotiations.”165

Conclusions

119.Professional business services (PBS) comprise a wide variety of regulated and un-regulated professional services, encompassing some of the UK’s most successful exports globally and to the EU. The UK generates a large surplus in trade in PBS with the EU (£6.1 billion in 2015). It is now up to the Government to protect and maintain the UK’s strengths in business services in a deep and comprehensive UK-EU FTA.
120.The Government should ensure that any UK-EU FTA includes provisions on the mutual recognition of professional qualifications and also of regulatory structures. Failure to achieve such mutual recognition would, according to the Professional and Business Services Council, result in “absolute” barriers to trade for the most highly regulated professions.

121.In addition to securing market access for UK service providers to provide services temporarily in the EU, the Government should also seek to include provisions on the rights of UK businesses to establish themselves in the EU (and vice versa). While the extent to which such provisions have been provided under existing EU FTAs with third countries is unclear, it will be vital for the UK, given the significance of services trade via mode 3.

122.Issues relating to cross-border movement of persons delivering PBS will need to be addressed in UK-EU FTA negotiations. The free movement of persons has facilitated trade in PBS between the UK and the EU in two clear ways. Firstly, it has enabled firms to service clients and contracts at short notice and to assist partner firms in other Member States. Secondly, the free movement of persons has also enabled firms to recruit from a larger labour market and fill skills gaps. The Government should give full weight to these benefits, and the consequences of changing migration rules for PBS, both in negotiations and in the preparation of immigration legislation.

123.Under a ‘no deal’ scenario, regulated PBS 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.
124.In such a scenario, it is likely that PBS firms, in particular those in the legal sector, would either relocate to the EU, or move resources to partner firms within the EU, in order to continue to trade on preferential terms. Both outcomes could have a negative effect on the UK’s trade balance, tax revenues and employment.
125.The Trade in Services Agreement (TiSA) provides an opportunity to update the global terms of trade for many services. But we note that negotiations on TiSA have stalled, and that the EU’s position has been to pursue terms in TiSA negotiations that are less favourable than those in CETA