A former Assistant Director at the Department for International Trade is sceptical that new FTAs can transform our services exportsby David Henig / June 14, 2018 / Leave a comment
It is widely accepted in the Brexit debate that the UK’s ability to set our own trade policy after departure means that we can focus particularly on services, where we have significant strengths. Accounting for 80 per cent of the UK’s GDP and four in five jobs across the country, the UK is also the world’s second largest exporter of services, though these only represent 45 per cent of our total exports. Surely then, the argument goes, once we no longer have to worry about EU concerns in trade agreements we can ensure they focus on growing our services exports further. An alternate variant is that if we stay in a customs union with the EU, limiting our freedom to sign deals on goods, we’ll still be able to sign agreements focused on services.
Both true to a degree, but ignoring one fundamental problem. Barriers to trade in services are numerous and typically arise from domestic regulation on other countries. Free Trade Agreements agreed around the world manage only to reduce some of these, with limited economic gains.
Given this precedent, expecting our first wave of trade deals to deliver game-changing benefits is optimistic to say the least. Let’s though look at what’s possible in the countries the UK has identified as priorities for new FTAs: Australia, New Zealand and the United States, as well as some other opportunities elsewhere.
First, a quick reminder on definitions. The World Trade Organisation defines four modes of international services supply relating to the consumer and producer. These are cross-border supply where both stay in their own territory; consumption abroad, where the consumer travels; commercial presence, where a business is set up in another territory; and presence of a natural person, the most controversial known as Mode 4, where an individual supplies a service in another territory. The OECD takes a different approach in its Services Trade Restrictiveness Index, where it defines 22 sub-sectors of services such as computer services, air services, and insurance. In both cases however we can then define the barriers which may include restrictions on foreign entry, unclear regulation, and specific discrimination against foreign service suppliers.