Finance / Ministers must secure EU trade deal to avoid ‘serious risk’ to firms, peers warn
Ministers must secure EU trade deal to avoid ‘serious risk’ to firms, peers warn
22 March 2017
Failure to achieve a comprehensive free trade agreement (FTA) with the European Union would risk "serious harm" to Britain's non-financial service sector after Brexit, a parliamentary report has warned.
Particularly hard-hit could be the aviation and broadcasting industries, which have no World Trade Organisation arrangements to fall back on if Prime Minister Theresa May walks away without a deal, said the House of Lords EU Internal Market Committee.
Without appropriate agreements, UK broadcasters could lose the right to sell programmes into European markets, UK airlines may have to relocate to the continent and the viability of events like London Fashion Week could be in question, the report warned.
The committee urged ministers to put a high priority on securing a transitional deal so that companies can continue to trade in the interim period between the expected Brexit date in 2019 and the conclusion of a free trade agreement, which will "almost certainly take more than two years" to negotiate.
At a value of £162 billion in 2015, non-financial services make up around a third of UK exports and are one of the few sectors to generate a trade surplus, playing a "critical" role in fuelling growth and employment, said the report.
While they are unlikely to be hit by tariffs after Brexit, the committee warned that non-tariff barriers which could be erected in the absence of a comprehensive FTA would not only increase the cost of business but could prohibit UK companies from trading in key markets altogether.
Without a formal agreement or transitional deal in place by 2019, UK airlines could suddenly lose their right to fly to and from European states or operate services between destinations within the EU and may even lose rights to fly to the USA, which are governed by the EU-US Open Skies agreement.
EasyJet told the committee it was already taking steps towards establishing an EU certificate to enable it to operate as a European airline with a base in the remaining Union if no FTA is agreed. The report found that steps like this may require UK airlines to become majority-owned by EU citizens.
The committee also warned that continued movement of workers and service providers into and out of the UK was regarded by the booming services sector as “necessary to support growth”. It urged the Government to “narrow down uncertainty” about future arrangements to ensure services companies can prepare themselves to survive and flourish post-Brexit.
Committee chair Lord Whitty said: “The UK is the second largest exporter of services in the world and the EU receives 39% of the UK’s non-financial service exports. This trade is critical to the UK’s economy as it creates employment and supports goods exports – we can’t afford to lose that.
“To protect the UK’s status as a global leader of trade in services, the Government will need to secure the most comprehensive FTA that has ever been agreed with the EU. Walking away from negotiations without a deal would badly damage UK plc, particularly in sectors such as aviation and broadcasting which have no WTO rules to fall back on.”
A Government spokesman said: “The Prime Minister has been clear that we will pursue a bold and ambitious free trade agreement with the European Union as a priority – it should allow for the freest possible trade in services, as well as goods, between Britain and the EU.
“On top of that, we believe a phased process of implementation will be in our mutual self interest – allowing UK and EU institutions, member states and businesses to prepare for the new arrangements. The nature of any interim arrangements will be a matter for negotiation.”