Government must secure ‘most comprehensive FTA that has ever been agreed with the EU’, says Lords report

A comprehensive free trade agreement (FTA) with the EU is needed to enable UK companies to continue to operate within its borders without serious non-tariff barriers after Brexit, according to a House of Lords report on trade in non-financial services.

In the absence of Single Market membership, it will be much harder to provide for liberalised trade in services than trade in goods, the authors of Brexit: trade in non-financial services argue.

A “no deal” scenario, or a UK-EU trade deal which gave no special consideration to UK non-financial services, would risk serious harm to sectors such as professional business, digital, broadcasting, aviation, and travel services.

In aviation and broadcasting services, World Trade Organisation rules do not provide for trade with the EU at all. Instead, UK firms would have to rely on “outdated and restrictive” agreements, so there is no adequate “fall-back” position in the event that no deal is reached. Businesses could be forced either to re-structure or relocate their operations to the EU27.

The government has also under-estimated the reliance of the services sector on the free movement of people. In forthcoming immigration legislation, the government must ensure that it retains sufficient room for manoeuvre to negotiate an agreement on this key issue.

These are among the conclusions of the report published today by the House of Lords EU Internal Market Sub-Committee.

Commenting on the report, Lord Whitty, chairman of the sub-committee, said: “The UK is the second largest exporter of services in the world and the EU receives 39 per cent 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.

“Given the consequences of a ‘no deal’ scenario and the length of time agreeing an FTA will take, the government must prioritise securing a transitional trading arrangement with the EU. This would operate as we leave the EU in 2019 until a full comprehensive FTA with the EU can be concluded. This re-iterates the recommendation we made in our report, Brexit: the options for trade, published in December 2016.”