Despite much coverage to date about the implications of a no deal scenario on the cross-border trade in goods, little has been said about the significant impact on trade in services between the UK and the EU. Jonny Hacking, Associate at A&L Goodbody explains what businesses in the services sector need to be doing as we (possibly) enter the ‘end game’…
WTO and GATs
The services industry makes up 70% of the Northern Ireland economy, so it is essential that local businesses in this sector have contingency plans in place for a no deal Brexit.
In the event that the UK leaves the EU without a deal (and the EU has yet to agree to no deal coming off the table), service trade would be governed by the World Trade Organisation’s (WTO) General Agreement on Trade in Services (GATS).
This would impact how businesses in Northern Ireland continue to supply services to existing clients within the EU. Under GATS, members of the WTO negotiate individual lists of market access commitments for services (which are known as Schedules of Commitments). The EU has its own Schedules of Commitments which set out how WTO members worldwide can provide services to the EU.
The WTO system has, unhelpfully, not liberalised trade in services to the same extent as trade in goods. This means that services provided to the UK from the EU (and vice versa) are at a distinct disadvantage compared to the liberalised arrangement for services which all EU Member States enjoy as part of the Single Market, especially in regulated sectors.
Although the EU has proposed temporary measures applicable to services post-Brexit to ensure continuity of services, these are all time limited and do not offer a permanent solution.
- In road haulage for example, the European Commission has adopted a proposed regulation allowing operators from the UK to temporarily carry goods into the EU, provided the UK confers equivalent rights to EU road haulage operators and also subject to conditions ensuring fair competition. The proposed regulation would allow, for nine months, access for road haulage operators licenced in the UK to the carriage of goods by road between the UK and EU.
- In financial services, financial operators established in the UK for example will lose the right to provide their services in the EU under the EU financial services passports. The EU believes only a limited number of temporary contingency measures are necessary to safeguard financial stability.
- Air traffic between the EU and the UK will also be affected. The European Commission has emphasised the need for air carriers, manufacturing and maintenance organisations as well as licensed personnel, to seek air transport licences, certificates and approvals as early as possible. The Commission also reiterated the need for companies to take all necessary measures to ensure that they meet this requirement on 30 March 2019.
All of these proposed temporary measures will require further legislation and agreement to be reached, with no guarantee based on what has happened to date that the UK and EU will be able to come to an agreement on this.
It is also important to note that GATs operates under the most favoured nation principle. This means that a WTO member cannot discriminate between their trading partners. For example in a no Brexit deal scenario, the UK would need to treat EU and US service providers essentially the same. The EU however does not have to treat EU and non-EU service providers equally going forward, so Northern Ireland companies could find themselves disadvantaged if they are bidding for a contract for EU-based business from the UK.
If provision of services into the EU is currently a key aspect of your business (e.g. if you provide professional, consultancy or logistical services), you need to ensure that you understand the landscape you will be operating in if we exit without agreement at the end of the month.
This will involve a careful review of your strategy. In particular, if you operate in a regulated sector, you will need to determine whether you will be able to continue to offer your services to existing clients post-Brexit.
With 29 March fast approaching, you should be devoting the time now to assessing where the pinch points are for your business and what immediate steps you can take to ensure you can continue to facilitate existing contracts and mitigate the impact of a no deal Brexit.
To contact Jonny Hacking at A&L Goodbody, please call 028 9031 4466 or email [email protected]