A quickie divorce, step one: trade in services

At 1.00am on the morning of Friday 21 October, Theresa May took the five minutes allotted to her at the end of dinner at the Brussels summit to point out that the UK remains in the EU until the Article 50 notice runs out. She had previously expressed her wish that the UK should continue as a good friend and responsible partner to our continental neighbours. This piece sets out how the PM may indeed act as the good friend to the EU she wishes to be, by saving the EU from prolonged Brexit negotiations so that it is free to address its many other problems.

This is best accomplished with the measures on which I touched recently in “A summary departure”. Despite the inelegance of the phrase “quickie divorce”, it is a good catch-all for policies to minimise uncertainty, respond to volatility in financial markets and cut the risk of deferred recruitment or investment by industry. It achieves these aims by providing an early and definitive framework for commerce, finance and industry; and paving the way for prompt discussions with other trading partners.

In services, the timetable of international negotiations presents the UK with an immediate opportunity to gauge the EU’s intentions. The Trade in Services Agreement (TiSA), is currently being negotiated in Geneva between 23 members of the World Trade Organisation, accounting for seventy percent of world trade in services. As a precondition for any negotiations with the EU, the UK should give it thirty days to sponsor the UK’s independent status at these talks.

This matters to the UK but should be no loss to other Member States. The EU’s response to this request will serve as a touchstone of its inclination to act positively. If not, the UK should walk away at the end of the notice period, invoking powers taken under the Great Repeal Act in order to exercise its rights under the Vienna Convention on Treaties and abandon Article 50 talks for lack of a serious intent to engage by the other side.

If the EU responds positively, the UK should then pursue the difficult course towards free trade in services.

Barriers to trade in the field are regulatory. The EU’s approach has been “harmonisation”, universally seen as heavy-handed, indeed one of the most unpopular aspects of its acquis. Even so, it has yielded some fruit in transport and financial services.

Otherwise, many European services remain shielded from international competition, in particular those provided directly by governments or otherwise heavily regulated. These include broadcasting, education, energy, environmental, healthcare, postal and transportation services.

By contrast, the UK has led the way in deregulating (among others) energy, environmental, postal and rail services. This has opened them up to continental entrants without similar opportunities for UK firms across the Channel.

Whatever the bluster, the EU is unlikely to be militant about financial services after Brexit. They would fear the possibility of the UK taking tit for tat action against Continental financial firms operating in the UK – or at least revisiting the unreciprocated access to UK markets enjoyed by Dutch, French and German transport, energy and local services providers.

Our negotiators should make clear their alternative to the adjudicatory role of the ECJ on trade disputes. This solution caters for domestic sentiment, conforms to best practice and creates no new bureaucracy. It would be binding arbitration in London under the laws of England, universally seen as the gold standard for resolving international disputes.

As this offer is silent on freedom of movement, it is likely to be seen as the “cherry-picking” against which so many EU voices have been raised. The UK will need to take pains to ensure that its fall-back position, reciprocity, is fully understood by the EU member-states and commercial organisations most likely to be affected.

In addition, the UK will be in a position to exercise untrammelled sovereignty to lift tax burdens, as briefly addressed in the following blogs.

In the following blogs we turn to trade in goods and the financial settlement.