Thread by @SamuelMarcLowe

Just released: my new policy briefing on Brexit and EU-UK services trade.

I explore just how much can be done on services if the UK is to leave the single market and take a stab at estimating the impact on different sectors.

cer.eu/publications/a…

Services trade is tricky to understand.

There are four different ‘modes’ by which services can be traded:

Globally, if a company wants to services consumers abroad, the most common way of doing this is to set up an office, or incorporate, in the foreign market they want to sell into (mode 3).

See:

Now, while the single market for services is much derided in the Brexit debate, the truth is, the EU has gone further on services liberalisation than any other grouping of countries.

And single market provisions are much more effective than those found in an FTA (which in practice go little further than WTO commitments).

This is particularly true when it comes to cross-border supply, when a service provider sells from one jurisdiction directly into another.

The benefits of the single market shows up in the composition of UK services trade, especially for financial services.

Whereas UK services supplied to the rest of the world are largely done via mode 3 (as expected), services supplied to the EU rely much more on mode 1.

But what if post-Brexit the UK were to sell services to the EU on similar terms to what it does with the rest of the world? (As I argue is likely in the paper.)

Answer: it varies by sector. But, generally speaking we see a shift from mode 1 to mode 3.

In English: this means that UK services suppliers will increasingly cease to service EU-based clients from the UK, and will instead set up offices within the EU to do so.

This would result in a relative fall in UK exports.

Note however, that the impact varies by sector.

Business services would be less affected because of the nature of the industry itself where even within the EU British-based companies have already set up offices across the EU to service their clients.

So what does this all mean?

Leaving the single market will probably lead to a shift in services investment out of the UK and into the EU-27. This will have have knock on implications for the UK’s trade balance, jobs and tax revenue.

Anyhow, please do read the policy brief and let me know what you think.

It’s a bit nerdy, but hopefully it is accessible enough to be useful to those wanting to learn more about services trade (and why liberalising it is so difficult).

cer.eu/sites/default/…