Brexit: Trade in Non-financial Services (EUC Report)

Baroness Donaghy Excerpts

Monday 18th December 2017 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, the report was published in March this year, before the general election and before the first phase of the negotiations. There has been a slight change in government language. The overblown title—the great repeal Bill—is no more, to the relief of most of us. Our report established the case that it will almost certainly take longer than two years to agree a comprehensive free trade agreement, and we urged the Government to prioritise the securing of a transitional trading arrangement with the EU in order to avoid the regulatory cliff edge. At the time, the adoption of a transition period was seen to be politically sensitive, but now we have an implementation period of two years. In addition, the Minister the noble Baroness, Lady Fairhead, has acknowledged:

“Services are an essential element of the economies of the UK and the EU, so we will be seeking an ambitious free trade agreement between the UK and the EU which will be of greater scope and ambition than any preceding agreement, because we realise how important it is”.—[Official Report, 5/12/17; col. 1042.]


It is good news that the Government have accepted this aspect of our report.

In my contribution, I will touch on the importance of accurate data and robust dispute resolution procedures, and ask about the possible impact on higher education. The report points to the unreliability of current statistics, which make it difficult to give an accurate assessment of the value of the services trade. The data in the Office for National Statistics Pink Book capture some of the ways in which services can be traded and, as has been said, probably underestimate the importance of services trade for the UK. The Minister of State for DCMS, Matt Hancock, who gave evidence to the committee, said that problems with the data did,

“not really matter much because we know from hard data … that Britain is really quite good at this digital stuff”.

The committee took the view that the accuracy of the data really did matter to illuminate the flow of talent and the implications for immigration policy, both vital to the UK’s future success in this area.

I was intending to outline the four modes of supply defined by the World Trade Organization, two of which are contained in the Pink Book—modes 3 and 4 are not—but time does not allow. But academics estimate that mode 3 is roughly twice as big as the other modes combined. As our report says:

“The lack of data on trade via mode 4 is also problematic, and is linked to wider concerns about immigration”.


The committee concluded:

“The Government therefore needs more accurate and detailed statistical information on trade in non-financial services than is currently available … Entering negotiations without such data could risk long-term, unintended consequences for the UK economy”.


Will the Minister indicate in what ways the Government are collecting more accurate and detailed statistics?

Many witnesses expressed concern that divergence between EU and UK laws would increase cost and complexity and might even endanger stakeholder confidence. Access to talent and flexible movement of services providers, the free flow of data, mutual recognition of qualifications, and effective enforcement were all cited as fundamental to non-financial services. Whether or not there is regulatory divergence in the future, witnesses were concerned that businesses should have access to dispute resolution mechanisms, either under a free trade agreement or under World Trade Organization rules. As has already been said, the WTO does not even cover some of the areas of service trade. Is the Minister able to outline the key principles that the Government will adopt for future dispute resolution, which will not be prohibitively expensive or complex for business, particularly SMEs? On 5 December, the noble Baroness, Lady Fairhead, outlined the plan for a new independent UK Trade Remedies Authority. Do the Government have an idea of how this Trade Remedies Authority will interact with any future international dispute resolution procedures?

I turn to higher education, where I spent most of my working life. I welcome the fact that the Prime Minister recognised the importance of universities in her Statement today. The report says that trade statistics,

“include students … however short their stay, because they remain formally residents of their country of origin”.

We were told that EU students make up 5.5% of the UK higher education student population, and that at some universities it was 25%. Some courses would not be viable without these students. Non-UK EU students paid fees of £600 million in 2014-15, accounting for as much as 8% of all university income. Spending by the same students in the wider UK economy accounted for £3.7 billion and supported over 34,000 jobs.

Universities UK pointed to the “principle of non-discrimination” for all EU students and wanted those arrangements to continue after the UK leaves the EU. Our report outlines,

“the possible negative effect of increasing fees for EU students on trade in education services”,

after we leave the EU. The Government’s development of a new immigration policy will have to determine the future status of EU students. The University and College Union is also concerned that the further marketisation of universities could lead to education being included in future trade agreements. At present, education is exempt. What assurances can the Minister give to the higher education sector on these matters?

Although political events may have overtaken our report to an extent, the fundamentals of our recommendations for the future remain the same. I thank the noble Lord, Lord Whitty, for steering us through this inquiry so ably and for making an important contribution today. Who knows, we might even get a response from the Government one day.