Opportunities for the EU in Negotiating Services Trade Talks with the UK

Given the fact that the trade in goods and security provisions are already addressed in the EU/UK Free Trade Agreement (FTA), there are several considerations for the EU to enter into trade talks specifically on services with the UK. This article explores the implications of such negotiations, focusing on the importance of services trade, potential benefits for the EU, and challenges that may arise.

The Current State of UK-EU Services Trade

The UK has been a leading global hub for services, particularly in financial services, despite not having an agreement covering services in the current EU/UK FTA. The removal of traditional trade barriers has led to a more complex environment with new non-trade barriers such as customs/import procedures and Rules of Origin regulations. These changes could impose additional constraints on businesses in the European Union.

Opportunities and Challenges

**Loss of Services to the EU**: From the UK's perspective, the lack of an agreement could significantly impact the services sector, including financial services. Services like insurance, particularly insurance markets such as Lloyd's of London, operate as a single global marketplace. Any restrictions on this flow could have a detrimental impact on the UK's financial sector.

**Opportunities for EU**: The EU sees an opportunity to challenge the dominance of London in the services sector. Germany and France are strong contenders to take over from London. However, a period of competitive jockeying could create a power vacuum with no clear winner. Moreover, even before the UK's departure from the EU, London's services sector was already strong, having experienced significant growth during the UK's EU membership.

Challenges and Considerations

**Non-Trade Barriers**: The removal of tariffs does not necessarily mean the end of barriers. Customs procedures and intricate Rules of Origin regulations may still pose significant challenges for companies dealing with goods and services between the EU and the UK. For instance, in the aerospace, tech, and engineering sectors, relying on UK suppliers may lead to uneconomic and wasteful efforts if such barriers are not mitigated.

**Financial Services**: While the EU might be reluctant to halt the flow of money and jobs from London, financial services play a crucial role in global trade. Without a comprehensive agreement, the EU might face higher financial service costs, such as insurance premiums. This could be a significant concern for countries with higher-risk profiles, like Greece.

Future Considerations for EU

The EU needs to carefully consider its strategy in negotiating services trade talks with the UK. If an agreement is not reached, businesses may have to deal with the UK on its terms. Alternatively, the EU could seek to build its own international banking system, a daunting task considering the lack of knowledge, expertise, and reputation in this area. Additionally, the EU might need to forge its own agreements with countries like Switzerland, which has its own banking community and agreements with the UK.

In conclusion, while the UK-EU FTA has addressed trade in goods, there are significant opportunities for the EU to strengthen its influence in the services sector, particularly if it negotiates a comprehensive agreement. However, the path to achieving this is fraught with challenges, including the complexities of non-trade barriers and the potential for increased costs in financial services. The EU must carefully weigh these factors to maximize its strategic advantage in this critical area.