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The Commission as trade negotiator (II): The neglect of services

Services have been overlooked in EU trade agreements, despite the pleas of successive British prime ministers

Figure 33.1 shows the size, in trillions of US dollars, of the markets covered by the FTAs of the EU alongside those of four small independent countries (in force as of January 2015). Each column showing the size of the markets covered by the agreements is split into two halves. The left half covers all FTAs and the right half covers those agreements that refer specifically to services. The EU FTAs are presented in two separate columns. The first column on the far left entitled ‘EU FTAs only’ shows negotiation that the EU has conducted with other sovereign powers. This, however, seemed a less than fair comparison. The columns of the other four countries include their FTAs with the EU, while the EU’s does not. Since the EU’s efforts have been primarily directed towards creating freer trade amongst its own members, this may give a misleading impression. A second EU column entitled ‘EU inc EU’ includes the GDP of the EU itself as one of the markets covered by an EU FTA. As may be seen, it makes a substantial difference. The GDP of the EU is nearly three times larger than the aggregate GDP of all the countries with which it has successfully concluded FTAs which were in force in January 2015.

Chapter 33 - graph 1

The main purpose of the figure is to compare the ability of the independent countries to include services in the agreements they have negotiated. The overwhelming majority of their agreements, in terms of the GDP of the countries concerned, include services. The two halves of the four columns therefore do not differ greatly. Switzerland is the worst in this respect. Just short of 90 per cent of the value of the markets with which Switzerland has FTAs now in force include services. The EU, including the EU itself, is just over 90 per cent.

When we turn to EU agreements negotiated with foreign countries the proportion including services drops to 68 per cent. Nearly one third of EU FTAs with foreign countries do not include any reference to services at all. In terms of the absolute size of the markets opened for freer trade in services, the EU agreements total $4.1tn, whereas Swiss FTAs have opened markets worth $35.8tn., and Singaporean, Korean and Chilean FTAs have opened markets work $37.2t, $40t and $55.4t respectively.

By this simple initial measure, the four smaller, independent countries seem to have been rather more effective than the Commission in negotiating FTAs, especially in services. The ‘collective clout’ and ‘negotiating leverage’ of the EU has evidently counted for little.

The agreements the European Commission has negotiated with a service element are shown in the table. The percentage each agreement represents of the UK’s total services exports and each partner country’s GDP are also included.

Chapter 33 - table 1

Figures about the number of FTAs do not say anything about their content, so it may well be that the EU’s FTAs secure more substantial advantages for member countries than those of the four independent countries. It may be, for instance, that the terms under which the UK services exporters can trade in the $4.1tn market that the European Commission has facilitated are much better than those the Swiss were able to obtain for their exporters in $35.8tn of markets. The EU’s ‘clout’ may have counted for something after all.

One way of testing this idea would be to compare UK exports to countries covered by an EU agreement with UK exports to countries not covered by an EU agreement. This could show whether the UK benefits more from trade agreements negotiated by the Commission. Or we could measure the pre- and post-agreement growth of UK services exports to individual partner countries. However the available services data does not allow us to do this, and in any case many of the agreements are too recent to provide time for their impact to be felt.

Hence the only measure of their impact that we have is the final column of the table. This gives the value of UK services exports covered by each EU agreement as a proportion of the total value of the UK’s total world services exports.

As may be seen, the European Commission has managed to negotiate service agreements that cover in total just 1.8% of all UK services exports. (Figures exclude the EEA countries Norway, Iceland and Liechtenstein.) This does not appear to be a remarkable effort for more than 42 years of negotiations, but then services were not high on anyone’s agenda in 1973 and for many years thereafter. The European Commission began including services in its negotiations in 2000, so perhaps we should say that the EU’s service agreements are a culmination of 15 years’ worth of effort. It still does not appear much better.

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