Ireland and the WTO - how will cross border services provided to the UK be treated in a no Brexit deal scenario?

Background

The debate on the impact of a no Brexit deal scenario has mainly focussed on trade in goods (and in particular the significant consequences for cross-border trade between Ireland and Northern Ireland). The effect of a no Brexit deal scenario on trade in services between Ireland (as well as the rest of the EU) and the UK would also be marked and potentially be more restrictive.

Impact of a no Brexit scenario

In the absence of a Brexit deal, services trade between Ireland or the EU and the UK will be governed by the General Agreement on Trade in Services (GATS). This was agreed under the auspices of the World Trade Organisation (WTO). The WTO is an international organisation dealing with the global rules of trade between its members regarding goods and services. The global trading system is supported by a number of WTO agreements (e.g. GATS and the General Agreement on Tariffs and Trade (GATT).

Trade under GATS and GATT

Trade under GATS and GATT operates under the most favoured nation principle. This is when a member cannot normally discriminate between their trading partners (e.g. in a no Brexit deal scenario, the UK would need to treat EU and US service providers essentially the same). It also operates under the national treatment principle. In this case, if there was a no Brexit deal scenario, the UK must treat imported and local services essentially the same). 

These principles must be seen by reference to the extent to which the services markets of a WTO member are opened to other WTO member countries' service providers (e.g. financial services). Under GATS, members of the WTO negotiate individual lists of market access commitments for services (Schedules of commitments). These Schedules of commitments list service sectors and the methods of supply a WTO member chooses to apply national treatment, and market access requirements (including the imposition of limitations, conditions and qualifications).

A "service" is not defined in the GATS but the WTO tends to apply a Services Sectoral Classification List in relation to the WTO member's Schedules of commitments.

The WTO system

The WTO system has not liberalised trade in services to the same extent as trade in goods. GATS is more limited than GATT. This puts services provided to the UK from the EU and vice versa at a distinct disadvantage compared to the liberalised arrangement for services which all EU Member States enjoy as part of the Single Market (e.g. passporting across the EU in relation to financial services).  It is notable that EU barriers to trade in services with third countries are appreciably greater than those which apply inside the Single Market).

In addition, GATS allows members more options for exceptional treatment. Members can tailor their Schedules of commitments in line with their national policy and can identify their commitments to a limited number of services sectors. They can also or choose to provide market access only to a specified range of services.

This is where service providers in Ireland who are doing business in the UK will identify the nature and extent of access to the UK market and the kind of barriers to trade that they may face. Regulated services are not significantly liberalised by GATS to any appreciable extent and this may constitute a material barrier to such service provision in the UK.

What will happen next?

On 3 December 2018, the UK submitted its draft Schedules of commitments to the WTO and WTO members have until later this month to review the Schedules of commitments.

If no objections are made by the end of this period, the UK's Schedules of commitments will be considered to be certified by the WTO. The UK has said that its Schedules of commitments will take effect on leaving the EU. This is a complex approval process and one which has resulted in recent disagreement with other WTO members in relation to the equivalent Schedule on goods).

As far as the provision of services into the UK is concerned, the finally agreed wording of the UK's Schedules of commitments will be worth scrutinising carefully to help determine what level of access and restrictions will be applied to providers of services from Ireland into the UK. While internal barriers to trade may also affect service provision in the UK, these may not be that significant in practice given the market-opening effect on services of the UK's membership of the EU.

The EU has its own Schedules of commitments. The EU has proposed temporary measures applicable to services post-Brexit to ensure continuity of services, in particular in relation to financial services, road haulage, air transport and customs).

If you would like further information please contact Alan McCarthy or any member of A&L Goodbody’s EU, Competition & Procurement team.

Date published: 3 January 2019