Britain's services exporters have more to lose from Brexit

By Tom Bergin LONDON (Reuters) - When the Law Society canvassed clients in late 2015 for their thoughts on a British exit from the European Union, one intellectual property lawyer give a blunt assessment of what it would mean for their business. "We couldn’t advise the Europeans, we couldn’t advise the U.S. (on European matters),” the unnamed lawyer said, according to a report published by the professional body for UK solicitors. “No one would instruct us anymore. We could only instruct on UK problems, that’s it. We wouldn’t be a gateway to Europe anymore. We’d be a purely UK entity, for UK problems," the lawyer was quoted as saying. Lawyers, accountants, management consultants, recruiters, bankers, public relations and technology firms with overseas clients, which make up a large chunk of the UK economy, are all facing major headwinds after voters backed an exit from the European Union last week. Many UK-based international companies in other sectors say business could survive Brexit if Britain is able to negotiate maintaining tariff-free access to the markets of its largest trading partner. But the services industry says that would not be enough for its business because the biggest barriers to selling services overseas are typically not import duties. “In services, tariffs are irrelevant – it’s all about non-tariff barriers, it’s about regulations,” said Stephen Booth, Co-Director, of free-market think tank Open Europe. Domestic rules that force professionals to be members of local trade bodies, to have locally recognised qualifications or citizenship before they can practice in a particular jurisdiction, or sell into it from outside, are some of the biggest barriers to international trade in services. Over the past 20 years, the EU has passed many directives to reduce such barriers, while the free movement of workers allows professionals to work on overseas assignments. If these benefits no longer apply, UK-based global services providers will suffer. With services exports representing a larger proportion of the UK economy than in other countries – 13 percent of GDP last year compared to just 4 percent in the United States, according to Reuters calculations based on official data – this could represent an outsize impact for the UK. NOT JUST BANKING The financial services sector is the biggest driver of UK services exports. Bankers say they are especially at risk from Brexit since access to highly regulated EU financial markets is intrinsically linked to following the market rules – just what Leave campaigners said they don’t want to do. But Britain is a key centre for many other internationally traded services. Businesses say that a simple tariff-free relationship with the EU would not address restrictions on selling into Europe, limits on sending staff on overseas assignments, increased difficulty in recruiting EU staff and fears clients will perceive doing business with Britain as more risky. Unless Britain secures a new relationship with Europe which allows service businesses to continue to operate as they do now, it may lose its place as a leading service exporter. “Right now, to do business in London is seen as a natural hub for the rest of the world,” Arnaud Vaissie co-founder of International SOS, which provides medical and security services to companies in energy and other sectors around the world. It employs 700-800 people in the UK, many of them in London, one of the group’s two headquarters. “But, should we keep on privileging our set up in the UK? That’s the question,” he said. PROTECTED PROFESSIONS Lawyers with British training could be barred from registering patents or practicing at all in some countries because their qualifications are not recognised, lawyers say. Even if services providers can continue to sell into EU markets, it may in future be on unequal terms. For example, currently advice a UK-qualified lawyer gives to a German client facing an investigation into suspected EU competition law breaches is privileged. This means emails or notes of meetings between the client and lawyer cannot be subpoenaed or otherwise later used against the client. According to a note from law firm Simmons & Simmons, “UK-qualified lawyers (who are not qualified elsewhere in the EEA) will not be protected by privilege,” if the UK leaves the EU and failed to sign up to the European Economic Area (EEA) EEA membership requires a country to follow EU rules, pay dues to Brussels and permit free movement of EU workers – the three main activities the Leave campaign said they wanted to cease doing. Migration has been a totemic issue in the Brexit debate following the arrival of millions workers from countries like Poland, Hungary and Romania in the past decade. While feared by many voters, ease of movement is welcomed by many firms. Hiroki Takeuchi, CEO and co-founder of GoCardless, which provides payment services to companies across Europe, said that the imposition of a visa system, even one which permitted access for skilled staff, would be problematic. “We are really going to shrink our pool of potential staff,” he said. As a small, fast-growing company, GoCardless needed to be able to hire quickly, Takeuchi said. But even the most basic kind of visa he currently needs for non-EU staff takes six months to secure. He said he could not afford to bet that Britain's relationship with the EU will be as business friendly as the current one. He had already decided to rebalance his expansion plans away from the UK. “What it really means is that we will have to double down in Continental Europe,” he said. (Editing by Anna Willard)