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Christopher Howarth: Why the UK should push hard for EU services liberalisation. And what to do if it doesn't get it.

Christopher Howarth is a senior Political Analyst at the think tank Open Europe. Prior to Open Europe he worked as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister. Follow Open Europe on Twitter.

Screen shot 2013-05-08 at 20.11.34We joined what became the EU for trade. If the EU stopped being beneficial for UK trade, the reasons to remain inside would evaporate. The EU involves itself in many things where its added value is marginal or often negative. However, the one area where the EU can be beneficial is in economic liberalisation and job creation. Given the tendency of the EU to agglomerate power, its limited success in forcing economic liberalisation onto the EU’s services industries, an area fragmented by nationally imposed barriers to entry, is a startling sign of its current priorities.

The Coalition is right to prioritise economic reform as the EU’s most urgent task. The UK’s first priority in this regard should push for a new round of services liberalisation. Our research published today demonstrates that if the EU fully implemented the original Services Directive by pursuing a new “country of origin” principle, it would produce a permanent increase to EU wide GDP of up to 2.3% of GDP.  That would give the EU economy a welcome boost and show that the EU is focused on the priorities that matter.

What would services liberalisation mean? Firstly the mutual recognition of services across EU borders, if a UK service is good enough for a Briton it should be good enough for a Frenchman. It is also ridiculous that the EU seeks to harmonise the minutiae of everyday life when they have done nothing about the 800 regulated professions across the EU, each with different standards in each state - of which 25% are only regulated in one member state. At one end of the spectrum, we have the UK’s highly competitive financial services and legal sectors denied full access to potentially lucrative EU markets. But this is a problem across the board. There are examples of states that would deny a UK national the right to be a real estate agent (Cyprus and others), a chimney sweep in (Austria) a ski instructor (Italy and France) as well as being a photographer, barman, corset maker or chambermaid. The gains from liberalising this sector are obvious, but what if states that are traditionally more interested in political centralisation than economic liberalisation block a new attempt? This is not an idle threat as last time it was attempted opposition from France and MEPs, among others, watered it down out of all recognition.

So here is the idea. The UK should push for further liberalisation of the EU’s fragmented services industries for all EU states - but if this fails the UK should, working with others, sidestep the opposition and go ahead with a smaller group. In EU speak, this is called “enhanced co-operation”. There are precedents; the EU patent court went ahead with only 25 out of 27 member states, due to opposition from Spain and Italy. On the same principle, though not beneficially, eleven states have agreed to forge ahead with a Financial Transaction Tax when agreement at the level of 27 was not possible.

So there are precedents and obvious economic benefits. This is also a rare chance for the UK to lead on a subject of benefit for all EU states. The UK would be in the unfamiliar position of arguing for “more Europe”, and protectionist centralisers would be on the back foot, an appealing turning of the tables that could add authority for the UK in other areas. All it needs is political will among those states that agree. The more the merrier, but at a minimum the UK would need to assemble eight other like-minded states. This is quite possible. Already senior figures in the Dutch and Swedish Governments have voiced their support, and a previous UK “pro-growth” initiative in February 2012 was supported by 12 member states.

If this succeeded, the EU could demonstrate a tangible future economic benefit to states such as the UK that are questioning the EU’s merits.

So what if the EU, or a member state, manages to block this proposal or the UK cannot find the requisite nine states? If this proposal fails, a thoroughly positive proposal from an EU state often caricatured as only ever wishing to block things will have failed. But its significance would be wider than that. For the UK, trade is the reason we are in the EU. We do a large, (if declining) proportion of our trade with the EU. Of that. the more liberalised goods trade takes up the largest proportion.

However, the UK’s best future trading opportunities are likely to be outside the EU in the fast- growing states of the newly emerging economies. Although goods exports are important, the UK’s real trading strength is as a world leader in exporting services. And it is in this sector that the EU is least adapted to UK needs. For the EU to increase its relevance to our future, it must do more to open itself to the UK’s world class services. It should embrace services liberalisation as a positive initiative on its own terms and as a way of proving to the UK and others it is still relevant to the future.  If not then the trade case for EU membership is made that bit weaker. 


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