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What mechanism would the EU use to prevent UK services (80% of UK exports) from being traded across it’s border in the event that the Brexit negotiations fail?

Sorry, first a small correction — services do not make up 80% of UK exports as mentioned in the question.Services make up 44% of UK exports by value, remaining 56% is mainly manufactured goods.[1]This seems like a common confusion in a number of answers in Quora. It probably arises because services make up nearly 80% of UK economy’s output. All of that is obviously not exported.High services sector contribution is also not unique to UK. Many advanced economies like USA, France, Netherlands, Italy etc have similar services sector contribution.The risk for UK is that it runs a large (>$200 billion) and persistent (25 years long) trade deficit in goods, partly balanced by a smaller trade surplus in services (~$130 billion).EU is UK’s largest export destination for services. It buys 70% more than UK’s second largest services export destination, USA. [2]Even low single digit percentage fall in services export to EU risks substantially worsening UK’s trade deficit, putting further pressure on Pound, importing another bout of inflation.Now the actual answer!To the best of my knowledge, EU cannot do anything specific to UK to hurt its services export. That would be illegal.In the absence of a preferential trade agreement with EU, UK will be treated like a 3rd country, say, like USA. And will face the same services trade barriers that USA faces.Other answers mentioned loss of financial services passporting. This will force some UK based financial services businesses to relocate some operations to EU jurisdictions. The lower end of estimated loss to UK due to this is about 10% of city revenue (£18 billion a year), 10,000 job losses and £3 billion in lost taxes. [3] [4]To be clear — the loss of passporting is not a EU scheme to prevent UK from exporting to EU. All 3rd countries face this.I work in this sector (specifically in the interbank FX options market) and can confirm that large Swiss investment banks, many more wealth managers and private banks are based in London to service EU clients from here (they cannot do this from Zurich). And also many bulge bracket American investment banks, Japanese banks etc. So UK will be treated just like USA or Switzerland when it leaves the EU, unless there is a preferential agreement recognising regulatory equivalence.Financial services are by no means UK’s only services export.UK exports a lot of ‘professional services’ like legal, accounting, engineering and other business services.Quoting ONS (same link as above) —The 2015 estimates show that the professional, scientific and technical activities industries continued to make the largest contribution to the overall UK exports total and experienced a further increase in 2015 from £33,500 million in 2014 to £35,760 million. UK businesses within these industries exported a wide range of services in 2015; however, exports of legal services made the largest contribution, which increased from £4,552 million in 2014 to £4,918 million. Engineering services and services between related enterprises were the second and third largest service products exported by UK professional, scientific and technical activities industries in 2015, with exports of £4,598 million and £4,395 million respectively.Among these ‘business services’, restrictions a 3rd country like USA (or UK soon) faces varies by sector and country.There is no single restriction or tariff and understanding these non tariff restrictions require detailed sectoral analysis that only a government (or very well paid consultants) can do.To get a high level overview of the sort of restrictions by sector and country a 3rd country faces, take a look at US trade representative report 2016 National Trade Estimate Report (it is not EU specific).It lists numerous laws and regulations discriminating against 3rd countries and 3rd country professionals. For example, —France (AVMS = Audiovisual Media Services Directive )France continues to apply AVMS in a restrictive manner. France’s implementing legislation, which was approved by the Commission in 1992, requires that 60 percent of programming be of EU origin and 40 percent be of French-language content. These requirements exceed AVMS requirements. Moreover, these quotas apply to both the regular and prime time programming slots, and the definition of prime time differs from network to network. The prime time restrictions pose a significant barrier to U.S. programs in the French market. Internet, cable, and satellite networks are permitted to broadcast as little as 50 percent EU content (the AVMS Directive minimum) and 30 to 35 percent French-language content, but channels and services are required to increase their investment in the production of French-language content. In addition, radio broadcast quotas that have been in effect since 1996 specify that 40 percent of songs on almost all French private and public radio stations must be in FrenchAustriaAustria: Tax advisors must hold Austrian or EU nationality to represent clients before tax authorities. Foreign tax advisors may not hold more than 25 percent of the equity of Austrian entities.Legal SerivcesAustria, Belgium, Bulgaria, Cyprus, Greece, Hungary, Lithuania, Malta, and Slovakia require EU or EEA nationality for full admission to the bar, which is necessary for the practice of EU and Member State law. In many cases, non-EU lawyers holding authorization to practice law in one Member State face more burdensome procedures to obtain authorization in another Member State than would a similarly situated lawyer holding EU citizenship.There are many hundred pages of these non-tariff barriersWorld Bank has a database of all such restrictions (for all countries, not just for EU) captured in an index called ‘Services Trade Restrictions Index’ here - Services Trade Dataset Search.Higher index number indicate higher non tariff services trade barrier.You can choose a sector there (say, accounting or legal) then choose countries and find the non tariff, regulatory restrictions applicable to a 3rd country.Two things stand out from the World Bank database —Advanced economies like USA and EU have far fewer services trade restrictions than the faster growing emerging markets. Exporting legal, accounting, engineering or insurance services to EU is easier than exporting similar services to India or China.EU members face fewer services trade restrictions when exporting service within EU than 3rd countries.So, even if Leave supporters do not like the EU services market, they will like it even less when outside EU because the restrictions are many more for a 3rd country. And, they will like Chinese, Indian or South Korean services market even less than that.A briefing paper from University of Sussex and Chatham house[5] has a handy chart showing services trade restriction indices for some of the large EU economies and UK —Several observations can be made: EU economies are generally fairly open in financial services, telecoms and retailing, both vis-à-vis each other and towards non-EU providers. It is in professional services sectors (and to a lesser extent transportation) where access for foreign providers is restricted. That said, there are differences across countries: for instance, in transportation sectors the UK imposes the same minor restrictions as the other EU countries depicted (ranging from 19-25) but providers from outside the EU face more restrictions . (37). That wedge is even more pronounced in the legal and accountancy professions (via mode 4). Lawyers and accountants looking to provide such services in the EU are up against major restrictions (67 and 50, respectively). Whilst the UK individually is as restrictive as the EU’s external regime, other markets such as France and the Netherlands tend to be more open for service professionals from within the EU. These advantages to UK service suppliers would potentially be lost post-Brexit if “EU-EXT” policies were applied to UK firms(EU-EXT = restrictions a 3rd country like USA faces)Footnotes[1] Trade Profiles[2] https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/bulletins/internationaltradeinservices/2015#total-international-trade-in-services-excluding-travel-transport-and-banking-by-continent-and-countries[3] Brexit Impact on the UK-based Financial Services Sector[4] Exclusive - Reuters survey: 10,000 UK finance jobs affected in Brexit'[5] http://blogs.sussex.ac.uk/uktpo/files/2017/01/Briefing-paper-6.pdf

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