More and more companies are finding profit in exporting services, and several trends ensure that these exports will grow rapidly.
But the fly in the ointment is that our neighbour the UK generates €48bn in two-way services trade and this may be lost if there is a hard Brexit at the end of October.
This time last year we were looking at a very sluggish start to the year and there were fears for a slowdown in the fast-growing services exports as administration of President Donald Trump started its steel trade war.
Businesses have taken the pragmatic decision to manage the risks and to do their best to come up with their own solutions.
The result is a stellar start to the year, with a 17% sales growth in services exports in the first quarter from a year earlier.
International services trade has become the new frontier for expanding and diversifying exports, providing significant opportunities for Irish companies.
Many of Ireland’s traditional manufactured product exports increasingly contain technology, with embedded artificial intelligence, virtual reality features or simply algorithms to control user data collection. But they typically also need increased online support for installation, troubleshooting, maintenance, and repairs, which drives additional profits.
However, the largest slice of our €181bn services export industry is the sale of digital services by multinationals located here, including Microsoft, Apple, Facebook, and Google.
But both the indigenous and the multinational firms rely heavily on the UK, Ireland’s second-largest market for services. One of the reasons we trade well with the UK is because it is the least regulated within the EU.
Member states despite the single market and services directive have 368 regulations for services and thousands for regulated professions. Professional services are the least regulated in the UK, Ireland and Finland. The highest level of regulation is found in Italy, Luxembourg, Slovenia, and Germany.
If a withdrawal agreement is not approved by the House of Commons by Halloween, all EU primary and secondary law will cease to apply to the UK.
The UK will then become a third country and Irish exporters of services will be caught in a no man’s land trying to manage a plethora of services governed by separate EU provisions — covering financial services, electronic communications, and transport services, including taxis and ambulances, as well as port services.
The biggest concerns focus on whether the UK will be deemed adequate under EU data protection rules for cross-border data transfer.
The UK legislation may not be adequate also under the EU directives for e-commerce and e-privacy which permit the free flow of data within the EU. These problems may be avoided by the use of standard contractual clauses but it is expected there will be legal challenges to their validity.
Divergence is also expected between the UK and the EU and digital services may be the biggest issue, not only for the creative industries but Ireland’s digital economy as a whole.
The initial response from the industry here has been to try and get around some of the exposure by buying into the UK partners to ensure continuity of their services to the market there.
UK companies have equally decided to act to protect their market in Ireland.
Direct investment from the UK into Ireland increased by €4.1bn in the first quarter, official figures show. And direct investment from Ireland into the UK has increased by €6.8bn.
- John Whelan is managing partner at The Linkage-Partnership