Listening to the architects: What trade in architecture can tell us about the architecture for trade

With the UK and the EU reaching the sharp end of their negotiations on future arrangements, resolving the question of how these should be structured has become ever more pressing. Summarising in fairly general terms, the UK government is split between those who favour prioritising deep integration with EU, and those who, on the other hand, believe that any arrangement with the EU should preserve every opportunity the UK has to pursue a global trade policy on an independent basis.

The Royal Institute of British Architects (RIBA) and Frontier Economics recently analysed and reported on the impacts of Brexit scenarios on architecture. The case of the UK’s architecture services industries offers some insights to this debate. Architecture directly contributes £4.8 billion to the UK economy every year with a further £1 billion a year contribution embedded in the exports of the other industries it supports – from banking to museums, transport to IT services.

There are a number of features that make UK architecture services distinctive. First, it is heavily export oriented. More specifically, its exports are global in nature. Depending on the year, between 75 and 85% of UK architecture exports are to non-EU markets. This proportion is higher than for services as a whole, and considerably higher than for merchandise trade. The UK is the biggest global exporter of architecture in the EU by some distance.

Secondly, architecture is skills-intensive. Around only a third of the value of its production is accounted for by intermediate. Accessing skills is thus an important element of UK architecture’s competitiveness. Around 25% of architects in the UK are non-UK EU nationals.

These features mean that UK architecture’s global prospects are tied closely to the UK’s stance vis a vis the EU. If the UK and the EU were to rescind their mutual commitment to free movement of people, this will reduce UK businesses’ access to skills. For architecture, this acts as an implicit tax on all the sector’s exports, regardless of where these exports go. The analysis conducted by Frontier Economics for RIBA suggests that 7% of UK architecture exports to non-EU markets could be in jeopardy if UK businesses were constrained in their access to EU skills.

Even if the UK were not part of the EU’s single market, it could still try and mitigate the effects on access to skills. This is because the UK has control over regulations affecting the UK architecture services sectors, and will continue to do so regardless of the terms on which it leaves the EU.  The UK could, for example, unilaterally liberalise restrictions affecting labour inputs. For example, it could liberalise restrictions on duration of stay requirements on intra-corporates transferees and quotas on contractual services providers. The crux of the matter is that – outside a bespoke FTA with the EU – it would need to do so on a MFN basis i.e. in a manner that benefits all trade partners.

Because so much of architecture exports go to non-EU markets, negotiating free trade agreements with these markets can yield sizeable gains. We estimate in the region of 37%. But these gains require that the UK manages to negotiate “deep” FTAs on services with these partners i.e. ones that eliminate existing restrictions that apply on a MFN basis. To date, liberalisation of services to such as an extent has not happened outside the EU’s single market.

One of the main lessons from architecture is that even for sectors that are not heavily dependent on the EU as an export market, the depth of integration with the EU matters. This is because of the effects of such integration on the sector’s value chain, notably in terms of skills, and the implicit tax on exports imposed by a reduced access to skills.

On the upside, the UK has policy levers, that do not depend on the EU, to manage the issue. The UK could choose unilaterally to have less restrictive provisions on labour in the context of services trade. But it would need to implement these on MFN basis unless it struck a FTA with the EU.

Overall, what sectors like Architecture tells us is that to think about the future architecture of the UK trade as a choice between a EU-centric approach and a more global one is too simplistic. Deep integration with the EU can boost global competitiveness, and rolling back such integration can hamper global ambitions.

Read the full RIBA and Frontier Economics Report here…