By Tracy Black

At the time of writing, there is still no UK-European Union agreement. Business leaders hope one emerges quickly. Make no mistake, rolling deadlines are already costing companies, which have seen cash reserves disappear and stockpiles dwindle. Every day that passes is one that could be spent making final preparations to help minimise disruption.

Significant change is coming for firms next year, no matter what. And CBI Scotland has been helping businesses prepare. Yet there are numerous issues that can only be resolved once a free trade agreement is secured. Services is one example.

The sector, which accounts for some 80 per cent of the UK economy, is hugely important for Scotland. Yet as noted in today’s latest CBI quarterly survey, worryingly, optimism deteriorated across the service sector in the three months to November as Covid’s second wave crashed on UK shores. The impact has been more pronounced in consumer services – hit hardest by shifts in consumer behaviour, social distancing rules and autumn lockdowns.

Outstanding issues for firms reliant on the free flow of services across borders include data adequacy, and financial equivalence and mutual recognition of qualifications. Let’s examine each briefly in turn.

Data, the currency of the modern age, can only be agreed on the back of a deal. Without this, companies will not be able to hold data from Europe legally, requiring new safeguards to keep data flowing. The UK faces a bill of more than £1 billion in additional compliance costs. Smaller businesses have neither the time nor the resources to rewrite contracts. If no agreement is forthcoming, they face a data cliff-edge.

If a deal is done, the UK still needs an equivalence agreement. While this won’t give full market access for Scottish financial services firms into the EU, it will allow them to service EU clients under third-country arrangements.

The Covid crisis makes this call for regulatory collaboration even more important.

From installing equipment or clearing asbestos, to providing professional advice or mending plane wings, employees providing services require unique qualifications. Individuals working across borders or temporarily abroad need their qualifications recognised by national authorities. The recognition – and regulation - of qualifications is hugely significant for the UK’s world-leading services providers.

Services aside, other unresolved matters include rules of origin, which are key to our manufacturers. If companies are to benefit from zero tariffs in a deal, they know they will need to undertake an exhaustive review of where every component of their final product comes from. For simple goods produced entirely in one country, like a piece of fruit, origin is simple to determine. Complex goods, however, from cakes to cars, can contain thousands of components from different markets across the world. Yet clarity on these rules will not be available until the text is signed.

Meanwhile, rolling over third-party agreements remains vital. The UK Government has made good progress, with Canada added last weekend. However, for countries like Turkey, a vital market in supply chains for many UK companies, replicating existing arrangements is contingent on successfully concluding the talks. Limbo means companies simply don’t know whether future orders of car parts, clothing or construction equipment will be liable to tariffs from January.

Extending the job retention scheme into spring has provided firms with some certainty amid the crisis. Yet for many businesses, the end of the transition period represents a double blow, posing another significant challenge to firms’ resilience, already stripped bare by Covid.

Political and economic timetables cannot continue to compete, they must now converge. Thus the priority must be agreeing a deal now.

Tracy Black is the director of CBI Scotland