Trade in Services Report

Purpose of this research

Trade in services plays an increasingly important role in Scotland as well as global economy, supporting high value employment, productivity, and international competitiveness across a wide range of activities. Scotland exports services through multiple and often less well understood channels, including cross-border delivery, commercial presence, and the temporary movement of people, making services trade both economically significant and highly sensitive to regulatory and institutional arrangements in partner markets.

Traditionally focus on trade has been narrowly defined on goods trade barriers which tend to be easier to quantify and can be deciphered from tariff rate quotas and headline tariff rates. However, notwithstanding the latest tariff uncertainty, the general trend globally has been a declining tariff environment as goods trade as well as supply chains have become more integrated. When it comes to services trade, it’s the non-tariff barriers that have emerged as a central constraint. In contrast to goods trade, where barriers often arise at the border, non-tariff barriers affecting services trade typically operate behind the border or within domestic regulatory frameworks. These include, but are not limited to licensing and authorisation requirements, recognition of professional qualifications, restrictions on establishment or legal form, data and digital regulations, public procurement rules, and regulatory discretion in the application of standards.

In examining non-tariff barriers to services trade, this report will also distinguish between hard barriers and soft barriers. Hard barriers refer to formal, codified restrictions embedded in laws, regulations, or administrative procedures, such as licensing requirements, authorisation regimes, restrictions on establishment, data localisation rules or limits on recognition of professional qualifications and mobility of professionals.

Soft barriers by contrast, arise from market practices, commercial requirements or customer driven conditions that are not formally mandated by regulation but nonetheless shape market access in practice. These may include client or prime-contractor requirements for local presence, familiarity with domestic standards, liability arrangements, language or cultural expectations or “soft” nudges by customers to conduct business and economic activity in the jurisdiction where customer is located. While such barriers may not constitute legal restrictions, Scottish firms have consistently reported that they can have similar effects as formal barriers, particularly in services trade where trust, reputation, and ongoing client relationships play a central role.

A key insight^[1] from this work is that the economic impact of services trade barriers cannot be fully understood by focusing exclusively on formal restrictions. While hard barriers are often the focus of trade policy analysis and official measurement frameworks, firms engaged in services trade frequently emphasised soft, customer driven barriers as equally significant constraints on market access and scaling. These soft barriers are inherently more difficult to observe, quantify, or track over time. Capturing firm perspectives is therefore essential to understand how these barriers operate in practice and how they interact with formal regulatory frameworks.

The effects of these barriers are often indirect but material. Non-tariff barriers to services trade tends to lead to permanent rise in fixed costs, restrict permissible modes of supply, and perhaps most importantly introduces uncertainty around market access. This contrasts with tariffs affecting goods trade which have the effect of increasing variable costs in a transparent way. As a result, the impact of these NTBs is not always visible in aggregate trade statistics, but can strongly influence firm behaviour, investment decisions, and the ability of Scottish services exporters to enter, operate in, or scale within international markets.

1.1 Objectives of this research

The Scottish Government commissioned this work to develop an evidence-based assessment of non-tariff barriers affecting Scotland’s services trade, with a focus on identifying which barriers are most binding across key service sector activities, how they affect different modes of supply, and what implications they have for policy within the current institutional and devolution context. The aim in this work is not to provide an exhaustive catalogue of regulatory differences, but to prioritise barriers according to their economic significance and policy relevance. This work also tries to identify strengths, and weaknesses alongside opportunities and threats for services trade which will predominantly be identified using feedback gathered at the business roundtables as they remain best placed to assess on-the-ground realities in Scotland, as well as overseas.

A secondary objective of this piece of work was to understand the quality and limitations of services trade data. Services trade is inherently more difficult to measure than goods trade reflecting its intangible nature, diversity of delivery modes, and the role of intra-firm activity as well as commercial presence. While official statistics provide essential insights into aggregate trends, they may not always capture changes in market access conditions, regulatory frictions, or emerging forms of services delivery. Firm perspectives therefore offer a valuable lens through which to assess whether existing data, in its current form, adequately reflects the underlying economic realities and where gaps or ambiguities may exist.

This analysis draws on mixed-methods evidence^[2] base. It included structured roundtable discussions with firms, trade bodies and stakeholders engaged in services trade, targeted case studies that illustrate on-the-ground firm level impacts, a review of relevant academic and policy literature, and a supporting data exercise intended to provide contextual and forward-looking signals of services trade performance. The structure of the report is as follows – in the subsequent section we will provide sector profiles of key services trade in key^[3] service sectors of Scottish economy. The sector profiles provide an analytical overview of export performance, employment statistics, and approximate productivity measures. The profiles also capture key export destinations, as well as recent trends in restrictiveness/liberalisation in key markets. Accompanying each

Accompanying each sector profile is our own primary research^[4] that was conducted via organised roundtables that were held across Scotland where we engaged with businesses, trade bodies, and other relevant stakeholders to get a better understanding of day-to-day trade barriers that Scottish businesses encounter while exporting. This primary research is meant to complement other analytical work and assess where the trade data, in its current shape and form reflects the underlying on the ground realities businesses operate in. Primary research from the roundtables has also allowed us to provide recommendations from both trade policy, as well as trade support perspective. Each roundtable summary also includes a SWOT analysis that showcases strengths of the sector, the weaknesses, opportunities as well as threats. Following the roundtables, we were also in position to list case studies that showcases individual firms and businesses and showcase how significant the trade barriers when it comes to day-to-day operations.

Box 1.1: Services trade data

The limitations of services trade data have important implications for policy interpretation. Changes in trade values may reflect shifts in delivery mode, firm structure, or commercial presence rather than changes in underlying competitiveness or market access. Similarly, the absence of observable trade declines does not imply the absence of binding barriers, particularly where firms respond by restructuring activity or refraining from entry altogether. Firm level evidence is therefore essential to complement official statistics. Throughout this report, qualitative insights from roundtables are used to interpret trade data and identify barriers that may not be visible in aggregate measures.

It’s also worth noting that Scotland also reports services “exports” to the rest of UK . However, the feedback received from our roundtables^[5] was that firms make no business distinction between inter-firm activities with UK or even intra-firm activities between Scotland and rest of UK. All the sectors noted that they do not see business activity in Scotland distinct from that in UK.

This has important ramifications and perhaps suggests that exports to rest of UK should be seen from the lens of market integration as opposed to market competitiveness.

1.2 Scotland’s policy levers in addressing services trade barriers

This report does not intend to capture an exhaustive list of services trade barriers. Instead, it focuses on identifying which non-tariff barriers are most economically significant for Scottish services exporters which operate across multiple sectors and where policy action can mitigate their impact within the current institutional context. The emphasis is therefore on prioritisation.

The global overview is also essential because it showcases the trends affecting services trade, and any trade policy discussion that affects Scottish services exporters finds the trade environment the new reality of business in 2025.

Although trade agreements and formal market access commitments are largely reserved, Scotland retains important levers that shape how services trade barriers affect firms in practice. These include engagement with professional regulators and accreditation bodies^[6], the design of enterprise support and advisory services, the facilitation of consortia and partnerships to overcome scale and procurement barriers, and the systematic collection of firm level evidence to inform UK level negotiations.

In addition, devolved responsibilities for skills, education, and elements of digital and data policy influence firms’ readiness to navigate regulatory requirements overseas. These delivery focused levers are particularly important for services trade, where barriers often operate behind the border and interact with firm capabilities rather than manifesting as explicit prohibitions. The analysis that follows therefore places emphasis not only on identifying barriers, but on understanding where devolved action can most effectively reduce their practical impact.

The next section of this report begins with key sector profiles, primary research from our roundtable discussions with key stakeholders as well as case studies that are meant to highlight how service sector barriers play out daily across Scotland.

1.3 Strategic Priorities and Market Context

Across financial services, professional and business services, and science and research, several cross-sector priorities are already evident. In today’s core markets, particularly the European Union and the United States, short term mobility, mutual recognition of professional qualifications, and regulatory divergence remain the most consistently binding constraints on Scottish exporters. At the same time, high growth markets in Asia, the Middle East, and parts of North America are generating expanding demand for knowledge intensive services but are characterised by evolving regulatory regimes – albeit in an embryonic stage, developing digital governance frameworks, and evolving localisation pressures. This creates an opportunistic narrow window for Scottish and UK professional bodies, regulators, and policymakers to move from what has been traditionally a reactive adjustment approach to proactive engagement through structured regulatory dialogue, standards development, and accreditation cooperation that can pre-empt future barriers. Achieving this requires a coordinated approach that combines trade policy, including influence over market access negotiations and regulatory cooperation, with trade promotion and capability building that help firms navigate complex environments and convert access into commercial success. The analysis that follows examines these themes in sector specific detail and identifies where devolved and reserved levers can most effectively strengthen Scotland’s position in both established and emerging markets.

1.4 Sectors in this report

The sectors of focus in this report have come out of discussion with Scottish Government officials and the Steering Group.

The sectors are:

• Financial Services
• Professional and Business Services
• Science and Research
• Creative Industries
• Digital and Technology
• Energy

Our selection of service sectors that have been the focus of this report has been shaped heavily from a trade policy lens. Although higher education and tourism are significant contributors to Scotland’s services exports, they are not priority sectors within a trade barrier reduction strategy. Dynamics in these sectors is driven primarily by visa policy, migration policy, global demand conditions, exchange rates and reputation rather than by regulatory market access barriers that can be addressed through trade negotiations or mutual recognition agreements. As a result, the scope for trade policy to materially alter outcomes is limited and hence scarce policy resources may be better allocated on regulated service sectors where targeted intervention can generate measurable gains.