As the Government’s Trade Bill gets its Second Reading today, we will hear a lot of talk about global, free-trading Britain. This is absolutely as it should be. There is a big world out there and we need to embrace it with self-confidence and gusto. But what does this mean in practice?
My view is that we need a dual strategy – securing a positive and balanced trading relationship with the European Union, and being highly ambitious in the trade deals we agree with the rest of the world.
First, our post-Brexit relationship with the EU. With all the talk of Canada-plus-plus-plus, Norway-minus and bespoke deals, we can’t lose sight of the fundamental point: it is in the interests of both the UK and the EU to strike an ambitious trade deal. Crucially, this should cover services as well as goods.
The British public has decided that it wants to leave the EU, but this doesn’t mean that we want to erect unnecessary trading barriers. Nor do businesses and consumers in the EU27 want to pay more for the many British goods and services they currently enjoy. As EU Trade Commissioner Cecilia Malmström has said: “openness to trade remains one of the best tools to shape globalisation”.
There is a model that can avoid these unwanted outcomes. The International Regulatory Strategy Group (IRSG) – a group of senior financial and professional services figures, which I chair – has set out an ambitious vision, based on a deep and comprehensive Free Trade Agreement, covering services.
Taking the case of financial services – perhaps the toughest nut to crack in a free trade deal – it sets out the way in which inevitable regulatory divergence can be managed to provide a basis for ongoing mutual market access.
Over time, of course, the EU27 and the UK will choose to deliver a shared set of regulatory outcomes in different ways, but that should not undermine free trade. You don’t take the same driving test in Lille that you would in Leeds, but in each case, you are proving that you are a safe and competent driver. If you pass, you can drive on either side of the Channel – the same outcome via a different route.
Under our proposal, open market access is maintained so long as both sides deliver similar regulatory outcomes. Either side would remain completely free to diverge materially in a particular area, at the cost of losing market access. The aim would be that this would not be necessary, though; the paper sets out how divergence could be managed consensually and with dispute resolution.
One of the strongest points in favour of our proposal is that it reflects the criteria set out in both the UK and EU negotiating positions. The UK would no longer be a member of the Single Market and Customs Union. Market access in either direction would no longer be a permanent right, but would depend on achievement of shared regulatory objectives.
Both the UK and the EU would have the sole right to determine their own regulations. The UK courts would be the ultimate arbiter of regulation here, with no role for the ECJ. The shared dispute resolution mechanism we are proposing would assess whether material divergence had taken place, breaching the FTA. It would not have the power to interpret how the regulations of either party should function or to require either party to change its rules.
Michel Barnier has said recently that financial services “have no place” in a free trade agreement. We should ask: “why not?” Financial and related professional services businesses employ over two million people, two thirds of whom work outside the M25, and are already a UK export success story. They form part of a service sector that accounts for about 80% of the UK economy and should be part of a new FTA.
If our model respects the key negotiating criteria of both sides – as I believe it does – why would we want to build new barriers to trade? This argument is the same right across services: it is in no-one’s interests to submit to the forces of protectionism unnecessarily.
Looking beyond Europe – as we absolutely must – the same arguments apply, albeit from a different starting-point. Of course, we must secure the benefits of the FTAs we currently enjoy with non-EU countries as part of the EU, but this should be the bare minimum, not the limit of our ambition. After all, one of the big reasons many people supported Brexit in the first place was to strike more ambitious free trade deals with the rest of the world – a copy-and-paste approach will not deliver on that vision.
One route to doing this would be to reduce standards from the EU baseline, in pursuit of more open markets. While there are no doubt areas where current rules are excessive or poorly-designed, I suspect there is limited public appetite for reducing environmental standards or slashing employment protection.
The IRSG report offers a model for a more positive vision of UK leadership in global free trade, expanding the scope of free trade agreements so that covering services is the norm. It also sets out a blueprint for how this can be achieved in a way that provides appropriate safeguards to maintain level playing fields across borders.
Brexit presents a risk to free trade with the EU, and an opportunity for free trade with the rest of the world. The best approach on both would be to push for free trade across all sectors of the economy, goods and services alike. Our brilliant services firms are ready to take on the world – let’s give them the chance to do it.
Mark Hoban is the Chair of the International Regulatory Strategy Group, which is sponsored by TheCityUK and the City of London Corporation. He was the MP for Fareham between 2001 and 2015, and served as a minister at the Treasury and Department for Work and Pensions between 2010 and 2013.
