Estimates say that around 2.2 million people work in the financial and related services sector. A sector that makes up a staggering 10.7% of the UK economy (£176 billion in 2015) and is the leading contributor to the UK’s export portfolio, delivering a £72 billion trade surplus. The fate of this sector will be one of the most eagerly anticipated conclusions of any post Brexit arrangement.
It is believed that Michel Barnier (European Commission’s chief Brexit negotiator) sees the trade deal agreed between Canada and the European Union on the 30th October 2016 (applicable 21st September 2017) as the most viable way forward. However, such a free trade deal could hamper the prosperity the financial sector currently enjoys, thus negating the significant contribution it makes to the UK’s economy. No trade deal could contain provision for the export of services meaning the current trade arrangements (commonly known as services passport) would be scrapped upon the UK’s withdrawal from the Single Market. Eagerness to avoid such an outcome has led calls from David Davis for CETA + + + or a special deal for the City which would allow for market access after Brexit and the expiry of any transitional phase. Barnier dismisses this idea as both parties brace themselves for what will be painstaking negotiations on the future of trade. From the financial industry itself the message is clear. JP Morgan’s Chief Executive Jamie Dimon says that more than 4000 jobs could leave London if sufficient access to the EU’s trade arrangements is not maintained and Goldman Sachs may do the same. The think tank Bruegel estimates 30,000 related jobs could relocate from London to the EU. Combine this with the loss of the European Banking Authority (it is moving to Paris), constitutes a precarious future for the sector.
On the face of it CETA is an ambitious and far reaching agreement, and by virtually eliminating all tariffs trade will increase between Canada and the EU (already worth 60 billion euros). However, the deal mainly relates to goods and products. For example, CETA will eliminate tariffs on bread, biscuits, pastries and chocolate but many quotas on the amounts traded will remain. Sweetcorn, beef and pork will be tariff free but limited by quotas, whilst the quota on cheese has been increased from 8000 tons to 18,500 tons.
So, UK decision makers will be aware of the restraints of a free trade deal and the probable reality that the benefits of the status quo cannot be replicated. It’s also worth noting that before it leaves the UK could benefit from CETA as part of the EU and any additional trade that is accrued.
We must also consider the greater geopolitical trends at play here. Anti-globalisation fervour has coloured most political events not only in Britain and the USA, but also across the European Union. Marine Le Pen in France, Norbert Hofer in Austria and the AFD (Alternative for Germany) have all found political traction in recent times. The establishment Left in the UK remain overwhelmingly pro-EU, and although many voters in Labour’s northern heartlands backed an exit, 65% of labour voters went with remain. However, imagine if much of the concerns raised about CETA and the access it would grant for private companies to our public services turned out to be prescient. If a similar agreement to CETA or TTIP (proposed deal between the EU and the USA) was struck in the UK, a left-wing backlash could be provoked. An already weak Prime Minister could find herself caught in a pincer movement between the anti-privatisation Left on the one side and the anti-EU Right on the other.
To summarise, the CETA trade deal between Canada and the EU will be an effective agreement that will strengthen economic ties between the two. However, the relationship between the EU and Canada is very different from the one it currently enjoys with the UK. We are far more integrated, relying on reciprocal trade in both services and goods. The unprecedented nature of the UK’s withdrawal from the EU means that we cannot simply rely on a ‘copy and paste’ approach using previous templates. It must find a way to carve a path calibrated to our unique needs and past reliance on EU regulations and institutions.