The European Union rejected the UK’s bid to keep access to bits of the single market — particularly for its banks — and said the bloc didn’t share Theresa May’s goal of making a success of Brexit.
In its draft negotiating position going into trade talks, the bloc dismissed what EU President Donald Tusk described as May’s “pick and mix” approach. While the EU said it wants tariff-free and quota-free trade for goods, it said services can only be included with restrictions.
“I fully understand, and of course I respect, Theresa May’s political objective to demonstrate at any price that Brexit could be a success and was the right choice,” Tusk told reporters in Luxembourg on Wednesday. “Sorry, it’s not our objective.”
The EU’s position represents a stark rejection of May’s approach to Brexit and the kind of “ambitious” partnership with the EU she wants in the future. It offers a deal that’s barely better than the one struck with Canada, which restricts services cooperation. It places the ball in May’s court to either risk the wrath of Brexit backers at home and soften her negotiating red lines, or accept that the UK’s access to its biggest market will be severely reduced.
Nevertheless, Chancellor of the Exchequer Philip Hammond continued to ask for what the EU has said is impossible: mutual recognition of regulations between the two sides. He tried to make the case that it’s in both sides’ interest to maintain the City of London as a financial hub and that any trade deal with the EU that excluded services wouldn’t be fair.
What’s currently on offer for non-EU countries would be “wholly inadequate,” and any arrangement has to be “reciprocal” and “reliable,” he told an audience in London.
The EU draft made clear that UK banks will be allowed to sell services in the EU “under host-state rules, including as regards right of establishment for providers.” This reflects the fact that the EU and UK “will no longer share a common regulatory, supervisory, enforcement and judiciary framework,” according to the draft obtained by Bloomberg.
Slides previously released by the European Commission, the EU’s executive arm, stated that selling services under “host-state rules” means there will be no “mutual recognition” of regulations. The UK financial industry had pushed this option as a way of providing a stable framework and sparing firms the burden of seeking local EU licenses after Brexit.
The two options for UK-based financial firms will be to establish a base in the EU or hope for an equivalence agreement, an EU government official said. The commission is expected to interpret the equivalence concept rather strictly, meaning rules in the UK couldn’t stray far from those in the EU after Brexit, the official said.
French Finance Minister Bruno Le Maire said this week financial services can’t be included “for reasons of stability.” EU officials have raised the issue of financial stability as a reason for stopping the UK having access to its markets without the same oversight structures.
Banks aren’t keen on “equivalence” agreements as they can be withdrawn at short notice and are unilateral. The EU decides that the framework in a non-EU country is as tough as its own, allowing companies based there to do business in the EU.
In better news for the UK, the draft set out that the bloc wants a trade deal that has no tariffs or quotas on goods.
“It’s the standard offer in any EU trade agreement,” said Sam Lowe, a research fellow on trade issues at the Center for European Reform. “They love zero tariffs in goods, because they sell a lot of cars.