Heavy industry in the UK, steel making, mining, ship building, mass car production etc was once a mainstay of the UK economy. One effect of globalisation was that heavy industry moved away from the developed to the developing world because production costs, notably wages and energy costs were much lower. Since the 1970s, the UK economy has become more dependent upon the service sector of which finance is a key component. London has emerged as one of the world’s major financial centres and a hub for financial institutions from outside the EU to set up offices to be able to exploit EU market opportunities via passporting.
Free trade agreements (FTA) are designed to facilitate the trade in physical things by ensuring that products produced in one country are compliant with the standards in a recipient nation and tariffs on the products are minimised. However, FTAs do not apply to the provision of services between nations. One major advantage to the UK stemming from its EU membership is the freedom to trade in services across the 28-member bloc as if it were doing so within its sovereign territory. However, the UK is leaving the EU and its government has ruled out being a part of the Single Market or the Customs Union.
Boris Johnson, a leading Leave campaigner and currently UK Foreign Secretary, famously claimed to be “pro cake and pro eating it”, implying that the UK could cease to be a contributing member of the EU yet still enjoy its advantages. The absurdity of this position is clear as soon as you write it down. The PM in her Lancaster House speech stated that the UK would withdraw from the EU, end freedom of movement, membership of the Customs Union and Single Market and the jurisdiction of the European Court of Justice, yet it wanted a “bespoke, deep and special trading relationship with the EU” essentially, what she wanted was EU membership (sans influence) but not to be constrained by its rules. Again, this position is clearly untenable since if it were given to the UK for no contribution, or a much smaller contribution than it currently makes, other nations would be at a loss to explain to their citizens why they must continue to pay dues.
The UK has tried to get leverage from business leaders in EU nations, hoping that they will use their influence with their governments to give ground to the UK whilst ignoring similar pleas from their British counterparts. It will not work.
In the same week when key European figures pointed out that the UK can still change its mind and remain in the EU until it actually departs, a summit meeting has been held between the UK and France which ended with a question and answer session for the press. President Macron was asked: “Why do you not want to include financial services in a future trade deal? Do you want to punish Britain? Or do you want to take the jobs? Or do you think the UK is trying to have its cake and eat it?” President Macron’s response firmly closes the door on the folly of the “have our cake and eat it” position:
“Please allow me to be very clear. I’m here neither to punish nor to reward. I want to make sure that the single market is preserved because that is very much at the heart of the European Union.
So the choice is on the British side, not on my side. They can have no differentiated access to financial services. If you want access to the single market, including the financial services, be my guest. But it means that you need to contribute to the budget and acknowledge European jurisdiction. Such are the rules and we know this is the system already in place for Norway.
If you want a trade access, it will cover everything, but then it is not full access to the single market and to financial services. Otherwise it’s closer to the situation of Canada. We have some trade agreements which allow access to all services, be they financial or others, access as well to any industry sector, but not the same level of relationship as if you were a member of the single market. And there shall be no hypocrisy in this respect, otherwise it will not work. Or we would destroy the single market and its coherence.
So, its’s simple. I would not want to exclude any sector in the trade agreement to come. The negotiations will be led by Michel Barnier. But it does not mean that the access it will allow will be equivalent to a member of the single market. Otherwise you can choose between Norway, or being the equivalent of a current member of the European Union.”
It is hard to imagine a clearer response to the UK’s position. The question now is will the UK accept that it is going to lose UK-EU financial service exports and no longer be a global financial conduit to the EU or will it think again?