Jeremy Warner and Editorial Com­ment:

The PM is seek­ing an am­bi­tious free-trade deal while Michel Barnier is blink­ered by ide­ol­ogy

The Daily Telegraph - - Front page - fol­low Jeremy Warner on Twit­ter @ Jere­my­warneruk; read more at tele­­ion jeremy warner

To the out­side world, Brexit looks ever more chaotic; the dual ad­mis­sions this week that there has been no se­ri­ous dis­cus­sion at Cabi­net level of the “end state”, and that nearly nine months into the process there have still been no proper im­pact stud­ies on the sec­toral con­se­quences of leav­ing the Euro­pean Union, have served fur­ther to en­hance the sense of drift and mud­dle. EU ne­go­tia­tors throw their hands up in the air, and la­ment a nation ap­par­ently led by be­wil­dered am­a­teurs.

As I say, that’s the out­side view. The re­al­ity is some­what dif­fer­ent. Since the Prime Min­is­ter seems quite in­ca­pable of com­mu­ni­cat­ing what form of relationship with the EU she is try­ing to achieve – pre­sum­ably be­cause she prefers the “ex­tend and pre­tend” lan­guage of “con­struc­tive am­bi­gu­ity” to the un­var­nished truth – let me do it for her. The goal is, in fact, a per­fectly clear and ra­tio­nal one, even if the EU con­tin­ues to have some dif­fi­culty in ac­cept­ing its le­git­i­macy.

It is Michel Barnier, the EU’S chief ne­go­tia­tor, and his masters in Berlin and Paris, who have their heads buried in the sand, not us; at ev­ery stage, they see prob­lems rather than so­lu­tions. If the strat­egy is to wear Bri­tain down, so that once the coun­try fully ap­pre­ci­ates how wretched and ig­no­ble its po­si­tion re­ally is, it can be walked back in, then from their point of view I sup­pose it might have some merit. But I don’t think it’s that. Brussels has al­ready come round to the view that it is bet­ter to have Bri­tain out­side than in. Rather, their ap­proach is in­structed by an ide­o­log­i­cal and blink­ered de­ter­mi­na­tion to play by the book what­ever the con­se­quences.

The chal­lenge for our diplo­mats, ne­go­tia­tors, fi­nanciers and in­dus­tri­al­ists is to break the pre­vail­ing men­tal­ity in Brussels and open Europe’s eyes to the pos­si­bil­ity of mu­tu­ally ben­e­fi­cial, friendly co­hab­i­ta­tion.

There are two types of relationship a non-mem­ber can have with the EU. It can ei­ther be “in­ter­nal”, such that the coun­try sub­stan­tially ac­cepts the rights and obli­ga­tions of the sin­gle mar­ket, as Nor­way, Switzer­land and other mem­bers of the Euro­pean Free Trade As­so­ci­a­tion do; or it can be “ex­ter­nal”, the relationship ev­ery­one else has. Yet plainly there are de­grees of ex­ter­nal­ity. China, with no trade deal with the EU, does not en­joy the same rights of mar­ket ac­cess as the new Com­pre­hen­sive Eco­nomic and Trade Agree­ment (CETA) will give to Canada.

What Down­ing Street as­pires to is a much closer relationship with the EU than any ex­ist­ing model of ex­ter­nal­ity – some­times re­ferred to as CETA plus plus: a free-trade agree­ment (FTA) in goods that is ex­tended to cover ser­vices, and par­tic­u­larly fi­nan­cial ser­vices, our big­gest ex­port. This is im­por­tant be­cause there is no pre-ex­ist­ing model for li­cence-free ac­cess in fi­nance.

Why should the EU cede such a prize? Prox­im­ity and size are part of the an­swer. Once out­side, Bri­tain will be the EU’S largest ex­ter­nal trad­ing part­ner, sur­pass­ing China and the US. What is more, un­like most FTAS, where the am­bi­tion is for laws and reg­u­la­tions to con­verge and align over time, we start from a po­si­tion of com­plete align­ment.

There would ob­vi­ously be lit­tle point in leav­ing if it didn’t al­low scope for di­ver­gence. Bri­tain would not want to be damned for­ever to reg­u­la­tory “equiv­a­lence”, or need­ing to mir­ror all Euro­pean law mak­ing. This would be a master-ser­vant relationship, with the EU as master. Nonethe­less, there may well be scope for the rules to re­main es­sen­tially syn­chro­nised with Europe sub­ject to broad prin­ci­ples and goals, a concept sim­i­lar to the “align­ment” pro­posed as a so­lu­tion to the Ir­ish bor­der is­sue. This model could also be ap­plied to in­dus­tries other than fi­nance.

Is hav­ing flex­i­bil­ity that we have agreed not to use not some­thing of a sell-out? And will not syn­chro­nis­ing our reg­u­la­tion with the EU com­pro­mise our abil­ity to do trade deals else­where? Pos­si­bly, but in all FTAS, there are trade-offs that have to be weighed.

All this, as some hard­line Brex­i­teers sus­pect, may be fan­tasy, with Brussels un­will­ing to of­fer any more than a plain vanilla trade deal that seeks to de­grade Lon­don as Europe’s pri­mary fi­nan­cial cen­tre. This seems to be the at­ti­tude of France’s Em­manuel Macron, who hopes to use Brexit to steal a march in fi­nance. Good luck with that; Paris is a rel­a­tively small city by global stan­dards, lack­ing in many of Lon­don’s in­ter­na­tional at­tributes. The Balka­ni­sa­tion of fi­nance around Europe would, more­over, be at odds with the bloc’s drive for su­per­power sta­tus. To meet these am­bi­tions, Europe needs a cred­i­ble global fi­nan­cial cen­tre. It is there­fore nec­es­sary to think of Lon­don not as a uniquely Bri­tish as­set, but as a pan-euro­pean one which hap­pens to be merely hosted by the UK.

Con­trary to how Brussels likes to por­tray things, Bri­tain does have a clear “end state” in mind. If Bri­tain is leav­ing the EU to pur­sue free trade, then these ne­go­ti­a­tions re­ally are the best chance we are ever likely to get of border­less trade in fi­nan­cial ser­vices. It’s at least worth a try.

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