Brussels’ war on the City risks breaching international law
Ambrose Evans-pritchard
THE EU risks violating international law if it continues to deny the UK routine “equivalence” in financial services already granted to a string of other countries. Selective treatment of one state for political reasons breaches the non-discrimination principle of the World Trade Organisation. It is strictly forbidden.
“A good lawyer would reach for Article VII of General Agreement on Trade in Services,” said Lorand Bartels, an expert in international trade law at Cambridge University. “It is not a slam dunk but it would be a good case.”
Switzerland explored legal recourse under WTO law after the EU singled out Swiss exchanges for punitive treatment, although it ultimately stopped short of pulling the trigger.
Equivalence is a normal courtesy among developed OECD states and even some that are not. The EU grants Brazil recognition in areas of insurance, auditing, credit institutions, exchanges, investment firms, and so forth, though it would be a stretch to argue that Brazil’s regulators have higher standards than their British counterparts. The UK has unilaterally granted equivalence to the EU across 28 sectors. Brussels has so far refused to reciprocate except in two areas, chiefly in counterparty clearing where the European financial system would otherwise have been in danger.
Andrew Bailey, Governor of the Bank of England, suggested this week that Brussels is weaponising equivalence in order to lock Britain into its system as a regulatory satellite. “I’m afraid a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work,” he said.
The EU says its ties to the UK are fundamentally different from ties to any other third country, and that equivalence was never designed for such circumstances. It cannot safely outsource financial stability – and 80pc of its capital markets – to a hub outside its legal nexus. But that is a political argument.
It cuts little ice under WTO law. “All WTO members with equivalent standards have to be treated equally. Refusal to do so goes against the whole Most Favoured Nation principle,” said one expert advising the Government.
Article VII states that members “shall not accord recognition in a manner which would constitute a means of discrimination between countries … or a disguised restriction on trade in
services. Unless an exemption applies, a WTO member must treat service suppliers from all other WTO members equally,” it says.
The EU case is hollow since the UK has rolled over existing European regulations and is 100pc aligned at this point. Where equivalence is granted, it can be withdrawn within 30 days. Under any reading, the EU is engaging in a “disguised restriction on trade in services”.
The EU grants broad equivalence to Canada, Australia, the US and others. It lets US clearing houses serve investors on the Continent (it had little choice) on an open-ended basis, but has not offered the same terms to the UK. This would be hard to justify in court.
Any case would go to an arbitrage panel, or to a WTO tribunal. While the process would take a long time, such a complaint would put the EU in the dock, entailing reputational cost. The EU is assiduous in cultivating its image as a law-based system, justified or not.
Filing a discrimination case would be well-calibrated action. It would be a better course of action than tit-for-tat retaliation that stoops to the same protectionist level. The UK has more to gain by rising above the issue and remaining open to the world. William
Wright, from the New Financial think tank, says London should stop worrying about business that has already migrated to the EU. “That is a sunk cost of Brexit. It’s gone so we should just take it on the chin,” he said.
The refusal to grant equivalence on derivatives and foreign exchange trading can be turned against the EU. “If the UK teams up with the US we will together have 75pc of the global market. We’ll set the de facto global standard.”
In a sense, the EU’S belligerence clarifies the issue. It is not offering enough to make compromise attractive. Hanged for a lamb, hanged for a sheep, the UK might as well go all out for the policy freedom that the City needs to compete in the financial 21st century. The EU’S regulatory acquis is 20th century, predigital, and very hard to reform.
Julian Jessop, a fellow at the Institute of Economic Affairs, said City business lost to Europe is irritating but not worth much money. “We should focus on the cutting-edge areas of fintech where the UK already has a huge advantage,” he said. “The EU is hamstringing itself and sending a poor signal to the rest of the world. To borrow from Napoleon, if your competitor is making a mistake, don’t interrupt him. It is absolutely the right thing for us not to retaliate on equivalence. We should focus on other things, and I’m convinced we’ll end up the net winners,” he said.
Finance and services are not part of the EU-UK trade deal, but the Political Declaration commits the EU to “balanced arrangements”, “liberalisation” in services trade, mutual treatment in a “non-discriminatory manner”, and respect for “regulatory autonomy”.
The Tusk-juncker letter of January 2019 stated that the Declaration had a quasi-legal status and would be interpreted as such by the European Court. The UK signed a goods trade deal that greatly favoured Brussels on the assurance that the EU would behave with a minimum of good faith in services.
Clearly it is not doing so. Given the EU’S parallel breach of the Good Friday Agreement and nastiness over UK food and fish exports, pressure is mounting for a unilateral abrogation of the trade agreement. That would be a mistake (though it may come to that).
Shanker Singham, from Competere, says the UK should instead make a clean break. “We should be super-aggressive in pushing for global trade deals elsewhere. Only that will get the EU’S attention,” he said.
Mr Singham said there is a chance of a swift trade deal with the Biden administration – perhaps even this year – that would include a financial chapter, paving the way for a transatlantic “Nylon” zone as the core of Western finance.
Britain’s best hope is that accession to Asia’s free trade bloc brings in the US and ultimately India, turning it into the world’s biggest trading zone by far. The EU would become the smaller outsider.
Since the EU intends to treat the UK as an apostate rather than a trade competitor, the condign answer is to become exactly what Brussels fears: Singapore-on-the-thames.
That does not mean a race to the bottom. Singapore is a highly regulated manufacturing and financial economy. But it is also well regulated.
It means a race to technological modernity. Europe is inadvertently pushing us to do exactly what we should do.
Relegation from the Gallagher Premiership could be suspended for up to four years, in the biggest change to the structure of English rugby’s top domestic competition since the introduction of professionalism in 1995.
The Rugby Football Union confirmed yesterday that no Premiership club would be relegated at the end of this season, following a strong majority vote by the RFU council, leading to a 13-team Premiership in 2021-22.
The RFU said points awarded because of matches being cancelled due to Covid-19 had “a material impact on league positions, which could mean relegation based on cancellation not on-field merit”, which informed the decision to cancel relegation.
Newcastle’s fixture against Northampton was the latest Premiership match to be cancelled yesterday, after the Falcons returned a number of positive tests. It is the sixth cancelled game this season.
With the RFU, Premiership and Championship working together up to June on recommendations for changes to the seasons from 2021-22 and beyond, the RFU noted that it was “likely” that any new structures “may also include a further moratorium on promotion and relegation for three or fourseasons”.
The Daily Telegraph understands the prospect of adding a 14th team to the Premiership for the 2022-23 season is already being discussed. Premiership broadcaster BT Sports, which secured a four-year extension worth £110million in December and was understood previously to be opposed to scrapping relegation, stressed yesterday that a longer-term plan was required to ensure it was attractive for viewers.
The proposed recommendations include a different approach to promotion and relegation from the Premiership, continuing to allow a route to promotion for Championship clubs, plus new minimum standard criteria, investment in facilities and club funding.
A review of the domestic calendar is also planned, to allow England more time to prepare for the 2023
World Cup in France. Proposals will be subject to a vote by the RFU council before the end of the season.
Provided the promoted Championship club at the end of this season meet the criteria, next season’s Premiership will contain 13 teams, the Championship 11. There will also be no relegation from Championship to National League One.
RFU president Jeff Blackett said: “We want to ensure a healthy elite game to support successful winning England teams that generate income to stimulate and preserve the game across all levels.”
Why has this happened?
With the points allocations from matches cancelled due to Covid-19 having a major effect on the table, speculation increased during the season that relegation would be scrapped given the major financial implications of dropping into the second tier for Premiership clubs.
Newcastle’s game against Northampton today has become the sixth fixture to be wiped out this season due to coronavirus. Gloucester, who are yet to have a match cancelled, were bottom of the table heading into the weekend’s games.
“We all want to grow the game, not shrink it,” Lance Bradley, the Gloucester chief executive, said. “Relegation would have been challenging for whoever went down.
Instead of that, we’re expanding the league to 13 and that is great news.”
What are ‘minimum standard criteria’ to gain promotion?
The criteria for promotion cover a wide range of financial and logistical requirements, including that teams must play in a stadium with a minimum capacity of 10,000. Saracens are the only team in the Championship this season capable of fulfilling that, with league rivals Ealing Trailfinders having a capacity of 4,000, with 2,200 seats.
Were Ealing to beat Saracens to promotion, they would need to find an alternative venue meeting the capacity requirement, or to expand their own ground, a move that Championship clubs are unlikely to be able to afford.
The Rugby Football Union said that “new minimum standard criteria, investment in facilities and club funding will be discussed”, perhaps addressing that disparity when it comes to stadiums, because outside of the established 13 Premiership shareholding sides (this year’s topflight teams plus Saracens), no other clubs meet the stadium criteria, or want to follow the path of London Welsh by going in over their heads.
Why will there be 13 teams in the Premiership?
The 13 teams will mean four weeks being added to the season, with each Premiership club receiving two bye weeks.
“It will mean there will be weeks where teams don’t play, and that’s not a bad thing either,” Bradley said. “This season is extremely intense, playing every weekend for the whole season. It will mean there’s a bit more respite and time for players to recover.”
Bradley added that discussions were under way to add a 14th team to the league for the 2022-23 season. “If that were to happen, and there were a team that met the criteria to come up, that would be great. It looks very positive,” he said.
Is this just a temporary measure?
The RFU has raised the possibility of relegation and promotion not returning until as late as 2025, which those in support of promotion and relegation will read with a sense of trepidation. Whether relegation would ever then be reintroduced is unknown. For the likes of Ealing, the hope will be that the 2020-21 season is a one-off.
How might promotion and relegation work in future?
The promotion/relegation process has never been smoother, with the team who finish first in the Championship automatically replacing the bottom club in the Premiership, after ditching the Championship play-offs.
Changes to promotion/relegation could mean the bottom Premiership club face the top Championship club in a play-off, for example, handing an obvious advantage to the bottom-ranked Premiership side. A similar system is used in France, with the 13th-ranked side in the Top 14 facing the runner-up in the second division Prod2.
What does it mean for England?
Perhaps explaining the RFU’S decision to now give the move the green light is the fact that new release agreements could be drawn up to give Eddie Jones, the head coach, more time with his squad running up to the next World Cup.
England had a number of training camps in Treviso and Bristol before flying to Japan ahead of the 2019 World Cup, first meeting as an official squad in late July. England would be looking for more time as a squad before heading to France in 2023.