(Bloomberg) -- Chancellor of the Exchequer Philip Hammond makes his case for a trade agreement that allows the City of London to maintain its status as a financial hub after Brexit -- but his speech comes hours after the European Union made clear the U.K. must accept restrictions.
We’re following developments here in real time. Time stamps are London time.
Regulators Should Help Make Transition Secure (3:07 p.m.)
Hammond said that once the transition deal is agreed, regulators and the European Commission should take steps to “provide reassurance” to companies. The agreement that is due to be sealed this month is only a political declaration on the grace period and won’t be legally binding until the withdrawal agreement is completed -- months from now. But Hammond’s comments indicate he wants regulators to help make transition more “valuable” to businesses.
Hammond Sets Out Three Principles for EU Accord (3:04 p.m.)
The principles are based on establishing regulatory requirements, cooperation arrangements that are “reciprocal, reliable and that prioritize financial stability and a legal framework that makes this structure durable and reliable,” he said. Those principles could form the basis for a financial services partnership as part of a “wide-ranging, free-trade agreement.”
Hammond: U.K. Fishing Industry ‘Iconically Important’ (3 p.m.)
“We are taking control” of our waters, Hammond says, though he adds that the U.K. will be open to talking to the EU about reciprocal access -- stressing that U.K. fishing industry would also want access to EU waters after Brexit.
Hammond Ready to Discuss Way Forward on Clearing (2:49 p.m.)
Trade-offs should be expected and the industry will change, Hammond says. The chancellor also says he understands that financial clearing is a sensitive issue.
Hammond: Equivalence Regime ‘Wholly Inadequate’ (2:48 p.m.)
Hammond says the current system of equivalence for banks is “wholly inadequate” and the U.K. cannot sign up to automatically accept EU rules on finance. Hammond argues that the U.K. and EU should be able to build on their current collaboration and trust to secure a system of mutual recognition.
U.K. Can’t Sign Up to Being a Rule-Taker: Hammond (2:43 p.m.)
The U.K. cannot simply be an automatic rule taker,” Hammond says. “We must have the ability if necessary to deliver an equivalent outcome by different means.”
Hammond: Deal Without Services Wouldn’t Be Fair (2:40 p.m.)
Hammond says it’s “hard to see how any deal without services could look like a fair and balanced” settlement. That’s because the EU has a surplus in goods with the U.K., and so it’s keen for tariff-free trade in goods with Britain.
Hammond Says New York Will Win If London Loses (2:37 p.m.)
Hammond repeats the line that if London loses out after Brexit, it won’t be European cities that gain but New York, Singapore or Hong Kong. It’s a line they’ve repeated since 2016 but it’s not clear the EU is taking note.
He also repeats that a trade deal must be more ambitious than the EU’s agreement with Canada.
Hammond: Impossible to Replicate City of London (2:34 p.m.)
Hammond says the City of London wasn’t created by EU passporting -- this is similar to the chancellor’s testimony to Parliament’s select committee on Monday, it’s pushing the case that the EU needs London’s financial services as well.
“We should be under no illusion about the significant additional costs if this highly efficient market were to fragment, costs that would be born by Europe’s businesses and consumers.”
Hammond says the U.K. will remain committed to rigorous regulation on finance. It’s a “race to the top,” not to the bottom, he says. Hammond says the U.K. knows the cost of financial crises, and the risk it poses to taxpayers.
Hammond Expects Transition Agreed by End-March (2:28 p.m.)
Hammond says that if the transition period is to be effective, regulators need to work together. This might be a reference to the fact that transition isn’t legally binding until the Brexit withdrawal agreement is signed.
Irish PM Says U.K. Starting to See Its Weak Hand (12:55 p.m.)
The U.K. is beginning to understand the strength of the EU’s negotiating power, Irish Prime Minister Leo Varadkar said in parliament, adding that Ireland won’t be “cleaved off’ from the rest of the EU bloc as negotiations on Brexit unfold.
“That is something that perhaps the U.K. is starting to understand, that negotiating with a block that is ten times bigger than you is not a strong position to be in,” he said.
Varadkar said Ireland can have talks with the U.K around Brexit options, but that such discussions won’t amount to negotiations. He repeated that while the EU has a solution to avoid a hard border -- through rule alignment with Northern Ireland -- efforts are ongoing to find a better solution.
Full Quote From Tusk on How EU Sees Brexit (12:46 p.m.)
“I fully understand, and of course, I respect Theresa May’s political objectives to demonstrate at any price that Brexit could be a success and was the right choice. But sorry, it is not our objective.”
Tusk Says U.K. and EU ‘Drifting Apart’ (12:41 p.m.)
EU President Donald Tusk makes clear that the bloc will offer the U.K. a free-trade deal that might be similar to Canada’s. Tusk also says it’s not the EU’s objective to make Brexit a success.
“I hope it will be ambitious and advanced and we will do our best -- as we’ve done with other partners such as Canada recently -- but it will only be a trade agreement.”
Tusk adds that “because of Brexit we’ll be drifting apart,” but he doesn’t want to “build a wall” between the EU and the U.K. He says that Britain can’t have a “pick -and-mix approach,” and one priority for the negotiations must be to avoid any disruption of flights post-Brexit.
Hands Makes Case for Trade Deal With U.S. (12:28 p.m.)
While the EU is making its offer for a future trade deal with Britain, the U.K.’s trade minister Greg Hands is setting out what he sees as the huge potential benefits from striking a rival accord with the U.S. Speaking to Parliament’s international trade committee, Hands said the U.S.-U.K. trade working group will have its third meeting next month, aiming to “lay the ground work for potential negotiations on an ambitious free-trade agreement.”
While it’s too soon to say what could be covered by such a deal, the potential gains are significant, Hands said. It could“provide a boost to the U.K. economy potentially worth tens of billions of pounds.” The U.K. and U.S. economies are “highly compatible” and a free-trade agreement could create new export opportunities for British companies by making it “easier for their goods to reach millions of new U.S. customers.”
It could give British people “greater choice of American goods and services, at lower prices -- and without compromising on safety and standards,” Hands said.
Line on Tariff-Free Goods to Please Brexiters (11:49 a.m.)
In the U.K., Brexit campaigners are likely to be happy with the EU’s offer of tariff-free trade in all goods and no quota limits. They have long claimed that the bloc would have no economic interest in putting up tariffs, especially as it has a substantial goods trade surplus with the U.K. -- but they will welcome seeing it in print.
“It’s the standard offer in any EU trade agreement,” says 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.”
Even so, the EU’s suggestion that its price for tariff-free trade should be continuing access to British fishing waters might raise some eyebrows in London.
Key Points in EU Draft Guidelines - Updated (11:36 a.m.)
- EU wants tariff-free and quota-free trade for goods
- There can be no cherry-picking or “partial participation” in the single market, as the U.K. wants
- Services will only be included with restrictions
- EU is ready to change its position if the U.K. rubs out its red lines
- EU wants close cooperation on defense, security and policing
- Bloc wants to maintain existing reciprocal access to fishing waters and resources
- EU wants deal on aviation to ensure continued connections
- EU seeks mutual recognition for professional qualifications
EU Holding Out for U.K. to Change Mind (11:14 a.m.)
The EU looks to be still holding out for Britain to change its mind on quitting the customs union and single market, and the draft makes clear it’s been written with May’s red lines on leaving EU trade structures firmly in mind.
Then it says this: “The above approach reflects the level of rights and obligations compatible with the positions stated by the U.K. If these positions were to evolve, the Union will be prepared to reconsider its offer.”
But among the details, there’s a reminder that work on the Irish border must continue and that the transition period and other issues won’t be agreed on unless everything is:
“Negotiations can only progress as long as all commitments undertaken so far are respected in full ... The European Council reiterates that nothing is agreed until everything is agreed.”
EU Rejects U.K.’s Plans for Finance 11:08 a.m.
The EU guidelines make clear that U.K. banks won’t get the kind of access the U.K. government and lobbyists want.
An FTA can include services but with some severe restrictions. Services can be provided under “host state rules,” including the right of establishment for providers.
That is “consistent with the fact that the U.K. will become a third country and the Union and the U.K. will no longer share a common regulatory, supervisory, enforcement and judiciary framework.”
Read that as a rejection of U.K. ideas about mutual recognition.
EU Trade Plan Falls Short of What U.K. Is Seeking (10:53 a.m.)
The European Union’s draft guidelines for a trade deal with Britain falls short of the comprehensive arrangement that Prime Minister Theresa May is demanding.
According to the document seen by Bloomberg, to be published later by EU President Donald Tusk, the bloc will start working toward an arrangement similar to its trade deal with Canada, with limited access to the EU’s single market for British financial firms.
“Being outside the Customs Union and the Single Market will inevitably lead to frictions,” the EU said in its draft. “Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU Single Market as well as of the U.K. market.”
“This unfortunately will have negative economic consequences,” the EU said.
EU officials have taken account of the ambitions of the U.K. as they’ve worked on their negotiation stance in recent weeks but they say that May’s red lines -- such as ruling out membership of the bloc’s customs union and all but ending oversight of the European Court of Justice -- means it’s impossible for them to give a more generous offer.
The EU has not closed the door on a more ambitious arrangement and it says it will revise its negotiating position should the British government decide to accept more of the bloc’s rules. “The above approach reflects the level of rights and obligations compatible with the positions stated by the U.K. If these positions were to evolve, the Union will be prepared to reconsider its offer,” the EU says in the document.
The guidelines are due to be signed off at a summit of European leaders on March 22-23. The U.K. and EU hope to reach an agreement on a “political declaration” on their future relationship by October. That will set the foundations for negotiations on a fully fledged trade deal that the EU says will take place over the next two years, but the British government says it hopes to reach sooner.
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