Clarissa Dann Welcome to Trade Finance TV in lockdown. I’m your presenter, Clarissa Dann, and here with me today in the studio, we have Dr. Rebecca Harding (CEO of Coriolis Technologies), Sanjay Raja (Economist Deutsche Bank Research), and Iain Anderson (Executive Chair, Cicero/AMO Group).
The post Brexit Trade Cooperation Agreement was signed in the nick of time on Christmas Eve, but is it fit for purpose? Will it work?
Dr. Rebecca Harding The first thing to say is this was always going to be a political agreement, not an economic one. I think until the politics were out of the way, the economic side of it would actually be less important. So we did see an agreement signed in the nick of time, but a lot of what’s in the agreement is actually to set out a framework for negotiations in the future rather than to provide solutions now. So it’s a lot less to implement.
Clarissa Dann So politics, not economics. Do you agree with that, Sanjay?
Sanjay Raja Yeah, largely. I mean, the deal was as expected, it did deliver on zero tariffs, zero quotas, subject to rules of origin, of course, but overall, it is a done deal. On services there wasn’t much that came through via the TCA., but this shouldn’t have been a big surprise given prior deals struck by the EU. And on goods, I think we should be a little bit disappointed, perhaps on a couple of fronts when it came to non-tariff barriers. And we’re seeing this trickle through in the news a little bit more as time goes on.
Clarissa Dann Iain, are you disappointed as well?
Iain Anderson I was quite surprised. 1200 pages, 1500 pages. We almost didn’t get there. And the inclinations politically, as we’ve been talking, might have been to do no deal. So, I mean, the mood music of getting a deal and being able to move forward from that point is positive. It wasn’t going to boil the ocean. Of course it wasn’t going to boil the ocean. That would have been impossible. So it’s a basis to build on.
Clarissa Dann So what are the risks in this deal? There are a few holes, aren’t there? Anyone want to jump in there?
Dr. Rebecca Harding The issue of data and services is a really big area that the deal doesn’t really cover at all. There were a few things on data that were in there, but the data side of things affects the City, it affects Fintech, but it also affects our national security, because we don’t have access to real time data anymore. So those are big holes.
Clarissa Dann Iain, you were talking about data on the news, weren’t you? Tell us some more.
Iain Anderson Yeah, that’s right. People are quite nervous about whether or not we’re going to get there. I mean, there are some staging posts coming up as to whether or not we’re going to be able to secure a deal. But I think the wider point is that to some extent, COVID-19 masked the wider economic effects. Right now, we’ve not seen the full supply chain impacts from Brexit, because we’re dealing with COVID-19 and that’s upended everything.
Clarissa Dann We did see all those lorries at Dover. Sanjay, what are your thoughts on that?
Sanjay Raja The deal gives the UK a template to build on with the European Union. And I think the next stage is likely to be at an industry, so bottom-up level, and there are opportunities here to produce non-tariff barriers. On the services side, I think the risk is that the framework included mutual recognition of qualifications, and I think that may be underutilized. If I’m not mistaken, I think the Canada/EU deal has yet to deliver on this front. And the risk here is that the UK follows that same path, which would of course hurt our UK services sector.
Clarissa Dann Where does this leave London as a financial center?
Sanjay Raja There will be a re-jig of the financial services economy, particularly when it comes to transactions with the European Union. But the UK’s global position, I think, will remain, perhaps in a slightly smaller or maybe different capacity. And case in point, I think it’s worth mentioning what’s happening on the green financing side of things with Britain’s first green guilds being issued some time later this year. I think that’s a big positive if the UK is to achieve its target of carbon net neutrality by 2050. So the chancellor has mentioned the Treasury’s also working with central banks to issue their own digital currencies as a complement. So, again, something to look out for. So I think overall, the UK’s financial services outlook is still bright, if anything, just different than what it would have been otherwise.
Iain Anderson People already talking about a Big Bang 2.0. I mean, for those of us remember the first Big Bang, I just about remember the first Big Bang, that was essentially about deregulation and removing barriers. We’re hearing the same kind of note. So we’ve got a big review coming up; The Kalifa review on FinTech. We’ve got a consultation that’s about liberalizing the funds regime in the UK to invest in green.
We may see the UK move on insurance and bank capital. So there’s an ambition from the UK Treasury to keep stuff here in the UK. You know, clearly the question of whether or not we get a memorandum of understanding between London and Brussels on equivalence is still up there. But the UK regulators are really starting to show they want to go their own way.
Dr. Rebecca Harding I think there are all sorts of things that could be done in the City to recalibrate the way it’s working with the rest of the world, and I think the most important thing here is actually sustainability. I think the mechanisms that we have, the understanding that we have, the data that we have and the commitment from the government and the city to work together around sustainability is very encouraging. And I think that’s our future.
Clarissa Dann And of course, the other thing is the Biden-effect – we don’t seem to be exactly top of his list in terms of rushing towards a free trade agreement, how will that shape the overall pattern?
Iain Anderson So, look, we’ve got a sense of calm and normality, and less of a Twitter feed governing the free world. I think that’s quite usable. Predictability for markets, predictability in terms of policy is really important. Is Biden rushing to do trade deals? No, he’s rushing to implement his domestic agenda first. But, you know, the UK leaning in towards his green agenda, Macron leaning in towards some of his domestic priorities as well, the mood music and the ability to piece together a global agreement once again, certainly within the Western nations, has gone up markedly.
Dr. Rebecca Harding I think Iain is absolutely right. He’s not rushing to do anything at all. But the most important thing that he signaled within the first 48 hours is the fact that he wanted to be seen to be in control, rushed by no one. But he made a very strong commitment to multilateralism by rejoining the Paris Accord and by joining the WHO.
Now, from a trade perspective, a really critical thing that he could do that would be relatively easy, would be to reengage with the World Trade Organization, and start to unblock the nomination of the director general and start to move on that, because that would signal his multilateralism. But in terms of the EU/US relations or UK/US relations, it’s right the way down the list at the moment.
Clarissa Dann Thanks so much for all these insights. It’s going to be very interesting to see how it all plays out.
Dr. Rebecca Harding Thank you.
Iain Anderson Great to be with you.
Sanjay Raja Great chat, Clarissa, thank you.
Clarissa Dann I’d like to thank Iain, Sanjay and Rebecca for their insights today and, of course, all of you for watching. To catch further episodes of Trade Finance TV, go to TRADEFINANCETV.NET.