Gary Campkin, Managing Director, External Relations & Strategic Issues, TheCityUK, discusses Brexit and UK-US trade in a speech to the CSI Global Services Summit 2018 in Washington DC.
Ambassador, Ladies and Gentlemen,
It’s a privilege for me to address this Global Services Summit, an event that has had our support at TheCityUK for a number of years. I’d like to thank Christine and her team at the Coalition of Services Industries for all their hard work in putting this programme together.
And, as always, it’s a real pleasure to be in the United States again, a country with which the United Kingdom has so much in common and with whom we share such a strong and enduring bond.
I hope you will indulge me for just a few moments before I introduce our main speaker for this lunch session, someone whom I have known and worked with over many years - the UK’s Ambassador to the United States, Sir Kim Darroch.
Our theme at this summit is rules-based trade and the future. Currently, it may be less than obvious for those observing the UK to interpret what the UK’s role in this might be, given some of the hyperbolic headlines generated by Brexit.
As negotiations between the UK and the EU-27 are reaching a critical stage, I would like to try to shed some light on our present and future ambitions from the perspective of the UK-based financial and related professional services industry, which TheCityUK represents as the cross-sectoral business organisation for the ecosystem.
Our industry, perhaps more than any other, is prepared for any and all outcomes from the Brexit negotiations. Ever since the UK voted to leave the EU, maintaining services to our customers and clients has been at the forefront of firms’ contingency plans. These are now in place and well advanced across a large part of the industry.
Next year the UK will leave the EU. This will change our relationship with the current EU Single Market framework, but it will not undermine the reasons why London will remain a leading global financial centre as well as Europe’s international financial centre, nor the huge value the industry delivers to its customers and clients both in the UK and across the EU. TheCityUK has been very clear about the need to bring certainty and stability for them through a withdrawal agreement that includes a legally-effective transition period. This is unequivocally in everyone’s interests.
What the future relationship will look like is still very unclear. What we do know is that the EU’s current equivalence framework for third country access to its financial markets is woefully inadequate for the current levels of services trade between the UK and the EU-27. Period.
We therefore need a new approach as part of a bespoke deal that secures mutual market access and that helps to define a new Europe, one that is a shared space. The cost of not succeeding – by letting posture politics get in the way of economic necessity – will be fragmentation of European capital markets and a reduction in the ability of professional services firms to create the most effective project teams for clients. What does this mean? Not one-off gains by any other centre in the EU-27, but rather a concomitant negative impact on European competitiveness.
The UK government has proposed reform and an expansion of the equivalence framework - a call also echoed in many other parts of the EU – as well as ways of ensuring that services providers can continue to operate cross-border in Europe. This is something we remain focussed on too. It’s important for the UK, for the EU-27 and for global stability that we collectively get this right.
Services Trade – UK/US relations
While tariffs and trade in goods have dominated the news, both with regard to Brexit and in trade news across the world, the real challenge for next generation trade deals is to overcome non-tariff barriers and embrace services trade fully and in a comprehensive fashion.
This is the real prize for the UK from Brexit as the UK develops its own independent trade and investment policy. I’ve spent all of my career working for free and fair trade. The UK will now have a catalyst role to identify and champion ways to broaden and deepen global trade and investment in services.
In the UK, services make up 80% of our economy. More than 2.3 million people work in financial and related professional services, an industry which makes up 11% of the UK economy.
The UK’s net financial services trade surplus in 2017 was $88 billion - just short of the combined surplus of the next three leading countries combined, the US, Switzerland and Luxembourg.
But of course this is not just about Europe. Speaking here in Washington underlines the significance of the figures for the UK-US bilateral relationship. Our investment relationship is the largest in the world. In 2016, US foreign direct investment (FDI) in the UK was $682.4 billion, and UK FDI in the US stood at $555.7 billion. Last year, financial services trade between the UK and the US reached $32 billion, accounting for over one quarter of the overall trade in services between the two economies.
However, we believe there is tremendous scope for more rigorous co-ordination and co-operation without undermining existing domestic rules and standards. The new US-UK Financial Regulatory Working Group led by HM Treasury and the US Treasury and the bilateral Trade and Investment Working Group form a great start. We should look to build on this. There’s also an official consultation from the UK’s Department for International Trade on relations with the US and we’ll be submitting our ideas for progress in financial and related professional services.
And I was delighted to see that yesterday the USTR notified Congress of the Administration’s intention to commence trade negotiations with the UK. TheCityUK strongly echoes Chairman Brady’s response noting the opportunity for new, ambitious, and high-standard trade agreements.
As part of our focused efforts on transatlantic trade and investment, we have co-founded the UK-US financial and related professional services industry coalition with our US partners, the Securities Industry and Financial Markets Association, along with 15 other UK and US business groups. This coalition will work to present industry views on cross-border trade and regulatory barriers notably in the context of the US-UK financial regulatory working group, but also in the US-UK trade and investment working group and the eventual formal bilateral trade discussions.
I’m not naïve of course. Having spent 35 years in international trade and investment, I’m more than aware of the tasks in hand. But I am confident that there is an opportunity for us to grasp. We’re at one of those key inflexion points that will determine our futures. Working together, we can contribute to making real and substantive strides forward. The world does not stand still and change brings opportunities. There’s a great deal to be gained, and great progress possible from a continued drive towards global standards, international regulatory recognition and enhanced co-operation. And it is here the UK has a key role to play in the future of rules-based trade and investment. The UK has always been outward-looking. It’s in our DNA. Brexit doesn’t change that. Indeed, it re-emphases the importance of a globally-engaged country working with key partners to identify challenges and provide solutions. That’s why I’ve been delighted to speak at this event today.
Introduction of Sir Kim Darroch:
And now I’d like to introduce our distinguished lunchtime speaker.
Ambassador Kim Darroch defines “distinguished”. He has been at the heart of British policy making for as long as I can recall – in the British Foreign & Commonwealth Office and in Number 10 Downing Street advising Prime Ministers on Europe and National Security Issues. He’s also been the UK’s Permanent Representative to the EU in Brussels.
I may be biased as we’re both graduates of the University of Durham, but I know that we’ll all benefit from the Ambassador’s insights. Over many years, I’ve known that to the case. So it gives me real personal pleasure to ask Tom to facilitate what I know will be an informative and timely exchange of views.