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Future Trade with the EU – What Matters to Labour’s Heartlands?

The Labour Party, we are told, wants the UK to remain in a customs union as its Brexit compromise. But for many of Labour’s leave voters, a customs union covering goods would be no answer to the Brexit decision. It would replicate the pre-Brexit situation – allowing the free access of German manufactures to the EU market (including the UK) with a number of adverse consequences for the UK. Those consequences – the perennial trade deficit, the slow growth, the loss of jobs, the loss of the stimulus delivered to the economy as a whole by a flourishing manufacturing industry – gave momentum to the leave decision. The Labour Party should not therefore respond to the vote by reverting to that particular hair shirt.

There is more to the British economy than goods. It is now much stronger in services, including financial services, and it is there that the UK’s competitive advantage lies. The UK’s financial services industry has offered over a long period great advantages to the EU, and will continue to do so. As one of the world’s premier financial centres, London has served the interests of the EU as well as of the UK. It has been of great help to European companies and interests to have ready access to the deep pool of liquidity, the expertise and long experience, the contacts and familiarity provided by London, with the advantages of a world-wide, common law tradition. There is the bonus too of all this being in virtually the same time zone. To allow – even encourage – UK financial service providers, in areas from international insurance to derivatives trading to foreign exchange, to serve clients in the EU and for those clients to have free access to those providers in London would be an attractive settlement.

But that can be organised without the downside of a customs union, which for the Labour Party as well as the Conservatives could prevent a future government using state aid to support local industries and UK wide regeneration.

Instead the benefits of the arrangements for financial services already in place could be enhanced and extended into the future to avoid the need (or the costs) and disruption of building new relationships. To take advantage of what is already there, the UK and the EU could strike “equivalence” agreements which allow the regulations of one party to be recognised as broadly equivalent of those in the other. Such a scheme has already been worked out based on current law and working practice of the EU and UK by Barnabas Reynolds – to “enhance” that “equivalence”. This would allow financial business to continue being conducted in a frictionless manner between the UK and EU. Firms would comply only with the regulations and supervision of their home state. Something similar could be done for other types of services, to achieve mutual recognition of qualifications and the like. The EU has already indicated it is prepared to do most of this, in the draft UK-EU Political Declaration.

Achieving a fair outcome will require careful negotiation, particularly in the context of the level playing field provisions – and state aid rules – which the EU applies within the customs union for goods. State aid rules are not features of mutual recognition arrangements for services and the legal text should make clear they will not be applicable.

Such an arrangement would ensure the UK was not a “rule-taker” but remained a sovereign country, with responsibility for its own rules and legislative framework, and subject to its own courts.


Bryan Gould

Bryan Gould is a former diplomat who sat in the House of Commons as Labour MP for Southampton Test between 1974 and 1979 and then for Dagenham between 1983 and 1994. He served as a member of the Shadow Cabinet in a variety of roles and was an unsuccessful candidate for the Labour Party leadership in 1992. He stood down from Parliament in 1994 to become Vice Chancellor of the University of Waikato in his native New Zealand. He is the author of The Democracy Sham: How Globalisation Devalues Your Vote (2006), Myths, Politicians and Money (2008) and Call To Action (2015).

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