Produced and edited by Tom Hannen and Petros Gioumpasis. Illustrations by Ulla Puggaard
Let's suppose you're trying to export a banana, or a car tyre, or a lump of coal. If your home country has a free trade deal with the country you are trying to export to, it's a relatively simple matter to show that you are playing by the rules.
As goods cross the border, paperwork certifies that they are up to spec. If there are any doubts, do an inspection. Now suppose you are an architect, a banker, or a business consultant exporting a building plan, a loan, or advice about a merger. What can you check at the border? A blueprint, electrons moving between accounts, a PowerPoint presentation?
For the blueprint or the loan what needs inspecting never crosses the border at all. Is the architect qualified? Does the bank have a strong enough balance sheet? If the consultant wants to cross the border to see the merger through, can she?
A trade deal that covers services regulates not just things, but whole economies. And countries do not like giving up economic control to outsiders, which brings us to Brexit. Theresa May's government promises a deep and special partnership with the EU after Brexit. Including a free trade deal, which covers services and specifically financial services.
Good idea. Services make up almost half of UK exports. The City of London employs a million Britons. A fifth of the City's revenue is directly linked to Europe. There is not a free trade deal in the world that includes a deep and comprehensive services component. Perhaps that is why the government has declined to explain even an outline of what deal it envisions.
The best option is equivalence. Both sides acknowledging that the other's rules on key areas of financial services are strong enough, but this would require the UK committed to staying reasonably close to EU rules. And the EU to give up some regulatory control. Not easy for either side.
There is a good chance that the UK will not get a free trade deal covering services. This would not spell the end of the City, but it will require a radical rethink and the time to start thinking for the city, and for the government, is right now. That is FT View.