The U.K. government is committed to achieving an ambitious and comprehensive free trade agreement (FTA) with the United States, even if that means the current U.S. congressional mandate for signing a deal expires.
The U.K. Treasury believes financial services should be part of a comprehensive FTA and is not pursuing a standalone deal for the industry. “We remain committed to negotiating a comprehensive and ambitious U.K./U.S. FTA, which is more important than meeting any particular deadline,” a HM Treasury spokeswoman said in an emailed statement. “We’ve made significant progress in talks to date, including on financial services, and we are in a good position to move forward with the Biden administration.”
The spokeswomen went on to say that they believe the U.K. and U.S. are “uniquely positioned to set a global standard in terms of financial services outcomes in this FTA” and are seeking one which complements the U.K.’s “existing cooperation with U.S. authorities on financial regulatory issues, including through the U.K.-U.S. Financial Regulatory Working Group.”
Negotiations between the United States and U.K. failed to reach an agreement last year, but the U.K. government is keen to get them under way again now that Joe Biden has been sworn in as U.S. president.
U.S. Congress’s trade promotion authority (TPA), a mandate granting the U.S. executive branch the ability to fast track an FTA with the U.K., expires July 1. This will make pulling off a comprehensive deal difficult, said Ross Denton, head of international trade at the law firm Ashurst in London.
“It will be hard for the U.K. to complete a comprehensive deal by July 1, 2021 when the TPA expires,” Denton said. “A lot of technical work has been done by the Trump administration, but I would expect the Biden administration to do some stocktaking of trade priorities generally, and to ‘kick the tires’ on the draft.” While it’s like that Biden would like a quick win on trade, his team has denied any prioritization for any trade deals, Denton added, explaining that with regards to U.S./U.K. relations generally, it seems as if Biden is looking to “patch things up” with the U.K. following more critical comments made during the campaign.
“But that doesn’t necessarily imply a deal,” he notes. “Biden will want to see what the E.U. wants to do, and may want to get a sense of how the E.U. would react to a quick U.K./U.S. deal, particularly on financial services as that will put some pressure on the E.U. with regards to U.K. equivalence.”
Another hurdle might arise if the U.S. Congress decides to interfere, Denton said. “Congress might also look to get involved in the FTA process as a way of protecting Irish sympathies, which is exactly what a ‘fast track’ is designed to avoid. Congressional involvement would likely stall any progress.”
Nasim Fussell, a partner at law firm Holland & Knight in Washington, D.C., said Biden’s stated desire to focus on domestic priorities over international trade agreements might bode well in terms of a standalone financial services deal.
“It makes good sense to align the regulatory systems of two of the world’s most important financial hubs, and doing so could ensure the economic health of the financial services sector on both sides of the Atlantic,” Fussell said. “Practically speaking, there are early steps that can be taken on cooperation, regulatory harmonization, and information sharing, for example, that could later be parlayed into a broader trade agreement.”
Fussell said for an FTA to have a realistic chance of success it would have to be put to Congress by April. Fussell, who has been involved in past U.S. trade negotiations, said that a comprehensive FTA should remain the objective; but in the absence of that, a financial services deal would “reap economic dividends” for both countries.
Barney Reynolds, partner and head of financial regulation at law firm Shearman & Sterling in London, also sees merit in a financial services deal. “There is a lot of attraction in a U.K./U.S. financial services deal. One could be done very quickly if the relevant experts of each party were to be allowed to sort out the details,” Reynolds said, adding that an agreement that allowed for mutual recognition of each country’s regulatory supervisory standards would result in deeper liquidity, better pricing, and a more extensive products and services offering.
It is not yet certain that the Biden administration would resume negotiations on the FTA, a point echoed by Duncan Edwards, chief executive of British American Business, a networking group. “Some of the things that have come out of the Biden camp would suggest it’s not a priority,” Edwards said, adding that during last year’s trade negotiations, “both sides said they wouldn’t do anything other than a full deal.”
Edwards noted that both sides may want to have a full and comprehensive agreement, but that may change given that there is probably not enough time before the trade promotion authority runs out before summer. “What I think both sides would say is that we trust your regulatory environment and trust you have a good approach to regulating banks and insurers and therefore those entities can do business in our area,” he explained.
“My sense of it is that a trade agreement [on financial services] should basically endorse the idea of regulators working close together to find a solution.”