Britain’s financial services industry could fare less well than energy, autos and other sectors under a free trade deal with the United States, the government said on Monday.
Britain said in its negotiating mandate for a free trade agreement (FTA) with the United States, home to the world’s biggest capital market, that it wanted “ambitious commitments” on U.S. market access for the UK’s most important economic sector.
There could be a “small reduction” in value from financial services under a U.S. trade deal, while energy, motor vehicles, chemicals, plastics and rubber sectors would see large percentage increases, the government said.
This reflected a reallocation of resources towards other sectors in the UK economy as they expand under a U.S. trade deal, Britain said.
“It should not be taken to reflect the level of ambition expected in financial services in the FTA or any financial regulatory agreements or arrangements which could be negotiated separately to an FTA,” the government said.
Trade liberalisation in the financial services sector will still help economic growth, the government said.
Furthermore, financial services trade data does not capture the significant amount of cross-border activity undertaken at U.S. branches or subsidiaries of UK financial firms.
“Reduced barriers to foreign direct investment (FDI) could have a positive impact on financial services output not captured in the initial results,” it added.
The City of London financial district said an FTA could set a new global standard on what is possible in cross-border financial services trade.
“Alongside these discussions, closer cooperation on regulatory issues can play an equally important role in increasing transatlantic trade in financial services,” City of London leader Catherine McGuinness said.
London, which vies with New York as top global financial centre, is already a base for U.S. banks like JPMorgan, Morgan Stanley and Citi and U.K. banks like HSBC have operations in the United States.
Britain and the United States have already agreed to replicate an EU-US agreement on cross-border trade in insurance and re-insurance, a key step given that the United States is a major market for the Lloyd’s of London insurance market.
The Office of US Trade Representative (USTR) set out specific negotiating objectives in February 2019 for a trade deal with Britain, saying there must be no requirements that U.S. financial services firms must have a UK presence.
There must also be no curbs on cross-border data flows, or requiring the use or installation of UK-based computing facilities, USTR said at the time.