March and April were extraordinary months for individuals and businesses as we all struggled to adapt to new ways of living and working. There is no doubt that responding to the virus is vital, but other issues such as Brexit and new trading arrangements are also ongoing. So, as we entered May, we needed to pick up the threads of early 2020, albeit alive to the fact that the world around us is changing.
Last year, I wrote about the work that the government is doing to secure Free Trade Agreements (FTA) with the US, Japan, New Zealand and Australia. These countries all have existing ties with the London Insurance market; indeed the US has overtaken the UK as our biggest source of business according to the latest version of our report, London Matters 2020.
The London Market Group’s work on advising the Department of International Trade and HM Treasury in relation to these agreements has been ongoing since the beginning of the year, although overshadowed by recent events. Indeed, many of you may have missed the announcement in early May that talks between the US and the UK have already begun. Both parties are working towards a free trade agreement – a full deal, as opposed to something like the recent China-US “mini deal” that focuses on certain export targets to manage trade between the two countries. And like a lot of relationships at the moment, this one is being negotiated over video.
From a London Market perspective, the US and the UK already benefit from a very open trading relationship, and that was further strengthened by the signing of the covered agreement back in 2017. It is unlikely that the new FTA will bring any changes to market access on either side, indeed it would be difficult for the US market to seek reciprocal equal access as the UK does not operate a surplus lines regime.
However, data localisation measures in many of the world’s emerging economies severely restrict the ability of the London Market to provide services. So, the inclusion of a “data-services agreement” to address digital trade barriers would provide mutual reassurance to the UK and the US and be a welcome addition to the agreement from a London Market perspective. It could also be an important precedent for the UK to use in other negotiations.
For the US this is not unchartered territory, as it already has something similar in place through the United States-Mexico-Canada Agreement (USMCA). This includes commitments to prohibit the forced localisation of data from financial services providers, subject to requirements that authorities have access to the data that they need for legitimate regulatory reasons.
It is interesting that the UK has opted to start simultaneous trade talks with the US and Japan while it is still negotiating with the EU. It could be argued that, as a result, the UK will be spreading its negotiating capacities too thin, as well as creating further difficulties in the co-ordination of talks, especially now that they are forced to carry them out remotely. However, in defence of this approach, the government is probably hoping that if it achieves good progress in its trade talks with the US and Japan, it can use this as leverage to influence negotiations with the EU.
In terms of the EU, negotiations are ongoing, and we understand that regulators are now in receipt of the relevant documentation to complete in relation to securing equivalence. Despite the UK having all the legislation in place that effectively replicates those that exist under the exiting EU regulatory framework, it is understood that this is more voluminous and involved than initially anticipated. The aim is still to secure these equivalence determinations by the end of the transition period notwithstanding other domestic distractions. Only time will tell if this is achievable or not.
Suffice to say that in between dealing with the COVID-19 outbreak and the associated economic fallout, it may take a while before we see any results from the virtual negotiations with the US or indeed Japan, and even longer to see the economic benefits to the UK. And who knows what the outcome will be in relation to the negotiations with the EU.
