The EU is inadvertently pushing us to become what they fear: Singapore-on-the-Thames. That does not mean a race to the bottom. It means a race to technological modernity. https://www.telegraph.co.uk/business/2021/02/12/europes-war-equivalence-risks-violating-international-law/

The EU risks violating WTO law denying the UK "equivalence" in financial services already granted to a string of other countries. Selective treatment of one state for political reasons breaches the non-discrimination principle. It is strictly forbidden by Article VII of GATS.

Equivalence is normal courtesy among OECD states and even some that are not. The UK has unilaterally granted equivalence to the EU across 28 sectors. Brussels has refused to reciprocate except in two areas, where the EU financial system would otherwise have been in danger.

Bailey, Governor of the BoE, suggested this week that the EU is weaponising equivalence to lock Britain into its system as a regulatory satellite. “I'm afraid a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work” he said.

The EU says its ties to the UK are fundamentally different from ties to any other third country: it cannot safely outsource financial stability and 80% of its capital markets to a hub outside its legal nexus.

But that is a political argument and cuts little ice under WTO rules. “All WTO members with equivalent standards have to be treated equally. Refusal to do so goes against the whole Most Favoured Nation principle,” said one expert advising the Government

Article VII states that members “shall not accord recognition in a manner which would constitute discrimination between countries ... or a disguised restriction on trade in services. ... a WTO member must treat service suppliers from all other WTO members equally.”

The EU case is hollow since the UK has rolled over existing EU regulations and is 100% aligned at this point. Where equivalence is granted, it can be withdrawn within 30 days. Under any reading, the EU is engaging in a “disguised restriction on trade in services”.

The EU grants broad equivalence to Canada, Australia, the US, and others. It lets US clearing houses serve investors on the Continent (it had little choice) on an open-ended basis, but has not offered the same terms to the UK. This would be hard to justify in court.

Filing a discrimination case would be well-calibrated action. It would be a better course of action than tit-for-tat retaliation that stoops to the same protectionist level. The UK has more to gain by rising above the issue and remaining open to the world.

Wright from the New Financial think tank says the refusal to grant equivalence on derivatives and foreign exchange trading can be turned against the EU. “If the UK teams up with the US we will together have 75% of the global market. We’ll set the de facto global standard”

The EU’s belligerence clarifies the issue: it's not offering enough to make compromise attractive. The UK should go all out for the policy freedom the City needs to compete in the financial 21st century. The EU’s Acquis is 20th century, pre-digital and very hard to reform.

Jessop (Institute of Economic Affairs) said City business lost to EU is “mostly low-margin like trading in equities. No profit and not many jobs. If the EU wants to play this game, let them. We should focus on the cutting-edge areas of fintech where the UK has a huge advantage”.

“The EU is hamstringing itself and sending a poor signal to the world. If your competitor is making a mistake, don’t interrupt him. The right thing for us is not to retaliate on equivalence. We should focus on other things, and we’ll end up the net winners in the long run.”

The UK signed a goods trade deal on the assurance that the EU would behave with good faith in services. It's not doing so. Given the EU’s breach of the GFA and nastiness over UK food and fish exports, pressure is mounting for a unilateral abrogation of the trade agreement.

Shanker Singham (Competere) argued the UK should instead make a clean break and redesign its whole system. “We should be super-aggressive in pushing for global trade deals elsewhere. Only that will get the EU’s attention,” he said.

Singham said there is a chance of a swift trade deal with the Biden Administration — perhaps even this year — that would include a financial chapter, paving the way for a transatlantic "Nylon" zone as the core of western finance

Britain’s best hope is that accession to Asia’s free trade bloc (CPTTP) brings in the US and ultimately India, turning the pact into the world’s biggest trading zone by far. The EU would become a smaller outsider. Its attempt to impose its regulatory ideology would fail.

The condign answer is to be what the EU fears: Singapore-on-Thames. Not a race to the bottom (Singapore is a highly&well-regulated manufacturing and financial economy), but a race to technological modernity. The EU is inadvertently pushing us to do what we should do anyway.