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EU trade deal must include financial services, says Hammond

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Chancellor Philip Hammond will tell European leaders that it is in the “mutual interest” of both the UK and the EU to include financial services in a free trade agreement.

In a speech, Mr Hammond will set out his argument against “sceptics”, saying it is possible to reach a deal.

However, the BBC understands Donald Tusk will reject the UK proposals.

The EU’s chief Brexit negotiator, Michel Barnier, has argued that such a deal had never been done before.

But Mr Hammond will say the EU has in the past attempted similar agreements.

In December, Mr Barnier said: “There is not a single trade agreement that is open to financial services. It doesn’t exist.”

Mr Hammond will say on Wednesday that the EU itself tried to include financial services within trade deals with the US and Canada.

He will say: “If it could be done with Canada or the USA … it could be done with the UK.”

The Chancellor will stress: “I am clear not only that it is possible to include financial services within a trade deal but that it is very much in our mutual interest to do so.”

However, European Union president Donald Tusk is set to issue guidelines telling EU negotiators that the UK will have to settle for a more conventional free trade agreement, such as the EU’s deal with Canada.

The added that the UK’s stance on leaving the single market would mean the City having to settle for more limited access to European markets.

The EU’s chief Brexit negotiator Michel Barnier says a trade deal including financial services “does not exist”.

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The EU’s chief Brexit negotiator Michel Barnier

On Tuesday, French economy minister Bruno Le Maire told the BBC: “Financial services cannot be in a free trade agreement, for many reasons, for reasons of stability, for the sake of supervision because there are some very specific rules for financial services.”

He said that the “best solution”, would be for a system of “equivalence” where both sides recognised each other’s standards.

But Mr Hammond will say: “It is time to address the sceptics who say a trade deal including financial services cannot be done because it has never been done before.

“To them I say ‘every trade deal the EU has ever done has been unique’.

“The EU has never negotiated the same arrangement twice. It has bespoke relationships with Turkey, Canada, Singapore, South Korea, Switzerland.”

Analysis: Kamal Ahmed, economics editor

In his speech on UK-EU co-operation post-Brexit, the Chancellor will refer to past attempts at forging a free trade agreement between the US and Europe.

“The EU itself pursued ambitious financial services co-operation in its proposals for TTIP [the now aborted Trans-Atlantic Trade and Investment Partnership],” Mr Hammond will say.

“Which it described as a partnership that would be: ‘more than a traditional free trade agreement’.”

Mr Hammond is arguing that if the EU tried it before with a nation which doesn’t have regulatory alignment on financial services – America – then surely it can do so with a country that it at present does – the UK.

But the Chancellor is also saying a lot more than that.

Because the person who proposed “regulatory co-operation” on financial services as part of the EU-US free trade negotiations was one Michel Barnier.

Read Kamal’s blog here.

Shadow Chancellor John McDonnell said: “The Chancellor has shown his hand, and it is clear he is looking for a TTIP type deal as his blueprint.

“Yet those negotiations took nearly four years and collapsed, which is why a transition period is critical.”

Mr Hammond will also say: “A trade deal between the UK and the EU must start from the reality of today, that our economies, including in financial services, are interconnected, that our regulatory frameworks are identical.”

Stephen Jones, chief executive of UK Finance, the trade body that represents the UK financial services sector, said: “Thousands of customers and businesses in Europe rely on access to financial services from the UK. It is in everyone’s interests for this vital cross-border trade to continue.”

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