tv Global Impact of Brexit CSPAN December 15, 2017 4:29pm-6:28pm EST
japanese delegation to united states in 1860. >> abraham lincoln conducted quite a bit of business while he was here. he stayed for ten days and the first white house levy was held not at the white house, but at the white hotel. when he introduced himself and his wife who was quite a bit shorter than him, he said i wanted to introduce you to the long and short of the new presidency. >> american history tv, all weekend every weekend, only on c-span three. >> a study was released on the potential impact of brexit for the united kingdom, the european union and the u.s. today, panelists discuss the study at the woodrow wilson international center. the uk scheduled to leave in march 2019. [inaudible conversation] good morning everyone.
>> in favor of brexit. that was like a tectonic shift and it was a major change with consequences that were both far-reaching and unclear. brexit changes everything, but how? so businesses, institutions and policymakers have been looking at this ever sense and rands study that we are talking about today looks at some possible outcomes and what they mean or our
economic policy and for our operation so i'm excited to see many friends of the wilson center here today and that rand. i'm going to introduce our panel and my idea is that we will hear from charlie about the bulkof this study . turn this over to then michelle for some comments and then have fran and howard way in. who are these people, you may ask? charlie reese, vice president international at rand, former us ambassador degrees and with a distinguished state department career including hosting the secretary for europe. mister council for economic affairs in london and the european union. in iraq he served as coordinator for economic transition from 2007 to 2008. fran bobo's staff member at the rand corporation, also is distinguished member at the atlantic council and senior advisor at the guardian
associates so january 2017 she served as vice president for european union and special initiatives at the castle. howard shatz is senior economist at rand corporation, director of rand initiated research and a professor at party rand graduate school is a lysing in international economics and economics and national security and has written on so many studies i am hard-pressed to find something he hasn't written about. michelle egan is our non-áuntran5á expert and we claim her as one of our own at the wilson center. she's in our global europe program, professor at american university school, coordinates their european and russian studies program so with that i know you are all waiting for me to handed over to charlie, here you go robin didn't say, didn't introduce herself but i will mention she's just back from having our top political jobs at the us embassy in london
and us embassy at berlin and knows quite a bit about this subject herself and i hope she will intervene in the discussion period. i'd like to also thank the wilson center for hosting us today and i look forward to our discussion afterwards. the rand corporation's mission is to improve our decision-making through research and analysis. we are a nonprofit, nonpartisan research station and as such we take no position on brexit itself. the british version to undertake this journey but through the study we seek to provide impartial evidence-based insights on what will be without any doubt one of the biggest moments for the uk and europe after the end of world war ii. our goal is to understand the economic consequences for brexit. we assembled a team of researchers from rand us and rand affiliates around europe
and has already introduced, with me today are fran burwell and howard shatz, leading in the political analysis for this study and howard is our resident expert on the foreign direct investments. funding for this report was provided by donors and the independent research and development provisions of rand's contract with the department of defense funded research centers. in addition a grant from the narcotic foundation supported the work on game theory and its relationship to rand as well as some of the outreach activities we are undertaking. what we've produced is a new piece of analysis that looks at the economic impacts of brexit for different scenarios in the eu, uk and also the us. this not only provides a thorough economic analysis but uses the game theory insights to explain the strategies that parties are choosing. through economic impact scenarios and game theory analysis our study to explain the significance of the
decision reached by the eu last week to move to phase 2 in the negotiations with the uk. this discussion of the unions future economic relationship with the uk so let me begin by discussing the scenarios. our base case could be considered the no deal case. that is that the uk leaves the eu in 2019 without reaching any agreement for a preferential trade within the remaining members of the eu. we call this case wto rules because of course in such a circumstance, britain would trade with the eu, us and every other country under only terrorist rates for goods and established market access for services. we then compared the following or scenarios to this base case. first, the successful negotiation of a uk eu free-trade agreement which the uk is seeking. secondly, the creation of a us uk free-trade agreement
which the uk has begun to discuss with us trade authorities although it cannot formally begin the negotiations until it withdraws from the eu and its common commercial policy. third, the creation of a uk eu free-trade agreement based on the model of the us eu trade and investment partnership, which was under negotiation between 2013 and 2016 but is now frozen in light of political developments. finally an extended transition period during which the eu and uk trade does not change materially but other barriers to trade progressively come into effect. for the sake of completeness, we also assessed the economic impact of three so-called brexit scenarios. like the hard brexit scenarios, these assume that the uk will maintain access to the eu's single market in some way and apply its terrorist for the rest of the world. three such brexit scenarios
are one, that norwegian model which would involve the uk becoming a member of the european economic area. you, the swiss small which would have british trade with the eu be based on a series of sectoral bilateral arrangements that give the uk wide market access but obligated to apply eu standards and regulations and finally a uk eu customs like the one with turkey. for your proposed brexit trade scenarios are subject you gravity economic modeling to measure the percentage and monetary changes in gdp growth, gdp per capita, trade and foreign direct investment for the uk, eu and the us. for each scenario we analyze the effects of three kinds of trade costs. one, changes in terrace. two, the media changes in nontariff barriers such as imposing rules of origins, customs and standards on the
entry of another agreement and third, likely changes in nontariff areas over time the progressive convergence of regulations. what did we find on this economic analysis? the big take away is that the uk will be economically worse off outside of the eu under most plausible scenarios. the key question for the uk is how much worse off will it be? the option of leaving the eu with no deal and simply applying the wto rules would lead to the greatest economic losses for the uk. it's clear that no deal is the worst deal or the british economy post brexit. our analysis of this scenario shows trading under wto rules would reduce the uk's future gdp by about five percent after 10 years which is a loss of $140 billion in lost
growth. this would be approximately 45 percent of the uk's expected economic growth over the decade. under no deal, the eu would also lose out economically but by nowhere near the same proportions as the uk. that economic loss to the eu after 10 years would be 0.7 percent of its overall gdp which is a loss of $97 billion so the uk would lose more proportionally and more absolutely than the eu under a no deal scenario why would the no deal scenario be so damaging? because the uk would face terrace at wto levels on its goods exports to the eu and would in turn apply them to britain although the correct levels themselves are so high we determined the uk would have to inspect and evaluate all cross-border trade as with the eu countries and we assess the uk would move away from eu standards over time, resulting in significantly increased non-terrorist barriers on goods but the scenario would be even worse
for services. a mainstay of the british economy, as the uk services exporters would have only access to eu 27 member markets on the basis of limited market access provided to the wto and not a single market which is virtually friction free access it has now. while the no deal scenario is the worst outcome, uk would be worse off in nearly all of the trade scenarios we considered as compared to its current status as a full eu member. the whole trade agreement with the eu second scenario, especially essentially the spoke trade agreement that the uk is seeking would be modestly better. some three percentage points of growth after 10 years compared to the wto baseline. this difference is because the fda would prevent an increase in terrace . however as in the wto scenario the fda would nonetheless involve a host of
nontariff barriers to trade. customs, checks and rules of origin would have to be made. so with a free-trade agreement with the us which would only of course be possible once britain left the eu, be able to substitute for the uk's preferential access to the eu? our analysis suggests it would not. the us, you a would be four percentage points of growth better than the no deal baseline. plus it would be significantly worse for the uk than the equivalent fta might be with the eu, largely because goods and services between the us and uk while significant are substantially less than between the uk and its european neighbors. for the us moreover, the value of a fta with the uk alone is negligible. it would provide only 0.2 percent of gain for the much
larger us economy. so the only truly beneficial trade scenario for the uk that we found would be a trilateral uk eu us agreement . we found for the uk the teacup scenario would be seven percentage points of gdp better than a wto rules-based, even better than continued eu membership alone since pruitt, the uk would get preferential access to both the us and eu marketplaces. one reason for this outcome being so good is that in addition, the eu and the us themselves would also benefit economically and the whole exit effective enhanced growth from these two larger economies would help the uk. however we fully recognize that the teacup like arrangement is very unlikely from the current political environment from both sides. i mentioned we assess other scenarios, the official
arrangement with norway, swiss and turkish model. the transitional arrangements would be good economically for the uk for as long as the nation remained within the market economic uncertainty would hurt investors. norway, swiss and turkish models would imply lower trade barriers which would be good for economic growth but would come with asignificant loss of uk sovereignty regulations . with significant budgetary contributions from the uk to the eu. on those grounds, these options don't seempolitically viable in the uk .
coming from our economic analysis is a new online calculus which is live on our website. the calculator allows policymakers and economists to alter the key trade assumptions to understand their economic impact on the uk, eu and the us after brexit. it also allows users to create other scenarios of examination as the brexit negotiations develop and trade talks begin. chapter 4 of our study is based on application as i mentioned at the outset of the social science of game theory. our aim in using this methodology was to create a better understanding of how a wide variety of structural matters are influencing the contours of the brexit negotiations. in particular, game erie helps explain why the eu first settled the terms of the divorce settlement before moving on to disruptions in future relationships and why the decision now to move to phase 2 talks is so important to the uk. by using leverage to commit britain to the terms of the financial settlement before entering into the trade negotiations, the eu sought to discourage other leaders which we assess is the eu's top priority.
in this point, the eu's approach could be seen as a zero-sum strategy in which it wins and it can show the uk loses.but the uk game theory suggests it should avoid part of the european community all member states have more estate from the core, then the uk can offer to, the effort would be likely to backfire. it's also a sensible strategy for the uk to see the broad negotiation beyond the phase i issues as soon as possible as the more issues on the table will help the trade-offs. this explains why prime minister may made the commitment in florence a couple months ago to pay its obligations as a member rather than keep them on the negotiating table. finally in the game theory chapter, in the study we assessed us interests in the process. our most important finding is that poor us economic
interests are not at stake. the only scenario we examined material impact on the us was the trilateral outcome which seems a distant prospect for now. but the us will miss the loss of the generally paradigmatic british voice and economic policy and as far as direct investment by american firms in britain and the us is concerned, from the data appears to be more motivated by domestic economic opportunities. we therefore conclude that the bigger us state in brexit is its potential impact on european decision-making the us probably worries about political security issues and on european cohesion more generally. the worst outcome for the us would be brexit led to a greater demonstration of the
european construction which i might add would be so good for the uk either. as the previous grand euro study explored in more detail, in the aftermath of brexit political and security structures of europe will have to respond to ensure common interests, most likely by strengthening nato eu relationships. to sum up, the overriding message from our study is the best interest of the uk is to a lesser extent the eu to achieve some sort of open trading relationship post brexit. the big challenge for the brexit negotiations are likely to be the complications of coming up with such an agreement. a common position between the parties will be difficult . particularly if the parties. the conflicting negotiating positions of some versus a negative sum game and that's why the agreement is so important. both sides have declared
their intent to have a public partnership but if the different interests and aspirations lead the uk and eu to walk away from the table without a future deal, disruption would be significant. this is likely to pose a number of political challenges to the us as well. the common ground for the uk is the fact that the no deal option will be economically damaging to all parties. trying to avoid this worst-case option could be the top of the agenda for the uk as the economic talks begin. there's much more to our study but to me these are the highlights. fran and i look forward to our discussion and michelle's comments and look forward to moving on without question., thank you thank you very much. i'm going to give the rand member of our panel an opportunity to present questions. did the request of
collusion's align with your expectations? you've been looking at brexit and talkingabout this for a while. is that what you found ? >> that's a great question andif i recommended it your import , i would start off and say britain tends to have a transactional view of europe so this is a transactional report. the report's conclusion, no brexit outcome is best scenario versus no deal is the most cost-based, i think because with most of the reports and analysis have concluded including the her majesty's treasury, think tanks and others so from the sense that this is one of the worst best options, i would concur. i also think that it emphasizes something else which is the british economy itself is very unbalanced.
it's heavily geared and weighted towards services and so within britain itself, there is a differential impact across regions. the city of london is also deeply concerned about financial services i think we need to sort of unpack the difference between trade and goods versus trade and services and that's very important here but i think the report tells us something very important that tends to be forgotten in the press. the first thing is as the report points out, the sequential nature of the agreement being in three phases really puts the advantages to the eu over the uk. the uk once things simultaneously unless that argument and i would point out this report comes out and says first of all, we need the terms of the uk exit which has just been agreed upon sort of tangentially
this week. the second issue which is framed differently in the press but the second stage is the establishment of a framework for a future relationship. that's not a trade deal, that's a framework. third issue is the establishment of the necessary transitional arrangements and this report lays out clearly why that sequence benefits the eu relative to the uk and it also highlights the asymmetrical nature of these negotiations, the leverage goes to the eu and i would also point out by putting up all of these different scenarios, it actually really helped those differentiate something that's not always clear to many audiences and that's the distinction between a customs union and a single market. the customs union is about
trade and goods. it's about zero terrace and you have to have identical trade policy with respect to nonmembers so the uk doesn't get its own trade policy in that scenario. that's a very important choice. it doesn't get back trade sovereignty. the single market is very different. that's about the uniformity and indivisibility of the four freedoms. goods, capital, services and the labor and its thing where the british tried, wanted and expected some sort of indivisibility and some, i suppose, about in terms of free movement of labor and it would also be enforced by the european court of justice, something the british after the referendum indicated they didn't want so i think it's very important that the eu is a legal order and that's something that will not allow britain to cherry pick.you make that very clear and i
think the distinction is important in choosing these options. and the report also tells me something which i taught was very obvious but is not talked about very much in advanced industrial economies which is the salience of terrorists. we often dismiss them as small. when we talk about it in the united states we often say that terrorists are small, they are only two percent but i think now that this has opened up one of these wto commitments. what are the restrictive come terrace to agriculture? as you point out, 38 percent of uk exports to the eu are terrace free but that means a lot more, 70+ are now at risk. so for me, i think attention is not just needed on the uk and eu negotiating tariff rate quotas in dealing with the terrace issue. is to not let us divide what
this is, i think they're now starting to realize that there are others who will be affected by this, other wto states who won't say this is just the us, uk, eu deal so i think this will broaden the debate about terrace. second issue i think is that this report reallybrings home that this is not just about trade . there are many, many unintended consequences or issues that the uk and eu will have to deal with the on the scenarios. here i would, i was struck by the range of issues that we do not even comprehend yet. first of all, just like we may or may not have any water , it will be just about customs clearance and the irish only that 80,000 trucks go back and forth per day so it won't just be about customs clearance. it will be one of the most messy trade issues which is
rules of origin. the second issue will be the british will be subject to eu competition policy. emergent acquisitions, dumping and so forth and so the british will not be allowed to undercut you know, because then they would give those kind of issues. the eu have a lot of trade amenities and the british will now be subject to some of those very trade remedies that they've often participated in and also the budget. it's not just a bill for the prior commitments through the budget cycle of 2020 this report indicates. 12 15 cents of our budget is paid for by the uk. what happens when we get redistribution? what other member states subsequently are going to pick up the british bill? finally, the issues that perhaps we don't think about because we are so focused on trade but the british are
part of euro, with nuclear fissions and nuclear materials. what are the cost of moving those? i will written access to nuclear cooperation? and last, the regulatory agencies. europeans over the last couple decades have created a large number of regulatory agencies in areas of interest to the united states to create an easier access for medical products, pharmaceuticals and so forth. those regulatory agencies in britain have now moved and secondly, what kind of access will the british? perhaps finally, the one that struck me as most salient in trade terms but quite astounding is that we will now have water issues in your altar and spain. we will also have issues of territories and military bases so the range of things we think about is really
interesting. and for the bridge, i think there's something different. in the united states you have an assembly when you negotiate a trade agreement. this report tells me that the british are going to have a patchwork of trade agreements they are going to have to negotiate. not just those that are msn data but there is sort of a preferential trade agreement, customs unions that the eu. generalized systems of preferences with less-developed countries. the eu as a patchwork of great trade agreement and the us past with its free trade agreements over the uk, they are there are going to be changes in trade costs to countries which the eu has a preferential trade agreement with you i would say that's something the british will have to confront. and i think the report also tells us not just a terrorist but also about non-terrorist barriers.they are hard to deal with and i think the
report gives us a kind of proportion here which is important in this debate. overnight the british regulations are not going to diverge. britain hasn't put them into domestic law but over time they will diverge and i think that's a very, very important economic pact. the last two things would be that the eu is moving on. the eu is developing not only lamenting with canada, eu in mexico, eu marcus or but the british are not part of that. question those implement that are already fine, now the british exit, will the eu have to re-look at them because the british are not part of them? so i think this is very, very important and i also think from the british point of view, the scenarios you
create that don't look terribly good for the british, the eu is now realizing just how different trade and investment is. they are separating their trade and investment treaties so if i was the british and i looked at how politicized investment agreements are , in the eu, they're going to get a trade deal. it may not be good but investments are quite a long way off. i happen to know in the audience there's a lot of people with very lively views so i think the question must turn to rand now and to howard and opened it up because i am confident it's going to be generally lively going on here. ran, i'm going to turn it over to you and we have a range of additional issues that i think you are well placed to have a discussion on. we are in the next phase now
right? so that's part of your study. tell us what that means and what other consequences we may face when i think today is a great day to be holding this panel because just before we came in the room, they concluded the european council concluded their meeting and i was frantically trying to find out if the guidelines have been published yet that they haven't been. at least not as we walked in here but it's not counsel, it's a summit. >> yes, this is the summit of all the european leaders. this was conducted at 27, the british were not there. theresa may was at dinner last night in brussels and left. and the main point of this was to confirm which they did do that sufficient progress, those magic words, have been made and that we can move to the next phase . they have in the agreement
that was approved this past week, the report that was approved this past week made some decisions and came to an agreement about citizens rights. and about the financial settlement. there are still questions in both of those areas but these are not insignificant of course. where they have really kick the can down the road is on the agreement about ireland where you can read this and see directly contradictory provisions, some to satisfy the dob which is the minority party, that's holding up theresa may's government and others to satisfy the irish, who have threatened to use their veto over the final, if they think there will be a hard worker, a real border between the republic in the north of ireland. so that set ofissues is going to go into the next phase . even though it should have been resolved . i think we are now looking for the next two months to be focused on two things.
one is the transit system and it's possible that they will reach a relatively fast report on the transition because as has been stated earlier, the eu holds almost all the leverage on this and the british slowly come to the realization you can't negotiate a trade agreement even with best friends. it's really just not done. so the transition that the eu, that the president has laid out would be one in which the uk adheres to all the rules, adheres to all the financial responsibilities and obligations and adheres to the dcj jurisdiction. for a period of two years, perhaps more. that's one of the decisions, how long can go on? that's one of the negotiating points but they will not be at the table so they will be
a taker, a recipient of eu rules. one issue that i can see coming up in this that is unclear to me from what i've seen so far is whether the british will continue their repeat. and i think that is going to be a problem or a sticking point as they work for the transition. there were also comments as the leaders were leaving the summit today that within the transition there needs to be some kind ofunderstanding about gibraltar . there is in the guidelines and agreement within the eu that the spanish will have essentially approval over an agreement about gibraltar and this could be a real sticking point over the long term. once the transition is agreed and the next european council, the next summit which it would be approved is currently scheduled for march, so that the timeframe we are looking at. once thatis done, then one
would move on to future relationships . and here, the priority issues on the trade agreement and including customs, and the challenge has been that the uk has been rather schizophrenic about what it wants. schizophrenic might not be the right word but it's been actually uncertain but it doesn't want a canada type of agreement. based on the eu canada agreement that has just been done, what british politicians have been saying they're going to get canada plus. nobody quite knows what that means but as michelle pointed out, cherry picking, deciding you can have part of the market is just not going to work out. so the other problem with these types of amendments is depending on what's included, negotiation of a trade accord
operates under either qualified majority voting so not everyone has to agree or unanimity which is a much more despicable term and after the singapore decision, the decision of the dcj on the singapore trade agreement there is a division in eu trade policies where if it includes things that have member state competence, investor protection being one of those it appears, still those issues to be worked out, that everybody must approve and you can go through a situation as you did with canada where you are waiting for the world to approve the disagreement. if you to a more narrowly focused trade agreement, it's not clear exactly what will happen. and even on that, even if it's just the eu, articles, agreements with third parties , britain will now be a third-party which is a big
mentally. it will not be a member. it will be just the same as we are, just the same as japan in terms of its relationship. and if you have an agreement with third party, within the eu, through article 207, if it includes services and intellectual property, then it's unanimity so this is a high barrier because as we point out, services is the major part of the uk economy. but we have some procedural issues that have to be dealt with here. that will play into what type of agreement it's going to be pursued. let me say, one issue that charlie and michelle did not bring up so far is nato. so the transfer of data which is huge, huge issue from the eu. the uk will adopt the gdr, general director of, i can't
slide these. their personal and the transfer of data. but it is unclear whether after they leave as their own privacy regulations may start to search a little bit, will they have to get an adequacy agreement and privacy shield? to think about the amount of data that goes on to different banks and all sorts of private areas. as they talk about the trade agreement including customs, that will again bring up the irish border question. and i expect that will be one of the last things that would be determined andhow they figure out what a border is . we will also have to see their financial services negotiation. is it part of the agreement, a standalone agreement? is there an agreement? and what regulations in the meantime does the eu take
about a euro clearing and whether euro clearing needs to be done in a member state. the other elements of calculation is that while this is going on between the eu and the uk as has already been brought up, the us is starting to scope out what a us uk free trade agreement would look like. and there will be pressure applied on the uk do not agree. geographical indicators by the americans, so that they can have a more positive agreement between the us and uk. so it will be in a sense a triangular negotiation without that being officially formally so. one of the things i think we all learn in writing this and in watching brexit is how the
unpredictable becomes the norm. and how every day you learn there's some new complication that needs to be resolved whether it's agencies that provide certification, etc., there's all sorts of stuff that don't participate based on,. i think also we don't know how the personalities involved are going to get through this phase of negotiations, but we have seen spectacularly over the past couple weeks the weakness and divisions within the may government and the ability, i would say surprisingly so, of the eu to remain united behind their negotiators. there are little squabbles on the edges but they are staying pretty firm.so i think we have a difficult and uncertain road ahead to find out what b would be the future relationships. i can stop there but i do
want to say that the president outlined as other areas of negotiation in this initial phase if you will in thinking about the new relationship, anti-terrorism/police cooperation and foreign policy and particularly defense and security. so we will see some negotiations along those lines. what access will the british have to do defense fund? they did not join new mechanism pascoe but will they have relationships? it points out that atlanta which is one of the most successful eu military missions, anti-piracy missions off the coast of somalia is currently headquartered in the uk there are all sorts of issues to be worked out about future events and security cooperation as well.
quick i'm confident we will come back to that question about security in a sense . i wasquite taken with the calculator , i must say because i was wondering, a little bit more on that also more on your program in there. if you come up with additional scenarios. >> certainly. let me start with the scenarios. if the calculator is designed to show the results of the scenarios first and then i'll talk about what you can do with the calculator. we chose eight scenarios to model and we chose really the most likely scenarios that the uk would face. the hard brexit scenario, wto, this is the new deal scenario but the other three of them, free trade with the eu or us or both together make a tremendous nonsense in general, countries trade with those partners who are
closest to them. charlie mentioned earlier that we use a model, that the underlying logic behind the gravity model. and then we looked at soft brexit scenarios. when you look at the heart scenarios, what about global britain? global britain very seriously but we think that you might describe global britain, the global britain idea is that the uk is not part of the customs union or single market to do multiple trade deals with many partners at once so we can do trade deals with australia, china and asia, latin america and thus build a free-trade network work better than disagreements with the eu. by modeling uk us agreements or uk eu agreements, you're
showing something of an upper bound because the us is 20 to 25 percent of the global economy. the eu is about the same size. doing the one trade deal with the us is much easier than doing multiple trade deals with multiple countries , especially with multiple large countries and i think we've just seen an example of that with trudeau's trip to china and his desire to start free-trade initiations with china and the ultimate failure of that attempt. so a global britain idea would be many years and probably not really duplicate the size of the us economy. so we start with those scenarios and we go into the calculator. underlying all of those scenarios are as a function, what would terrace look like an 82 scenario? what would terrorists look like in a free-trade agreement?
we have to make assumptions about what they might look like in the future. what would non-terrorist barriers look like? how much higher than they are right now? we can't say that our assumptions are correct. we make these assumptions best on on available data so what the calculator allows us to do is to say okay, eu, i disagree with you. that nontariff barriers under a uk eu free-trade agreement will rise by five percent relative to what they are now. i think that we will have nontariff barriers that won't run. we will have no non-terrorist barriers, zero percent. we can program that in your custom scenario and the model will then calculate the results for different aggregates. what will uk gdp look like 10 years with no nontariff barriers? what will trade look like? nontariff barriers for
services, services are a major issue for the uk. 36 percent of their exports are services exports, that's where their surplus is. their deficit is good . you can say what will the uk economy look like, what will us economy looklike ? if services trade is restricted, if there are no nontariff barriers and in general, what we find is that the uk is still worse off sometimes much worse off, sometimes slightly worse off than it would be economically wonderful eu membership. >> thanks very much. now, i know that many of you in the audience have questions. i know some of you to be very good questioners and talkers so i actually am going to open it up to the floor. i warn you, i start asking questions myself and then you are just talking to me but i'd rather that you all be
engaged in this since we have our experts here. i'mgoing to take a couple questions at a time . but you need to, late for the microphone and be, identify yourself. we want to know where you are coming from . okay. so i opened it up to you all. oh, don't tell me. >> i'm gail maddox and i'm at the naval academy and i look more at the security issues then the economic issues, but there is an area that overlapped and i'd be interested to hear your reactions and that, you mentioned is the edf. the european defense fund. i was skeptical when it was first announced.
i thought oh yeah, here's another attempt and i don't know. it seems to me that the union has really been pacing itself and has seemed to at least want to appear that it's going to go down this path as well as with the pascoe and i guess i'd like to hear your analysis of that. how the brexit is going to impact some of the security issues and in particular, the sort of nexus of the edf and industrial industry defense industries, i think there's a lot of overlap there with what you all have been looking at. iq. >> i ask you to go ahead. >> you are right, the edf is, for those in the audience who don't know about the edf, the idea is that for once after a lot of efforts to build a
more coherent eu defense policy that would then give the european union a political defense power base that it would not only be linked to the united states and to nato, the edf, the innovation of that is that it would allow for common acquisition of high-priced defense access. that could then be shared among eu members and dedicated to what contingency they might need. and it is over performing expectations, shall we say. this is a good thing, i think for what matters to the united states which is that the european countries collectively build more defense capabilities and thereby make a greater contribution to our common security issues.
keep in mind that many european union countries, not many but a handful of european union countries are not members of nato so getting their contributions and building up defense capacities that would give more pasta adversaries on their borders and elsewhere in the world is a good thing. one impact that we didn't make much of in the chapter on this, but it our economic assessments are right, the uk is in for a period of slower growth than it would have had otherwise and we are already seeing some very serious budget austerity in the uk. and if we are right, it will only get worse as the uk leaves the single market and suffers the economic consequences that we are modeling and that will affect
the amount that the uk can put into its defense sector. and brexit itself will have an impact on the uk's defense sector. the companies like british aerospace that are major players in the supply of defense goods will rise. how successful, what kind of access would they have to the gdf, the edf and the way the defense sector works is in a sense one of the more naturalistic sectors, there is a binational or at least by european instincts. and i do know that many major companies in the british defense business are worried about that. and so that is likely to be. >> i know you have some of
this. >> i wanted to say it's a broader discussion in the european defense fund in that a few years ago, the eu started passing legislation which is now on the books implemented by the member states to not discriminate in defense procurement that did not involve large research projects. airbus doesn't need to worry about this,their projects, it's a lot of research and if you're trying to buy boots , ammunition, uniforms, that kind of stuff, you are not supposed to discriminate between eu members. it is has always been very unclear whether it was then a possibility that you could discriminate against non- eu members such as the united states and it has been a matter of concern , but i think the british are now going to find themselves on the other side of that. so i think along with the things that charlie said, there is a gradual move
within the eu to bring the defense industry into the single market. it will be stopping to go. there are very much nationalist impulses so i don't expect this big project will be affected in the short-term, but it is there and the british will find themselves outside on the trading issue. >> cannot ask you a question on that myself. the last uk security and defense review was in 2015 and of course the brexit vote was in 2016. would you anticipate they need to do another defense review prior to 10 years down the road? >> yes, i would imagine so. david may have something to say about that but what i think and what would make logical sense is not necessarily what governments do. i don't know whether we will
actually take that strategic perspective. i think given what charlie says about the budget which i very much agree with, it's rather a divisive issue today. and so i'm not sure that doing something to clarify that is necessarily what governments want to do and i think we face this larger question as well of the government's ability as we head towards 2022. elections have to be held by 2022 and so. >> if not before. >> because the elections, we didn't talk about the elections last summer in june which the prime minister tried to increase the majority of the government in order to increase her negotiating situation with the eu. and lost that bet seriously, such that they are reliant on a support agreement with the du p, the ulster nationalist party for them staying in
officeand that could fall apart . either just because of the passage of time and honest within the tory party or because when we get close to march 2019 when the end of the first three years of negotiations about leaving the eu have to be resolved or extended, and the irish questions that you referred to will come to the four and the all-star party as firm views on irish questions. and if they, if her majesty's government in london adopted an outcome which either that solve the problem on the island by establishing a hard border or inspections for
goods back and forth between the pollster northern island and the rest of great britain, that would probably be a government ending outcome. >> wow, there are questions. let's go over here to any. don't worry, i'm coming back to you. steve, sorry. >> i'm steve sylvia, i teach at the university and i got a couple quick questions that may entail longer answers. on what fran said about the unexpectedly becoming possible and what charlie just said, what do you think of according government would do with brexit and the second one is howard, howard, did you consider any general equilibrium models when you were doing it and what would that have looked like as far as your calculator? >> you want me to answer that? >> so jeremy corbin in the election last summer was
rather vague, they seemed to be attending a little bit more towards softer brexit options than in the continuum that we tried to capture this in ourscenarios . but there's a ton of options that are generally characterized as soft brexit and there's norway, there's the swiss. keep farmer who is the deputy shadow prime minister candidate or the spokesman has recently been talking about how the labour party would not want to leave the eu customs unit and maybe a little divergent for those in the audience who are trade
wonks but the customs union is what the eu started out as being witches there's a common external tariff that all 28 members apply to trade with every other country in the world except one country, turkey which is in a customs union so turkish goods enter into turkish industrial goods enter in to the eu through the free and turkey is obliged to apply the external tariff to everyone. if the outcome of brexit were to be that the uk leaves the eu so it's no longer a member of the single market, customs union plus, they have essentially adopted the same regulatory matters and they don't have any customs inspections, so they stay within the customs union. the result of that would be that they would give up the vision of a global britain because in a customs union, if the uk stayed in the
customs union they wouldn't be able to negotiate a free-trade agreement in the united states or canada or anyone else. they would only take those agreements that the eu is set to negotiate. my only guess is when labor have to get serious, right now they're against and pointing out the conservative parties internal conflicts or taking advantage of difficulties as most opposition parties do, they point to the government shortcomings rather than laying out in detail what they would do but it does team that what they are talking about is more on the customs union everywhere rather than a single market because the single market soft option would like norway , it would involve free
movement of labor and that is unpopular in the labor based, be strong labor constituencies because it's the famous polish plumber and other eu nationals that have moved to britain under free movement of labor have been unpopular with thelabor base . so my own guess is that that's what they are talking about but they are trying to keep their options open. >> you also included lighthouse. >> let me talk about the modeling. first of all, all credit due to your colleagues who did most of the modeling.a good example of transatlantic cooperation, seamless, no language barriers, everything worked out well. he did have a choice. data transfer, exactly. services trade at its best, i'd say. so we used a structural
gravity model which is known as a new quantitative trade model. that's a little more than a standard gravity model that allows us to use multiple factors, intermediate goods. but it just gives that point, it's not dynamic. so the choice has been general equilibrium models. we opted not to do that for a number of reasons. >> .. we would have had to program that from the start. and we would have had to make several different choices. we would have had to choose the
parameters for those example we would have chosen, we would have chosen exactly how this trade responds to changes in crisis. it will be how straight response to terror failures. the other issue against the model is it is something of a black box. we don't really know how you get the answer. and it is dependent on a lot of models assumptions. there are advantages. had we had more time, had we been able to do that we could have seen the pathway of treatment. with the structural gravity model, willis to the endpoint. how do we end up? this metaphor, this much more trade, this much less trade. but with general equilibrium models we see how that trade involves and had been able to put sectors we would have seen how different sectors changed over time. we thought that the answers in
the end given the cost and effort would really be not much different, not much better than possibly worse. and that's the first thing. the second thing is, i should add, we did model for the investment. there reason is simply gravity model. because in general, foreign direct investment data are not rich enough to the models. and the results were very similar to trade which is that the uk just does not do as well under any arrangement as it does with the eu. in the eu and the us gained from this. >> i know you will be reading the -- there are some generally scary equations. [laughter] all right. moving on. i'm going to go first to moira and then to you. i'll take two questions. >> thank you.
i am a former wilson fellow. my question is about brexit has major complication or major implications for ireland. looking at the scenarios, did you look at how each scenario might affect ireland and their economy? also, do you have any thoughts on what they most likely was perhaps the most likely and perhaps also the best scenario for ireland and the uk on border and trade? moving forward. >> with the eyelid question. >> hi there. i am garrett from the us chamber of commerce. i want to get into the eu and uk assumptions a little bit more. as far as the fta goes. did you assume that the eu 27 will remain pretty aligned in
their wishes for what that will look like? because it seems that there might be some more divergences between the eu countries in the second phase than in the first phase. similarly, as you look at any of the eu existing agreement, the free trade agreements with canada, japan, south korea, etc. and with the uk be able to exceed themselves to that of one third party or are you assuming there will not be part of it? and what about the us eu agreement like open skies and things like that? or would the uk be added to those ahead of brexit in your assumptions? thank you.>> to start with ireland. >> let me make a couple of comments about island in your mouth to speak a little bit to that. on ireland, i mentioned this a little bit with respect to the common external when i was talking about this earlier. the problem, they say basically
was an arrangement that was a political arrangement that took place in the context of the single market. it was possible to achieve a settlement to the long-standing fight between catholics and protestants in northern ireland by having a one island solution. i do not want to go on at length about good friday but critical to that is the fact that the citizens of the uk in northern ireland can choose to become irish citizens and the average agreed to have it happen. and that there was essentially a single ireland regulatory and trade arrangement so that there was no borders and 8000 trucks and so forth. among the scenarios, if they
were a free-trade agreement between the uk and the eu, this would mean that the two sides, and we can talk about this with respect to the second question but the two sides eliminate tariffs on industrial goods and make arrangements in agriculture. between them. but the uk and theory would be able to change the external and that would require a whole series of checks to make sure that chinese goods are not entering into the uk and then being shipped into ireland and then on to other eu markets and thereby undermining the common external tariffs and single market. and that is what we talk about rules origin and then there are standards issues and so forth. in the would progressively arrive because right now the uk
and the eu have the same external tariffs. you can be a member of the eu and have the same regulations. but that would mean if they were just the fta, the second scenario for the first scenario for that matter that the uk is only on wto rules. that would be bad for ireland because you would have to have some variety of chain forth the agreement last week to start phase 2, had an irish component in which the british government committed to alignment of regulatory measures such that it would not involve a hard border. the problem with this is known as quite short and i think there is the ambiguity of how you achieve that.how you would maintain it. because if that means that the uk promises now and forever
more to apply eu regulatory standards and for that matter, external then one might ask the question what are they getting in terms of enhanced sovereignty by leaving the eu? there is another option which is, you basically agree that the northern island, which is after all, a very small part of the uk, would in part, unction as part of the irish economy and he would have customs checks over the irish seas. so for transshipment of goods from birmingham to london would be subject to custom checks. and that is unacceptable to the aup. those problems arise with any of the hard brexit scenarios were talking about because they basically involve the uk out of the single market. if the uk were to be like norway, they would be in the
single market but they still are responsible for their own external tariffs and in principle, you still have a little bit of this. the customs union options would be better for ireland and it is a little bit my reasoning of why labor may come down on that side as well. but it is hard to know. i don't know if you want to say anything more about island and the political side? >> is a couple of things. first of the situation is complicated. by that there is no northern ireland. >> right, at the moment! [laughter] there hasn't been for quite some time. >> that the privileges, westminster, there is a voice missing in the discussion. i very much agree with charlie when he lays out the problems that they are facing and good friday includes a lot of funding from the eu. and a lot of north and south cooperation on the island of
ireland. i actually think that those can continue. >> yet. >> the eu can decide this is the zone of conflict prevention and put it in a different part of the budget and it will all work out. but the customs border, the board itself, this is >> and services, banks. >> yes. just trying to figure out where this order is going to be. unless the uk stays in the customs, it is really an issue. and it affects all sorts of different industries. there is a great article that i saw about the impact on the racing industry where no horses are going back and forth and back and forth all the time. and you cannot make them wait eight hours at the border. because they will miss the race. so i think there are also some things that we do not think about. there are supply chains a take things back and forth multiple times. people have invested in northern ireland on the assumption.
>> so let me speak to garrett's question about the question about how to become up with the fta options and so forth? for the most part, we used the most recent, most modern european union free-trade agreement, that is the canada one as a proxy. and this is before we had david davis who is the negotiator for the uk in this process, say specifically he wanted canada free-trade agreement plus, plus, plus. so, we were just modeling it from the standpoint of what would be the trade effects in the scenario and we assume zero tariffs for goods trade. substantial agricultural excess but no financial services
access and in fta. it's a technical question for you. and the same applies for the us. the us/uk and that matter, the scenarios we actually think that, you can tell me if you think this is wrong. if there were to be a uk, eu free-trade agreement. which of course can only happen if britain chooses to do, to be either under wto rules or in fta and it can't happen in most of the softer brexit options. we are assuming that even with the us, the uk would not succeed in getting coverage of financial services. with the eu, the issue is really competitive one. euro zone countries have always resented the fact that the uk, which chose not to join the eu, not to join the euro, managed
through the power and efficiency of the city of london and financial services sector, two nonetheless, become the center of euro clearing and all kinds of securities transactions related to the rest of 28. and was the british made the decision to leave the eu, paris, frankfurt, dublin, everyone is after investment by banks and pretty clear that there will not be single market like passports so-called underpass boarding access and uk-based banks and then in the service of marcus of it is a competitive issue. with the us, there is that.
then we already have experience in which the europeans wanted to cover financial services. largely put up by the british. the us was firm. with the entire 28, the whole eu, we were not interested in that. largely, the motivations here and others, you certainly know more about this than most. there was say the motivations are procompetitive but more regulatory. so we have a variety of regulatory approaches to our banks and securities sectors after the crisis. and even before, we have terrace finance, anti-money laundering. and they are unwilling to basically delegate those. to even the united kingdom regulatory agency. and so, we assumed, you may
differ, but we assume that if there were to be a uk/us fta, it would not include financial services. and let me just, one of the diversion here. what are the things that the uk is discovering, in this brexit process is that in the context of negotiating with the united states and the european union, they are a small player. there a small player negotiating with the eu as we are seeing and they are calling this change in the 27 and sticking together. they turn around and negotiated with us they would ãit would, we are relatively indifferent. there is not a big steak. you have economically. we will look at this negotiation from the standpoint of our own principles and our own relationships. and as fran mentioned with geographical indications, we have got feta cheese made in
wisconsin and wine made in california and we would have our own reasons for wanting to make sure that the british committed to letting wisconsin feta cheese and california wine, to be sold in the uk. just as we were pushing for and resisting the idea that we would protect great feta cheese or french wine. and the british would quickly find themselves in between two powerful players i wanted to impose their own circumstances and they are negotiating approach on them as a prize of the agreement. i think this administration even more so than pestilence. >> may i add something? >> yes but then i also note that you guys have dodged a question on eu cohesion and
transport. >> never! >> i want to give her a chance to come in and up at howard. -- >> i hope that i say not what michelle is going to say and that i teach her off. we look at this as part of the game theory analysis. showed several cleavages, potential cleavages and so i will not go into this because i assume that michelle will do a better job. but i will say is that despite the cleavages, the eu has a very powerful tool to stay aligned. even if there is great disagreement within the eu and that is, as we discussed in that game theory section, after two years the uk is out.and the eu, because there is not a large economic effect, to the overall eu economy, there are large economic effects to particular sectors in particular countries. the eu really can walk away and
so, doing some kind of internal negotiation to satisfy everybody is not necessarily a high priority for the eu. >> just three very brief points. i think it's forgotten that the trade patents uk have with member states vary. something it really picks up on. and i think that you know this is very significant for ireland but it is also significant for the netherlands and now that you have level value chains and you have issues of logistics, you have issues of integrated production, it does have a much broader impact of the question becomes, if we -- if there would be a trade diversion effect if the uk is no longer a member. the second point going to garrett is that you mentioned
open skies and aviation. one of the things i would like to see policy makers look at is how many agreements are there for both the uk and the eu are signatories? because it was a period of time when the eu was not a legal entity. and so they will be some agreement. will not -- we will not fall out of everything but there are some things we will have to renegotiate. the fact that we have 750 particles in agreements, some of which uk is independent signatory, may mean that it will be less critical. the third point that canada plus plus agreement, i am just you know, like everybody else, it's a whole new language going on here. and if i know anything about trade and i look and i actually read the eu canadian agreement, the eu japan agreement, and i think about msn data, there are
implications if you give it to the uk, i am assuming then you have to give it as well to canada. in particular the text because it is very finely grained. >> only if it is a, it's really lucky but if the free trade agreement qualifies as preferential trade agreement on article 24 of the wto, then they do not have to provide mfn treatment. but if they went the swiss route and did a bunch of bilateral and sectors, they would, immediately be faced with demand for most favored nation treatment which is standard in the wto. >> okay. right. i know there are other questions. and then we're going to go to the guy behind you. >> my name is casey. i'm at the state department. deputy office that robin just
came from the western europe office. needless to say we are very focused on brexit and my thanks to ambassador for putting together the study because it is a great resource for us as we start to think through how the united states should approach brexit. and that is the question i have, needless to say also we are very focused on how us interest is at stake in this. what did your study either show or indicate for us interest under some of the other scenarios to transition the swiss or norwegian model? and do any of the scenarios offer meaningful better outcome for the us interest and the others? >> will take the question. >> i am a fellow -- in the netherlands. i think this falls upon some of the other questions.
i am intrigued in particular by this arrangement that you mentioned. as you said yourself it is going to be very complex. i'd be interested in some more of what that is supposed to be trilateral agreement to be very different from others. orbit is a mix resting still on two pillars. or is there when we use in the uk you have agreement and to separate fda's work is there coordination? and finally did you look at the us appetite and agreement like that that would as we talk about now, it doesn't seem to cover very much.in the same lines -- sounds more like minus minus. you would have to look at the institution aspect because it is too tricky in europe right now. if the us wants something like
that. >> okay. let me tackle those two and then others can come in as well. casey's question is about us interest and other scenarios. one of the things from the standpoint of the us economic interest, all of the scenarios except one has trivial impact. the report has for each one of the scenarios, there is a calculation of the gdp impact for long-term tenure and gdp impact of the on each of the three. we calculated for all of them. but it is trivial. the only one that makes a difference to the us economic interest is the so-called track questionnaire which is a trilateral. anterior questions about what would that look like, we didn't, we only modeled it we did not get into the structural aspects of it.
my sense of it would be that it would particularly if it were done i don't know in 2000 22,022 or something like that at some point. in which at a time in which the uk were already out of, already out of the european union as a member, perhaps having themselves and fta with the eu, it should be probably a trilateral or even a check writing structurally it would resemble transpacific partnership or the tpp which is what the president drew from on the first day where the second day of his administration. but his it is proceeding itself.there are 11 countries in the tpp. and a number of them have various preferential trade agreements with each other.
and the undertaking that is a tpp undertaking is one of all of these parties, the contracting parties and also open succession by other countries. i think that would be the pattern and obviously, there were three years of serious negotiations about this and it faltered on a number of grounds. and most important of which was the investment committee so-called investor state dispute settlement. for i sds which was very unpopular in europe. the president has criticized similar aspects to the nafta agreement. and so if they were to be discussion of a trilateral or a tpp for the atlantic or even
call it t tip 2.0. i would think it would not have investors settlement which i never thought was really an integral part of the t tip itself. because we have $1 trillion in transatlantic foreign investment without such an agreement. and even if it were a mildly positive thing would be that big a deal. but elimination of tariffs and consolidation of border controls and so forth across the atlantic would have big growth enhancing possibilities. and that's always been the case. it may be that in the future there will be a political environment for it. and that will be the best outcome for the uk. by far. as we established because has the benefit of trade liberalization with the content and with the us and the trade liberalization taking place between the eu and the us, all three entities grow faster.
and we'll have to see what happens in the nafta renegotiation but if we still have a nafta, it would make sense to have nafta parties also be a party to some bigger undertaking. >> sounds at full employment for trade negotiators. [laughter] did you want to -- very quickly, i think that what the study makes clear is that if you're going to have a us/uk agreement, is politically motivated and inspired by the than economically. because economic consequences are minuscule. >> for the usp request yes. >> not as good for the uk as the eu has a relationship with the eu. >> correct. the problem i think, for the uk is that once the political decision has been made to launch such a bilateral negotiation with the us, i fully expect that ustr will become very, very tough.
and the british government, or david davis at least, has been going around saying that all of the eu bilateral trade accords he expects to be able to just renegotiate those by pressing out eu and putting in uk and having the same terms. i think that is a fantasy. i think that these countries, the other trade partners are going to look at the uk is in my small entity. and look for more advantageous trade terms. we have seen this in the eu and the uk put forward a list of wto was, terror schedules and everyone thought this would be the easy part of the deal. and giving it up and the us, the us, australia, new zealand and some others wrote a letter saying sorry, you have to negotiate. you can't just present us with this deal and assume we will agree. so that will be a challenge for
the uk. >> michelle, i see you nodding. did you want to comment on the question? >> i concur with the tr queue and the difficulty they will have. the other point perhaps is to think about the post 2008 economic climate that the british are going to be negotiating in. they're talking a global brand open for business. but you know, the one sort of context to this, is if you look at other countries, extract eu exports are stagnated. and we have seen a rise of state owned enterprises, a bailout, localization initiative, textbased export incentives by other countries. beyond europe. so the uk tried to negotiate these new free-trade agreements and what i will say is an inauspicious business and regulatory climate with others. and so, i think the post 2008 situation is a very different one than perhaps say, remember
with negotiating in a single market in the 1980s. >> more questions. >> kent hughes, here at the wilson center. two questions. one on the regulatory burden. my guess is that the us and china, for whom europe is an enormous market, how to meet eu standards to send their goods there. which was one of the motivations for t tip. if they make no functional difference why don't we harmonize them? what about the internal reaction by great britain. my depression on the brexit boat which had many elements, part was an income distribution question. london, their version of wall street. all of the goods here, the rest of us toil away and are left behind. could it be that the end of this focus on london would end up with a lower gdp but a
higher percentage of that gdp going to the non-london area. and would they then shift their own internal policies so the research and development and policy would focus on developing more competitive goods? and also nonfinancial services related exports. >> let me start to tackle that. it is a good question, kent. there is, for all the talk of reciprocal negotiations and we saw how difficult it's been to try to, as you mentioned, harmonize or make compatible regulations across the atlantic in a variety of different sectors. we have succeeded. we have agreement on manufacturing practices in pharmaceuticals, have agreements in outboard engine, environmental controls, there are a lot of specific
relatively narrow limits that have been achieved. but broadly speaking, it's been difficult. and the uk, once out of the eu, will face the problem that small economies have everywhere. which is the gravitational pull of the big economy. big trading partner. on the regulatory side. right now, british industry meets all of the standards because they are members of the eu. it is a legal obligation. when the uk, if the uk succeeds in leaving the eu, will not be a legal obligation but a commercial necessity. you are already seeing that the british chemical industry came out very strongly to say that they didn't want any suggestion that the united kingdom would cease to apply this so-called reach rules for chemicals. that the eu imposed. now we did not like reach. we are a big economy but the uk
will have little choice but to meet whatever it takes to put those ce marks on their goods in order to sell them in the eu. it is worth saying again, 50 percent of the british trade is with the eu. and so, it will require -- it will be a necessity for businesses that are located in the midlands or wherever they are in the uk. to meet the regulatory requirements and find ways to certified that they do so. in order to continue to export from britain to the uk. same token, they have to meet us standards in order to send their goods to the united states. and so, at the end of the day,
the difference would be that they won't have any role in making the regulations. but they will stop to follow them despite the ideas that they will break free of the yoke of brussels regulatory policies. on the question of the intra- british, with the impact will be, internal to britain. southern england, versus the rest of less developed and less prosperous part of britain yes, imagine it will be changed based on that reach. but it is hard at these points to determine, and we didn't really --
>> hello i am in case his office. you mentioned that is often with a larger trading partner. my follow-up is with this larger idea of global britain. talked about this in context of the uk having the ability to negotiate trade agreements around the world. we've also heard sort of political rhetoric around global britain in terms of foreign policy priorities, the inability to sort of set direction. the question would be looking at the edf issues, defense security cooperation with the eu but also the uk relationship through the commonwealth, bilateral relationship with the us. due to the uk center of gravity shifting on the foreign policy as they look to work as a from the eu and have this global britain focus? >> i don't really see a shift. and right now, if you uk
foreign policy, it is much more closely aligned with the content with the eu 27 than it is with us, climate change, iran, etc. i think the uk is going to be totally absorbed for the next 2 to 3 years in a set of issues that we have on his table here today with brexit. and so they will be little -- few resources available. but monetary resources but also, shall we say, administrative resources. for launching new initiatives or really reordering friends international priorities. you i think the budget and impact of brexit is also going to be a large incentive for serious international
initiative. i think the uk maven struggled to keep what is doing now. but certainly not any element for potential partners for the uk. will look at it less as a window into the eu. and more as a middle sized country with a global strategic perspective. i don't think that's going to change. but with few capacities for doing that. and i think also, one of the things we have to figure out is a lot of this, if you are negotiating your trade agreements with other people, etc., there is a real pressure on the british civil service and gentle i mean there's a capacity issue here. they have to suddenly grow new trade negotiators and take on areas of governance that they had turned over to the eu for quite some time. >> more questions?
here. >> dave nash, retired army, i don't represent anyone. i think you've done a great job of proving what a bad idea this is. [laughter] and you have done it with your european colleagues. my question is how do they call you fake news? and how do they justify this as a way forward? and then the ambassador opened the door by saying if they succeed. in his previous response. so, what is the potential, if any, for rational regret? >> walking it back. >> well, thank you, dave for that question. i resented this study in london on tuesday and in brussels that afternoon.
can settle, i got it right reactions was progress in gdp, has nothing. part of our sovereignty.and others said, this is just project sphere all over again. project fear was the derisive nickname that was levied by the levers against the case that the government made that hm treasury study that was done in april think of 2016 before the referendum. i think our study, what we decided to do at the outset was to assume that brexit is happening. we didn't make it brexit for no brexit. we make it, brexit happens. but there are a lot of ways it can happen and we thought it might be interesting to look at the possible economic consequences of each of those
ways. in our study is a lipid novel in this field for, modeling in the us. and what the us states are. there is a frequent visitor to london this time and never times during the research phase of this and as i mentioned, we have an affiliate, ran europe in cambridge. so i'm there often for that. there is quite the shall we say, cocktail party chatter in london about how might it all go badly? or how might it all fall apart when faced with the consequences? you may have seen that on tuesday, it had no relationship i think to the launch of our study, but the government lost a key vote that was all about whether or not the parliament would have the right for the opportunity to make a judgment about the brexit deal.
and there are ways that it could fall apart. but most of them would involve either a new referendum, which no one is proposing, referendums in general are bad way to make policy i think. but -- four, the government falls and there is either a new election or a new government put together that says to the 27, we would like to withdraw the article 50 notice. for those of you not steeped in this time of the article 50 notice, article 50 of the lisbon treaty is the one that sets out the procedures for a country withdrawing from the eu. which didn't used to exist before. and that is what set the two-year clock going and so forth. the article 50 itself has no procedure for a country changing his mind and pulling
it back. but there is the assumption i think, in -- among, if you will, remainder circles in london and in for that matter, in brussels. where there is some mistake, good riddance to the british they've always been troubled and always been exceptional lists and so forth. but i think a broader sense across the eu is one of regret. i think michelle garnier has suggested this. and if the british in a new government had any material mandate to take it all back and said, we want to remain good members of the eu, it may be possible that the 27, the council makes a decision that agrees that the article 50 notification is moot. however, that is only between now and march 2019 when the two
years expires. at the end of the two years, they are not members of the eu unless the, there is unanimous decision to extend the transition. and i think if this remorse or buyers regret or shall we say, or levers regret, comes into play in 2020 or 2021. then, the british might actually have to apply to join the eu. and they would have to go through and assess intriguing negotiation. and one of the consequences of that would be that the uk visits opt outs. most importantly the opt out from the euro. and so, the year 2022 and sometime i don't know, government that wins the miraculous majority in the parliament. the prime minister re-applies to join, you may remember that they have done this before. they joined or applied in the 60s.
they were vetoed, joined by 73 and two years later they had a referendum about whether to withdraw. which was won because it had the conservative party support. it was a labor government that sought to withdraw from the eu in 75. so, in this miraculous circumstance in which some subsequent government applies, it will be really a heavy lift what they are out to come back and because they would have to not only join the euro, they have to join schengen, allow free movement and all of those other issues. i think lose the rebate. the rebate provisions would be tough. it would be tough. but, before march 2019 it might be easier. but it's still a very small probability, i would think. >> unproductive of the crystal ball from you on this one. [laughter] >> a cloudy ball.
>> had a make a brief point? i would caution not to look at some of the votes in parliament as anti-brexit. there is a debate going on very strongly in the uk about whether the prime minister and the government is doing too much or not doing enough. without parliamentary oversight.and this is about the sovereignty of parliament. and it's hard to say -- it's hard to privilege sovereignty of parliament and then give that sovereignty back to brussels. so i think you will see as many voting against because the government because they think may is not being tough enough with the eu and as many voting because they have issues with brexit. i'm going to the moderators partner to toss one last question out to each of you.
and that is, if you had a recommendation to get to policymakers be whether it is in the us or the uk or the eu. what would your one recommendation be? i'll start with howard on the end. >> hmm... so, one recommendation is very difficult but i will try to vote to that. [laughter] >> i thought you would challenge me on this so give you a narrow primer knowing you're unlikely to stick with it. >> you want to try and give the customer what she wants. but i want a return to basis of kent's remark. trade between the uk and the eu will go on. it would be a slightly lower level. uk will be worse off. but for example, services trade between the us and eu is enormous. combined services trade is about $400 billion. so it's not the that trade will stop. there is also no doubt that the us or the uk economy was
somewhat unbalanced mostly towards financial services. we have similar situations in the us there was a lot of analysis in the late 90s and early 2000 direct expansion of the us financial sector. so the speculation about you know, will income be distributed somehow more evenly within the uk? that is a dead one. what the response that would be is, first of all, it's a problem that the uk could have addressed within the eu. and then you might say, well, you know, adherence to the eu single market and customs union prevented the uk from taking certain steps that could have made the situation better. so, leaving the eu will likely shrink the financial sector a little bit. so that is one start. but the next question is, one recommendation for uk policymakers is, what exactly is your new scope? you knew freedom of action that you can take outside the eu that might in fact, spread
benefits of economic growth throughout the population? that might be a very narrow set of policy options. especially if you are to maintain some regulatory harmony with your trading partners. it might be very wide set. i don't think there's been much work for any work at all and really try to understand what the uk's new freedom of action is, if any, in terms of their internal economic policies. >> michelle. >> i would preface this with speculation that i haven't heard talked about, when related to the report. the speculation is that we focusing on the council, the parliament, the member states, but i think we need to pay very careful attention to the european court of justice. the european court of justice to be brought into the debate about citizens rights and protection of eu citizens post
brexit. but it would not surprise me if they make a decision or consulted will have something to say about the withdrawal agreement. and i would also say to you that is a policymaking perspective, there is an assumption that regulation between the us and the eu will be a commercial necessity. i wanted to sort of broaden out and think of not just talking about the word regulatory alignment. think about all the ways that the uk engages with the eu and international institution through good manufacturing practices, international forums, standards versus regulation, regulatory dialogue, mutual recognition. there's an awful lot more technical details that will -- that the uk, eu and uk will have to deal with beyond simply just the eu. but i think the uk is involved in a lot of different
regulatory bodies. how many will they continue? how many will they be excluded? >> since we are in washington, i will make a recommendation for us policy. but i can't constrain myself to only one. so -- [laughter] the first one is easy. i think that the united states shares resist all temptations to put our finger on the scale of the negotiations between the uk and the eu. because, while we are friends with all sides and care about the outcome, to try to intervene is likely to turn out badly. second, recommendation is that in the light of the findings of our study and other things, that the united states should indicate an openness to actively considering new transatlantic marketplace opportunities in the post
brexit environment. assuming brexit happens. the british have spoken, that is what is happening, they will work something out. but we can engage in a dialogue with the european union and the united kingdom and our own industry and social ngo sectors. about what kind of transatlantic marketplace do we want to have? and how can we do it in such a way that it, that we actually get to this future in which we are all better off? >> so i guess my recommendations are more for the uk and the eu. there is something i have not touched on a great deal here. but there are lots of agencies that are eu agencies that are certification agencies. that very much control the movement of products back and
forth between the two markets. and the uk is now faced with a decision about whether to buy into the existing agencies without having a seat at the table. or to set up their own agencies. which could take several years, during which time, the products would have to be certified. would have to see what kind of transition would happen there. it could be rather a challenge. british will also make clear that dailey would like to stay in the student exchange program. they would like to continue to have access to the eu vast university research funds. and so i think the british are going to have to be selective in what they're asking for in this regard. but i hope that the eu will be generous at least for a transitional, a longer transition than the main transition on these elements but, i am not optimistic that the eu will be generous.
the other recommendation i would have is really seriously to think about staying within the customs union. the more i start to look particularly in the context of this irish brouhaha that we have asked me. just how things move, because a lot of good things go from the republic of ireland through the uk and then to the continent. i heard one set of figures that trucks right now, go through 30 seconds each. if you put them up to 90 seconds each because of customs procedures, we start backing up traffic to the m 25. so i think that no one is really quite prepared for this. and even though i am not optimistic that the british will rethink and stay within a turkey like arrangement in the customs union or something similar, a bespoke customs arrangement.
i think that is actually one of the most damaging areas of brexit in terms of peoples daily lives and the availability of goods and the opportunity to travel. >> i want to thank you for giving us so much food for thought. and so, our audience, for the fabulous questions that you have asked. you have held their feet to the fire, so i think you for that. a round of applause to yourselves and our distinguished panel. thank you so much for joining us! [applause] [inaudible conversations]
>> tonight, see spans profile interview with senior white house advisor, -- she talks about her brothers imprisonment in cuba, growing up in miami and the 2000 florida residential boat recap. you can margie interview tonight at 8 pm eastern on c-span. >> jefferson robert lee ahn knew more about more things than any single man in north america. and i include franklin in that. that would be his only viable. everyone was impressed by jeffersons extent of his knowledge. adams was smart but he did not have the breadth. but he did have depth in history and in the law. that jefferson did not have.
not because jefferson didn't but he was just not as interested in the law as items. >> sunday and see spans q&a, professor and historian, gordon would on his book, friends divided. about the relationship and different critical views of john adams and thomas jefferson. >> adams was a realist. he did not believe that all men are created equal. and he said all men are created unequal. do not believe in american exceptionalism. we americans are no better, no different from other nations. jefferson is the opposite. he is into nurture. and that i think is what most americans believe. that is why we put so much, we are all born equal and the differences that are really into different experiences. different environments. that is why education is so important to us americans. it was important to jefferson. >> gordon wood, sunday night eight eastern on c-span. homeland security deputy secretary, duke now on homeland
security and terrorism. she talked of the hudson institute in washington d.c. earlier this week about how the department is adapting as the debts against the nation change. her remarks are almost one hour. >> good afternoon and welcome to hudson institute. hudson is a policy research organization dedicated to promoting security freedom and prosperity through strong and engaged us