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tv   Shanker Singham Discusses Brexit and Trade  CSPAN  May 12, 2017 10:10pm-11:31pm EDT

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and a ninth circuit court of appeals in seattle will hear oral argument in state of hawaii v trump. the ninth circuit court of appeals granted the request to air the argument live and we'll have it for you on c-span monday starting at 12:30 p.m. eastern. next an adviser to the british government on its negotiations to leave the european union talks about the impact of brexit on the future of u.s./uk trait trade policy. it's an hour and 20 minutes. good morning. welcome to the heritage foundation and our douglas and
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sara allison auditorium. we welcome those who are joining us on our heritage.org website. as well as c-span this morning. for those in-house we ask that courtesy that our cell phones and other mobile device have been silenced or turned off. and for all those watching online or on television you're welcome to send comments or questions at any time simply e-mailing speaker@heritage.org. hosting our program today is ted broman and the margaret thatcher center for freedom. he studies those relationships as well as u.s./british relations with europe in the europe union and international organization treaties as well. he joined heritage after a decade at yale university where he served as associate director of international security studies. he is also an adjunct professor in the strategic studies program in the john hopkins school for
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advanced international studies. please welcome me in welcoming ted broman. ted? >> thanks very much, john. welcome to the heritage foundation for this event on brexit, u.s./uk free trade area and the british general election announced yesterday to be held on june 7th. -- 8th. we're frequently told that support for free trade in the world in the united states and in the west is on the wane. this is certainly not true in the united kingdom. i was fascinated to read that one of the conservative party's central appeals in this just called election is that being out of the european union means that britain will, quote, be free to strike trade deals with old friends and new partners all around the world. so whether the freight of free trade is in peril in the united states it seems to be an appeal in the united kingdom. before this general election was called the uk was already seek
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to negotiate after at least to discuss free trade deals with upwards of 30 nations. now this question is even more urgent. this election will not just decide the fate of brexit, it will decide the fate of uk trade policy. indeed it will decide whether or not there is to be a uk trade policy for if the conservatives lose the upcoming election and britain remains in the european union, britain of course will not be able to have an independent trade policy. this raises the question of course of what free trade is. my own view is that anything that does not reduce the significance and the importance of government involvement in trade does not deserve to be call freer trade. but there are a lots of forms of government involvement. there are of course tariffs and quotas but there are also a great many forms of nontariff barriers. commerce secretary ross recently raised the importance of all of these sorts of barriers, an important article in the financial times which i recommend that you read if you're interested in following
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up on the u.s. approach on this question. secretary ross's article, the trump administration, brexit and the election in britain create the opportunity not just to build a u.s./uk free trade area but for the u.s. and britain to take the lead in creating a new type of free trade area one that fulfills the promise of free trade for more open markets, for more and better jobs and more greater prosperity for everyone. there's no one that i can think of better placed to address these questions than our speaker today. director of economic policy and prosperity studies of the institute in london is one of the world's leading trade in competition lawyers. he is the former head of market access at squire sanders, and currently the ceo of comutare. he has worked with companies around the world on market opening and transition issues including the earlier
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privatizations of the uk electricity market, the former soviet union, the transitions in latin america and the wto successions including china and russia. our guest today is both a u.s. and a uk citizen, it's a clear adviser on the u.s. government and a nongovernmental adviser to the international kpeelt network. he has also been a senior trade in the economic advisors to a number of political candidates including democratic governors of florida as well as governor mitt romney's presidential campaigns in 2008 and 2012. please join me in welcoming shanker singham. shanker? [ applause ] >> thank you, very much. ted and thank you to the heritage foundation for having me. it's not the first time that i've spoken here, but it certainly is the most dramatic time that i have spoken here.
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i'll start by saying a few words about the british election and what it does and what it does not mean. because it has been interesting to see how it's been reported and covered in the u.s. i was in the u.s. when theresa may called the election not in the uk. i think what -- i've had conversations with members of parliament and other politicians over in the uk this morning and yesterday and i'm happy to report that this is not a u-turn on brexit as some have suggested but rather an attempt by the prime minister to strengthen her hands in advance of the upcoming negotiations with the eu and assuming as she does that the conservatives will win the election, with a greater majority than the 12 that they currently have, that it will give her a five-year clear
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runway with a substantially increased majority to better negotiate her brexit plan, which unchanged from the plan that was in place before she called the election. will give her a better runway to negotiate that with her partners in the european union and manage the parliamentary process in the uk. there would almost certainly have been a number of votes on the way to the final trade deal with the european union and it's obviously very important, even if those votes are not binding but clear signals are sent to our trading partners in europe that she has the full backing and support of the country. so ted had talked about an independent trade policy for the uk. what i would like to do is talk about what that independent trade policy might look like, how we get from here to there
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and what the role of the u.s. is in that trade policy. so if i can start with the slides. >> yep. >> okay. when you look at a country's independent trade policy, this is true -- this is true of any country, you're looking at what we consider to be a four pillared approach so the first pillar is unilateral, what can you do unilaterally and here what the uk can do unilaterally is to reduce tariffs and quotas where we can in terms of agriculture products for example, that we don't produce and products that are not directly competitive and substitutable with products that we do produce. we can reduce nuance tariffs industrial goods tariffs that are below 3% or 4%. we can do what canada has done
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which is to reduce unilaterally on and intermediate goods tariffs to zero, auto imports tariffs are 4.5%, auto parts tariffs can go down from 4.5% to zero which will make all manufacturers more competitive. we can also have a better regulatory environment at home in the uk. we can have a more procompetitive regulations, australia and new zealand have done a pretty good job of that so essentially what they've done is allowed the competition agencies to have a voice in regulatory promulgations so you consider the effect on the market of regulations in terms not only of cost benefit, cost to business, compliance cost but also cost on market competition. not that you would not regulate where there was a negative effect on market competition, but that you make those costs explicit and if you make those costs explicit you're more likely to get a better
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regulatory environment. these are things we can do on a unilateral basis. all european laws regulations, decisions of the european code of justice, you might say well why are you doing that since you're leaving the european union? there are some 17,000 regulations in europe and they have flowed into the streams and rivers of english law and it's very difficult to sort of unpick them immediately, so in order to preserve continuity and not create a vacuum we have to nationalize over a substantial part of those laws but they will be subject to uk courts and they will be subject to parliament so parliament can change them. this is a great opportunity for a country, very few countries have the chance to spends two years thinking about laws that are coming over from another system and evaluate whether those are damaging to competition and damaging to
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consumer welfare and prioritizing the changes to those laws. this is a very important process for a trading partner because it means that our baseline, our regulatory baseline when we go into a trade negotiation is not a hard baseline. it's not that we want these laws, we're obviously leaving the european union in part of european regulations so this is a baseline that is fairly soft and we're not certainly wedded to it and we don't have large numbers of vested interest groups that are going to prevent reform of those laws, but it's a mechanical and a technical process we have to go through as we extricate ourselves from the european union. then we have the bilateral pillar. what can we do bilaterally? this includes and i'll just go
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on to this slide, bilaterally this includes obviously our agreement with the e.u. that is the fundamental issue before us but part of why i wanted to show you this four pillared trade policy approach is to put the eu agreement in its context in the context of a country's independent trade policy. we're talking about the fifth biggest economy in the world, the second largest of exporter of services, one of the largest sites of foreign investment and one of the largest foreign investors in the world so that country is independent trade policy. the eu component is only one component and only one component of one pillar. but it is a very important component. we will both sides now, both the uk and the european union have said that they want a comprehensive free trade agreement and it is not to be underestimated that getting to that point has required a
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certain amount of work. if you had said immediately after the referendum on the triggering of article 15, would both sides be very clear about the fact that this was going to be a comprehensive free trade agreement, i don't think anyone would have said this. we could have been in a very different situation. britain could have been saying we want to be in the eua, we don't like the rules of the eua. we're not in that position. we're not in that position because theresa may was able to give clarity in both her lancaster house speech and article 50 letter that essentially said that we're not going to be in the customs union. we're not going to be in the eua. and therefore the only relationship that we can actually have with the european union is a comprehensive, deep, and special free trade agreement. and that's what we will have and that's what michael bonay has
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said he will seek and that's what the european council has said that they will seek and the european commission will have a mandate to deliver that as well. word on the european parliament, it's not the negotiator here. they have their views and it's very important that they express their views just as it's important for members of the uk parliament to express their views but they aren't the negotiator. it's much more important to think about what bonea is saying and what the council is saying and the commissioner is saying. it's fairly clear that as we go through this two year process, we'll have a withdraw agreement. after two years we will be out of the european union. the article 50 letter is irrevocable so we will be out of the european union after two years. the question is we will have a comprehensive free trade agreement and that's unlikely giving the timing. it's not unlikely because of the
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mechanics of a free trade agreement. it takes a long time to do free trade agreements. it takes about 28 months in the average and that includes the very long eu negotiations. so it can be done relatively quickly. it's really the political calendar, the elections we have coming up this year to which we have just added one and the timing of the germany election and so forth and the process where the european union has to sort of come to terms with the fact that the uk will no longer be a member and that is the sort of emotional process and that will delay the real negotiations somewhat. so we will have an interim period after we've left the eu and without yet having a
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comprehensive free trade agreement. if i can dispel a couple of myths. there is one mythology that suggests that we have to come out of the eu and then negotiate an agreement with the eu. that's not correct. as a matter of law the uk can negotiate not only with the eu but with everybody else a significant amount of trade negotiations, we can't obviously sign an agreement until we're out of the eu, but so there will be an ongoing process for the next two years of scoping, of negotiations with the eu on the terms of the agreement and, by the way, it is in the interest of the european union to have both of these processes running together because the financial arrangements between the uk and the eu will include of necessity some aspects of the way we come out of the eu and the way we rectify our schedules in the world trade organization and there is -- there's a financial aspect and a compensation aspect to that that the europeans would do well not to take off the table because they would be the
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beneficiaries of that potential compensation. so i think they will -- we will get to a point where we will be somewhat simultaneously, perhaps leading with the withdraw process first but somewhat simultaneously negotiating this trade agreement with the eu. but we will have this interim period and we will need to have interim measures to cover that interim period and i will talk about that in a moment. then we have agreements with other countries and the trump administration has said that the u.s. would like to have a trade agreement with the uk. the uk may be the only country that the u.s. can easily but the trump administration can easily have a trade agreement with. the uk is very committed to the u.s. trade agreement. we're committed to it for a number of reasons. one, as theresa may complained when she was here, the shared bonds of values and cultures and heritage and all the rest of it, but even more importantly than
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that, from a commercial standpoint, the u.s. is obviously our biggest trading partner. we do have a lot of in a free trade context they are in areas like financial services and insurance services in government procurement, obviously defense trade is very close, appreciate that a lot of the defense trade is outside of the conventional areas of a free trade agreement but on the other hand there are areas that bleed over into the trade agreement defense procurement and so on. the approach to siffus reviews, the approach to itol in the defense sector. so there are a lot of those issues that the uk would like to see resolved. we will have to have an agreement with the u.s. any way because coming out of the eu we will need to replace the six mutual recognition agreements and standards between the eu and the u.s. that were agreed in 1997.
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and on that point, there were 11 areas initially that were to be discussed and we were not the reason why that dropped down to six. so we would like to have very expansive mras in standards with the u.s. and standards is a very important area for our relationship with the u.s. because and from an american perspective, from the american interest point of view, one of the biggest challenges with europe has been the way the european approach to standard setting, the european approach to regulation, to product regulation and so forth, it is very important for the united states that the uk is not boxed into a position where we simply have to accept european standard setting, we have it accept european product regulation. that will be our baseline on brexit plus one but that is not our intention. we'll have to manage the
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divergence to the extent there is a divergence with the european union but it's very much in the american interest to ensure that you don't have a situation where the world's fifth biggest economy on the trade policy chessboard for the first time is doing deals with other countries as a propagator of european standards and europe product regulation. the only way that can be avoided is by having a comprehensive u.s. discussion going on at the same time as we have our discussion going on with the european union and there is this sort of triangulation approach of having that conversation going on at the same time between the u.s., the uk and the eu. and our hope is, you know -- we're very focused on economic policies that lift people from poverty and prosperity and expand increase the wealth and increase the size of the market and enhance consumer welfare, our interest is in the whole of the system, the standard setting
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regulatory system globally moves in a more procompetitive and consumer welfare enhancing direction and i think the role of the u.s./uk agreement is critical in that approach. it's going to be very helpful for the uk as it moves away from that soft baseline of regulation that we talked about, it's going to be critical for the uk to be able to say there are reasons why we have to do this. countries often and this is what mexico did in the nafta agreement, countries often will seek to do these kinds of trade agreements in order to, frankly, enable them to do what they could do any way by themselves, to reform, to move in a move procompetitive direction. that mexico, the nafta agreement was a powerful reform document for mexico and that's why the mexicans were so much in favor of it. so i think there is an element of this that is required. we will also have agreements
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with other countries that we have through the eu, so there are 40 or so eu agreements with third countries. there are about seven or eight of those that are very important to the uk. south korea, mexico, canada, et cetera, switzerland and we will seek to do an exchange of notes with those countries where they agree to be bound by the terms of the eu agreement. there will be technical modification of the schedules which is a nontrivial exercise but not an impossible exercise and the issue there is a political issue it's where the other country is willing to be bound by the terms of the agreement that it already has and that will depend on the nature of the trade relationship. so all sort of early soundings of like south korea and canada are quite positive in that regard. so i expect that will happen for those seven or eight trade agreements. then we have the countries, the
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acp countries, the developing countries that europe has preference relationships with either through everything but arms or gsp, generalized system of preferences or other gsp plus or other preference systems. this is a very important point here because many of the agriculture products that the uk does not produce where we can have zero tariffs and no quotas things like oranges and olive oil and tropical fruit and rice and so on, sugar, are products that are produced by developing countries and so our ability to say no tariffs and no quotas, and no tariff escalation, which is what typically europe and to some extent does to those countries is a very powerful indication of a move towards free trade and toward an open setting. but we recognize that many of those countries are beneficiaries of preferences and will be concerned about
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preference erosion and there are some legitimate concerns that they are competing with other countries that are highly distorted and subsidized. but there are also, frankly, we need to move into a different world. it's simply untenable for a developing country as was said to me quite recently, i won't name the country or the product, but essentially to say that, you know, you must maintain your 24% tariff in product x so that we can maintain our preference, which is essentially a transfer of wealth from poor british consumers to large state owned company in a developing country. it's simply an untenable position to take. we have to come up with something else, and i would say to developing countries that if you go to the uk government demanding that it retains tariffs in products that it wants to lower tariffs on, that's not going to be a very well received position.
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but we can recognize that there are distortions in other markets and we can recognize that we are moving, we are asking industries in those countries to move from the settled highly protected guaranteed market share to a different position. a more competitive position which is good for them because they will -- that's the instantive to -- incentive to innovate and to improve and not to remain in sort of california tied and ossified supply chains but that is a change and differed -- one of the important aspects of uk foreign and transdevelopment budget, the budget is connected so even where we have across the board cut in the size of government
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our oda or overseas development budget is protected and we can use reinforcing ways with respect to overall trade policy as opposed to simply being an aide institution. this is something again a lot of what i'm saying here you can sort of have a mirror image conversation with respect to the u.s. and what the u.s. is doing with respect to these same countries. that's why i think this partnership between the u.s. and the uk is more than just a for trade agreement, it is a trade agreement but it's a lot of other things including our joint approach to development policy. we are, in fact, looking in the uk at the millennium challenge corporation as a mechanism for development assistance and development assistance that actually works more effectively so i think there's a lot of synergy there. then there's the third pillar which is the plurilaterally. in all analysis and i'm very happy to recognize from heritage with whom i've worked extensive
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on measuring the anti-competitivity effects of the distortions beyond the border barriers, these are the real barriers in modern international trade. these are the things that make supply chains less efficient. it isn't about tariffs any more it's about regulatory protection, it's about internal distortions and in measuring those internal distortions and giving a sense of what the effect of those distortions are, we have identified that if we can gather a like-minded group of countries to actually work on a reduction of behind the border barriers and distortions in a way that would simply be impossible at a wto level, for example, we are able to deliver significant gains into the global trading system. so if you look at australia and new zealand, singapore, the uk, switzerland, the nafta countries and you assume over a 15 year period a reduction of
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distortions by, let's say, 30%, that ends up being around a 2% injection into gross world product yoo ye product year-on-year for 15 years, which is a transformative change. but it can only be accomplished by the really difficult stuff in international trade going behind the border and dealing with anti-competitive distortions. that's why it's important and, in fact, it is a reiteration, if you will of a proposal that i and others made when we were advisors to the romney campaign in 2008 for prosperity zone of like-minded countries. at the time that would have included the european union and this will be an open accession agreement and hopefully will include the european union at
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some point in the future. but so this is not a new idea. of course the tpp itself is a little bit of this kind of full year -- pluralateral zone idea where countries can come together to do the difficult stuff in international trade and it will be built very much like the tpp was built which initially was new zealand and singapore coming together but they came together because doha was failing. back in 2007. it was failing and they essentially said we need to agree to put something on the table. others will follow and others did follow. that became the p4, the p4 plus 1 and that became a tpp. that's how you build this sort of comprehensive trade policy so it's not always just about where are the biggest markets, can we do deals with the biggest market. there's an element of trade
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strategy that's required especially now that the u.s. has pulled out of tpp it has left them with a vacuum which is not filled by the china agreement. so that's the pluralateral pillar. and then multi-laterally. we are obviously going to be in a wta rectifiation process. it will involve binding of the common external tariff of the european service schedule that the uk part of the european services schedule. it will also involve agreement on tariff rate quotas with europe so our division, our import quotas that we have, that europe has that we need to figure out what is the uk share. aggregate measure of support which is our measure of support -- production subsidies. how much of that do we claim in the wto and our share of export quotas from europe. they're not -- those are the
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three somewhat difficult areas that we need to deal with but they're not impossible. but they are the foundation on which the free trade agreement process is going to be built. so when we talk to the australians and the new zealanders or the u.s., they're going to want to start that discussion with what is our tlo position and if we are able to say that as long as we come to a reasonable agreement on what our share of the european quota actually is, we can deliver greater liberalization in the context of free trade agreement. we can even lower the -- that tariff overtime in a free trade agreement context, that's going to help this overall process and it's an intimate part of the free trade agreement so you can't have a discussion about a uk/u.s. free trade agreement or a prosperity zone or an australia free trade agreement without getting into the tlq discussion because that's the first discussion that these countries will want to have over
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the next two years as we come out of the wto. the other pieces of the multilateral agenda are what does it mean to have the world's second biggest exporter of services with an independent seat at the table in the trade and services agreement in the wto for example, a company that requires 80% of his company is services. and that requires services liberalization. it is mission critical for the uk. it's not an optional extra as it is for many other countries. what does it mean for the built-in services agenda to have the uk catalyzing plurilateral agreements with countries. it is woefully inadequate after 20 years. 22 years since the gaps. we have the annex on basic telecoms and the -- we have a very thin group of services commitments from countries including the most developed countries, the european services schedule is full of exemptions doesn't even include some of the
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other countries. so there's a lot of liberalization that is possible in services and the wto is lagged -- lagged behind in this. the 1997 reference paper and the 1997 basic telecoms agreement was supposed to be followed by a series of other service sectors. which would be liberalized. 20 years on, none of that has happened. so there is a real need -- not only a desire but also an expectation by wto members that a country like the uk with an independent trade policy would be a trade leader. why would it not be? so there's an assumption in geneva that the uk will start to play this role, an expectation that it will start to play this role. i think sometimes when the world looks at the uk they see one thing and when the uk looks at itself it sees something else. but i think that's the process
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of sort of development and growing into the reality that we are not in the uk, one of 28 european member states. we are the fifth biggest economy in the world, second biggest exporter of services, major site and director of foreign investment and we need to start playing that role in the global economy. if i can just -- so those are essentially -- that's the four pillar trade policy approach. that looks like a very ambitious approach. it is our contention that is only through building those four pillars at the same time that we're going to have a good result out of brexit and that actually the only thing that is a problem for us or could be an issue for us is a lack of ambition, trying to simply replicate what we have as opposed to actually building an independent trade policy that suits the nature and the structure of our economy. that's the big prize and we
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think that is a significant prize, not only for the uk economy but for the world economy as i've described. how do we get from here to there? we can't be in the customs union so therefore we need to have interim measures on the way out of the union to minimize the trade disruptions. that is things like a zero for zero tariff deal with the european union. it's things like customs clearance mechanisms, standards and approach on standards and so on, mutual recognition of standards. those also will underpin the end state fta. coming out of the single market, the european economic area, obviously financial services is a huge issue there for us. we will have to look for ways and they are typically mutual recognition type ways of dealing with coming out of the eua. we have a proposal that my colleague victoria houston whose here and i and the law firm cms put together on a jewel regulatory coordination
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mechanism which is essentially home state prudential, home state acceptance, recognition of your home state regulator as long as you're not doing -- as long as you're doings necessarily reasonable necessary for prudential regulation and you're not doing things that are anti-competitive. how that is handled in terms of dispute settlement depends on the hardness or the robustness of the economic measure that you have, so something like what is reasonably necessary for prudential, that's a somewhat subjective judgment and lends itself to consultation. things that relate to damage to the market, consumer welfare harm that can be demonstrated, lends itself to a harder dispute settlement mechanism. but the notion that we can't do financial services agreements in trade because of the prudential carve out is nonsense.
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there is an equivalent prudential carve out in everything we do in trade. in the wto itself there is a defense for human morals, for human health and animal health. there are these defenses in every wto agreement and we figured out a way in all of those agreements to approach some sort of necessity test so that we don't hide protectionist regulation under the banner of prudential regulation when it isn't actually prudential it is actually protectionist. so we have to explore this. this is the journey we were supposed to have started in 1997, 20 years later, better late than never, but this is our opportunity to actually put that in place in the context of the eu/uk agreement but also in the context of the u.s./uk agreement. financial services has been a very difficult issue in the u.s./uk, u.s./european relationship. this sort of mechanism and
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approach is a way of recognizing the importance obviously of safety and soundness concerns but also recognizing that that's not a purpose of the financial services sector. the purpose of the financial services sector service is to act as an intermediary so it can economic growth and economic activity can actually result. yes, it should be safe and sound. but if that's the goal, if safety and soundness is the goal then we simply would regulate them into the ground so they can't do anything. that's obviously not the goal, so therefore we must come up with a mechanism in financial services regulation that is simultaneously acknowledging legitimate prudential concerns but also moving the regulatory system in a more procompetitive consumer welfare enhancing direction and we think this proposal is one of the first that actually does that. the final pillar or rule, these are rules of how you get to your independent trade policy is all domestic settings and this is the critical issue we're
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fighting over now. we've already agreed in the article 50 letter that we won't be in the customs union or we won't be in the single market. so in terms of our domestic settings, in order to have a viable trade policy going forward we must have open domestic settings in agriculture and even in things like immigration and industrial strategy. these will be very difficult issues for the uk, but they are vital and there's one point here that's very important which is most countries in trade negotiations are constrained by their domestic settings. the u.s. is constrained by its agricultural domestic settings, europe is constrained by its agriculture domestic settings in this case you may have the only case ever and it will never happen again unless somebody else leaves the european union that the domestic settings themselves are going to be constrained by the need to have
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a successful result. if we don't have a successful result which means if we aren't able to build that four pillar trade policy approach, we're not going to have a successful result. and that is going to be a very, going to be a very, very powerful force in the lifetime of the next government in the uk. and that will constrain our domestic settings and that will ensure a more open system on agriculture. but at the same time, we will need to have agreements, free trade agreements with other partners. and many of the partners who are like-minded countries with whom they will get services liberal zation more easily are kporlters. and they will demand and the u.s. will demand for agricultural openness from the uk. and in certain areas we think we can deliver. we can deliver in tariffs and kwarters on products and tear if i occasion of quotas for
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products we do produce. we think we can deliver by moving our direct payment system more into what's known as the green box by moving away from land-based subsidies which benefit, you know, english heritage and the protection of birds april not actually farmers. and we can improve our regulatory environment. for example, there is a precautionary principle, we have no objections to the precautionary principle. we have a concern about the way the european union applies and interp prets the precautionary principle. those were to different issues. and there's water between what we think the precautionary principle should be about and the way it's being interpreted in the europe. our baseline for that, and our baseline for everything must be compliance with wto agreements and compliance with the spf. if we simply do that, if that's all the uk does in the
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conassessment of the u.s./uk relationship we will have gone further and the u.s. will do better than it currently does with the european union. but we want to do better than that. we want to have sound science-based regulation of foreign products and introduce more of an innovation principle than necessarily to go alongside with precautionary principle. very similar to the conversation we just had about financial services. so those are the three sort of key rules. if you can get those right, then you can get your four-pillared trade policy approach. if you can get your four-pillared trade policy approach you can have a very successful result. the u.s. part of the agreement with the uk, of that four-pillared approach, i see as a very pivotal part because it will mean that we are negotiateding simultaneously with the u.s. and with the european union which will fundamentally change, and i
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believe make more successful, our agreement with the european union. but it will also ensure that whatever is agreed between the uk and the eu, in the areas of management diversion, which there will be over time, we will diverge, sometimes because we will be moving in a more competitive direction and sometimes because they will be moving if in a less pro competitive direction of which we'll have no control. so we must manage that divergence, but do it in such a way that we're able to deliver for uk industry and for global industry ultimately pro competitive regulation in the areas of standards and product regulation and these behind the border barriers. because when you regulate in ways that are anticompetitive, you are imposing costs on your own economy, you're destroying wealth out of your own economy, and the bigger opportunity here for us is to stop doing that and
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to start actually generating and creating wealth both in the uk and the global economy. thank you. >> thank you, very much. i'm going to take the usual moderator's privilege and ask the first question which may actually be a two-part question. afterwards, if the audience would like to ask a question or two we have a couple minutes left. there will be a microphone going around, if you could wait for the microphone. if could you state your name, if you have an affiliation, please state that as well. if you don't, that's just fine. and, as always, as i say at heritage please state your question in the form of a chemical weapon. but i'm going to take the privilege of sqasking the first question. and these are basic but i want to step back a little bit from the trees to the forest. when i do radio interviews or tv or things like that in the states about brexit, what i frequently hear is the assumption frequently from
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british speakers but also from american speakers that no one is going to want to negotiate with the uk because it's really not important enough. you know, it's really not that significant an economy. and i hear this so often, obviously you've expressed some of the fallacies thind were but i wonder if you'd care to rewut that a little bit more sort of clearly for the folks who think that the uk outside of the eu will be a country of no particular account in the world's economic and financial circumstanceles. and then second, you raised several times a point which i think is so fundamentally important for brexit, and i'd like to you expand on it a little bit if you could, which is the opportunity that brexit gives to britain to do something that countries rarely get to do unless they lose really big wars, which which is to look at their entire internal governmental regulatory interest group, yeah, at legislative apparatus. you're certainly familiar with
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the work of an american economist olson and his great 1982 book on the rise and decline the nations where he argues that the silting up of the regulatory system inside democracies or indeed nondragss that have the good luck to win their wars like britain, tends over time to create lower growth and that, of course, whr one wants to win's one's wars but there's also an advantage to be gained as germany found from 1985 from losing one once in a while. this is a unique opportunity, that you have a very large economy that gets to reexamine its entire domestic system without the price of losing a war. i can never think of an occasion where that has happened before in world history. that's a remarkable opportunity and i wonder if you could expand on that and on the question of britain's significance. >> thanks very much spot britain's significance. when you're looking at a country you're look at your trade
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policy, this is a third country not the uk, and you're looking at the various countries in the world and who you might want to negotiate with, i think you tend to look at what are the big markets in the world. and you also look at what is the degree of difficulty of actually getting a deal with them. we'd all love to have a free-trade agreement with china but the degree of difficulty of getting a deal with china is extremely high and if you're really going to get it to mean anything, which is you've got to deal with its internal practices and state enterprises and distortions inside the border. so if you look at britain through that lens, what do you see? if britain had been tropd into the atlantic ocean completely without this european history, then you see -- you look at the world you see four very big economies. you see the u.s., you see europe, you see china and japan. the fifth biggest is the uk. and if you look at the uk
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through that lens lens, it certainly qualifies as a very big economy with whom you would want to do a trade deal, in fact. for many countries, the doing the trade deal with the uk would be the largest economy they're actually doing a trade deal with. so that's sort of checks the box on that front. but more importantly, it is a dhaunt is very open, that doesn't have a lot of defensive baggage. and therefore it is much easier to do -- to conclude a trade agreement. the more open the country, the less defensive bag able. the more political will in support of doing a trade deals, the easier it is for other countries to conclude them. and that is absolutely the case for the uk. you know, we have four -- at least four cabinet secretaries who -- secretaries of state who will stop every conversation about trade with an argument for the moral case for free trade
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and free markets. i would suggest to you that's quite unusual around the world. and it won't be the case forever, notwithstanding this election coming up which i don't think will fundamentally change that. there will be other elections, there will be other governments in the uk in the future. this issa moment, you know, for the world. it is very much an inflection point and we should take advantage of it, the global system should take advantage of it. it's almost like a new player is being crafted in this two-year period on the trade policy stage. how -- what that player is, ha moves it can make will depend very much on the next two years. i mean, if we simply seek to replicate our current relationships, if we seek to replicate the common agricultural policy in british form, then we will be creating a pawn on the trade policy chessboard. but we have the option here of creating a much more powerful piece, and that will be very important. in terms of this opportunity
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that the uk has, the sort of once in a -- well it's more than once in a generation, once in a few hundred years probably opportunity that the uk has to sort of really look at itself and determine what it wants to be and it's related to this last question, this is a debate that we're going to have now, rhetorically it is obvious where the uk wants to be. you just have to read the speeches of may and phosand david davis and all the cabinet members who talk insuccessently about global britain and open britain and free trading nation and center of free trade, et cetera. so rhetorically we're there. we don't have to be concerned about that. now, the question is what is behind the rhetoric. when the battle really starts about specific regulations, specific laws. how do we deal with that? and that's why, again, the two elements of that trade policy that i think are incredibly important to this, one is the
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plural legalityual prosperities own idea, because we need to be with a community of nations who believe, frankly, in open trade and competition on the merits as organizing principle and organizing condition and that's not true of most of the world's countries and most of the world's population lives in countries where that is not -- those are not the organizing principles. to their great cost. so i think that is part of what we have to do. the u.s. agreement is the other important part of this, because i think ensuring -- and this is a two-way street. this is also ensuring that the u.s. remains a country that is open and governed by competition on the merits as an organizing principle and property rights protection and so forth. that's very important for the world that the u.s. remains in that -- in that position and obviously that has been called into question recently. and there's a role for the uk there, not only in helping
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through the u.s. negotiation, helping to us remain more open, but us, you know, we need to be forceful in our discussions on financial services, on insurance, on, yes, government procurement, and on, you know, defense trade and other areas where we think the u.s. is in danger of closing at great cost to the global economy. on this regulatory review process, which is, i agree, a tremendous opportunity, australia did a regulatory review in terms of the impact of elimination of distortive regulation in australia where are anticompetitive regulation, and i think concluded that a reduction of distortive regulation led to a benefit to the australian imeconomy of about 2.5% gdp, it was a significant benefit that the australians got. so i think we have an opportunity here to look at
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european regulation as it is ported over and national liesed as part of uk law to determine what is the effect and therefore to prioritize what we actually want to change. >> all right. let's let the audience have a crack here. the gentleman here got his hand up first so and then we'll move to the lady right in the front. >> i'm hunter ham rick a a finance analyst with national journal. >> i kind of wanted to know what role do you think that the potential scottish referendum will play in this considering that during the bechl it vote every scottish district voted to remain in the european union and i notice that one of the pillars of brexit is agriculture, and scotland does hold a significant portion of the agricultural economy in the uk. >> first of all, in terms of agriculture specifically, you know, this is one interesting point that we have in our
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actual, the uk's production subsidies, our aggregate measure support, we actually have only 38 million pounds worth of production subsidies and there are two programs in scotland, lamb and beef. but to compare that, if you compare that with europe, france alone has and only in one program vor country support has a billion you're rose of subsa dies. so portugal, spain, 500 million, this is the order of magnitude. we basically are de minimis in that area. so notwithstanding the fact scotland has a significant agricultural offering with respect to the rest of its economy, in terms of distortion and subsidies it's not actually a huge amount. i think in terms of the scottish potential for scottish referendum, i think if i were -- if i were scottish and i were looking at this, i would say well, where am i trading relationships? in is a very different vote, if
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it happens. this would be a very different vote than a vote that than you'd have while the uk was in the european union, which of course is the reality in the last vote, the last referendum. you are now looking at an extreme amount of uncertainty if you leave the uk. because you're leaving your biggest trading partner, which itself is leaving the european union and will have different rules. you're leaving the ability to ride on the back of the uk agreements with other countries, that entire international independent trade policy you'd be leaving that. and then you'd have to ask yourselves have could rereplicate something like that ourselves, scotland by ourselves and i would suggest that's quite unlikely. and then you'd have to ask yourself what is the european response to us leaving the uk? and i doubt that anyone serious suggests that europe is going to welcome or is frankly in an economic position to welcome scotland with open arms.
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they alled have to deal with greece and other countries that do not satisfy the economic criteria. and scotland, without the uk, largely because you're oil revenues are down from 3 billion to 60 million, is not going to satisfy those criteria. the economy is not in good shape, it's masked by its relationship with the uk. so you put all that together, and i think scottish voters would -- are likely not to vote for independence. and i think that's largely known, actually, by the scottish first minister and i think one of the things that may has done by calling this election is really sort of call their bluff in a way and say, look, if you really want to have this vote, go ahead and have this vote. because we do want to align. i think one of the things she wants to do is align everyone around a plan. what i've laid out is a lot of work. it is a very, very big
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challenge. though you've seen mobilization in the uk government that you shnt haven't seen since the second world war. and to deliver that we have to be aligned. and i think scotland will align. >> there is maybe another point by scotland had which is sort of in the longer run is worth making that the snp achieves its first political break through in westminster on the back of north sea oil and their big claim when they win their first seats is scottish oil. and i mean that sort of touches the longer run point that one of the most attractive things for scotland about the united kingdom was always the adherence to a larger and more prosperous economic union than scotland was. and in some ways you can see the rise of support for scottish independence as a remembering zi -- recognition that scotland appeared to be economic sustainable and viable on its
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own terms thanks to north sea oil. >> i have no doubt that scotland pursued sensible economic policies it could be very sifls and prosperous as an independent nation. the problem is the snp is the party in all the united kingdom least well placed to pursue such policies. so that is, i think, sort of the fundamental difficulties. so i tend to concur with shanker's argument. i don't want to be economic determinist, but the long run of reasons why scotland adhered to the union i think will operate in the future more than they have operated from 1979 to 2009, if i could put it that way. the lady in the front had a question. >> hello, barbara bowie wittman. you made a couple points that i thought very interest. one was about nafta being an trumt for reform in mexico. and the other was the comparative openness of the uk
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and the u.s. right now. because we have within the u.s. shall we just mildly say leaning voice who's think nafta's the worst thing we ever did and who else think that we ought to be doing a free-trade agreement with britain and many of my british things thought we should do that forever. we've been talking about it for at least ten years. but given those two concepts and the uncertainty of the support for openness in this country, which is a little bit ironic because i would sue 1776 of a diversion over openness also, but what do you think our real prospects are and what about alignments with mexico in the consideration of what in the world might happen to nafta as this administration examines policies, shall we say?
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>> well, you referred -- ted referred to ft op ed and i would agree it repays very close reading. because i think what's happening in the u.s. right now is there sbhaz very high-level statements made about economics, china is bad, we must do something about china. mexico is bad, we must get out of nafta. now, those high-level statements can be delivered by two different kinds of policies. they can be delivered by the u.s. withdrawing from nafta, which would be a very bad economic result, or they can be delivered, for example, in china with a 60% tariff on all china goods which would be a very bad economic result. but they could also be delivered by the nafta renegotiation process looking for deeply at behind the border barriers and being an evolution of the nafta that led to the spp, the
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strategic prosperity partnership, and then so the next level of this which is to look at behind the border barriers and distortions in mexico where there are many. and if i were the mexican government, i'd be wanting to highlight in this renegotiation process the many distortions in the u.s. market and the canadian market and the canadians should be doing the same thing. and that is the way that the nafta renegotiation process would become ultimately a pro free trade free market kind of project. because what we're essentially saying is that free trade does not stop or the advocacy of free trade did not stop at the country's border. we want tacoma brace free trade and free markets but we want you to do as approximately because if you don't and distorlt then we don't do anything about it we're merely importing your distortion into your market. so if that's the aprech and i think reading the ross oped are
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there's an opening for that to be the approach. and finance that's the approach with china, as rob lighthizer said in his senate confirmation hearing, the wto does not deal well with china's industrial policy, which is an absolute fair statement of fact. we do need to deal well with that. and adam smith talked about monopoly being the sole ma can nix, the competition and trade -- in fact, trade is just a subspees he sees of competition. competition is the main issue here, and if we can move our own discussions as tariffs have come down, these internal barriers become more important and have a bigger effect. we have to deal with those and we have to deal with them in ways that aren't the sledge hammer of ant type dumping legislation. we have to move from price to cost-based mechanisms. if you are artificially reducing
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the cost of your companies through some distortion, through some government regulation or activity, we need to figure out ways of disciplining that. but in ways that incentivize a reduction of distortions, not an increase of distortions around the world. so i think if that's the result of this whole process in the trump administration, and that then becomes projected forward, that is very much what we would want to be discussing in the pr prosperity with our own trade agreements because we want to come up with ways of recognizing the distortions in the world. and in is the only way we're going to be able to integrate less developed countries into the system. because if they have to compete with china distortions rewe don't want a repeat of what happened when the multifiber agreement was removed -- or ended. when, you know, china ooh
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textile companies who were given free water, free energy, free land, free money, highly supported, highly subsidized, highly distorted were able to essentially just wipe out central american, mexican textile firms. now, if you're efficient and you wipe out central american and mexican textile firms that's fine, that's competition. but not if it's with a bit of government, you know, steroids in the tank. so, again, if that's the approach, it will help us integrate developing countries into the global trading system and it will enable us to do frankly what we need to do, which is to maximize the efficiency of global supply chains. >> i'm not sure if shanker would agree with this, he might, that one of the things that, in my view at least, has done the most damage the cause of free trade
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at least in the united states, i think much less so in the uk where the idea of free trade still is sort of a pleasing novelty to a nation that invented it but hasn't actually done a lot of it for the last 40 or so years, one of the things that's damage today most in the united states is this perception not entirely without basis that it's been at least in some cases i'm thinking of carolina more unilateral free trade than bilateral free trade. and if the approach that we're setting out here for the u.s. and the uk offers at least for some countries a way of addressing that political and economic concern, that can only be a good thing, at least in my view. i think someone else has a question. the gentleman right here and then we can take -- why don't we take both of these questions at once and then we can wrap up after that. >> thank you. george strag niche with transnational strategy group. my question was about the development, and you just addressed this issue, the developing country's acp african
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caribbean pacific, and my question is about the the concession nary tariff regime in return for environmental labor, safety standards and so on. this has been really advantageous for some countries, i'm think of pakistan where when it joined -- got gsp plus, a scheme of preferences as they call it in europe, privileges in 1974, it's textile exports immediately jumped up by 20%. most of that is predictable to the uk, so of course in pakistan they're wondering what's going to happen to gsp plus privileges and benefits when the uk leaves because that really is their market. >> and let's take this gentleman's question at the same time as well. >> you can answer both of them. >> thanks i'm john clayton. i have a very quick question.
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a lt of negotiation has to happen in the next two years, how does the uk avoid being the weak partner given we're on a very short time scale and nobody else has the same time pressure? >> so on gsp plus and more broadly the other gsp programs, you know, on brexit plus one first of all we go through our wto recollect if i occasion process. the common tariff will be the binding that we agree. so for example in textiles and all of those things, we will basically have the european common external tariff as a bound rate. now, what we can do is an applied rate underneath that is obviously up to us. but the binding will be that rate. so what we can do, and there will be for some countries, for the eba type countries, the least developed countries we can simply port over the eba program. as you said, a lot of them, the
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bulk of their trade into europe or at least a significant percent ang of their trade into europe comes into the uk. so we can do that for those countries. but at the same time, we have to be moving towards reduction of tariffs and quota as in those products where we don't produce. now, we have to have a conversation with those countries about how their systems work, and you raised a very interesting example of pakistan and textiles. obviously one of the biggest competitors to pakistan is india. and the indian textile and cotton, the sort of whole supply chain, the cotton garment textile -- the cotton garment textile supply kman is massively distorted in india. they've had a cotton export ban which artificially, you know, essentially favors their textile producers who are able then to have lower prices on global
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markets. pakistan by contrast has been much more open, fewer distortions in its cotton textile garment supply chain. so we have to recognize somehow that reality. so we can't simply have a situation where we have a low or zero tariff to those products coming into the uk where pakistan is undistorted relatively and india is highly distorted, relatively. so we'll have to figure out ways of ensuring that -- and it could be a safeguard measure where you say yes, we are open. but if you can prove, if the pakistan textile industry can prove, which are will not be difficult because it is a matter of public record on chb which we've written, that ooh you're competing with a competitors that's distorted and takes you back to the original gsp
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position, but gsp in the way that we have seen it so far, you know, it's there because the other countries, the developed countries are highly protectionists in those sectors. 'exists because of the protectionism of those countries. so if we are, in fact, going to advance this discussion, we have to move. and this is a great opportunity for a developed country to move in a less protectionist way and actually be more open to trade. and that will actually enable countries like pakistan to actually see the advantage of being more efficient. right now they don't see any advantage. i mean they've done it and credit to them back up there's no advantage to the pakistan textile industry of being more efficient because they're not rewardsed for it. they again e benefit from the gsp which, as you say, can be withdrawn if there are labor issues or other issue that frankly has nothing to do with
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that particular industry. the other major problem of the preference mechanism is it kals fiez the supply chain because if i'm a cocoa producer for example and i'm seeking to go up the value change and produce chocolate, i can't do that. the chocolate tariff coming into europe is 40%. the gsp plus rate is 4%. so that's fine, but if something happens, my president does something that the europeans don't like, maybe garna does really well as a country and graduates out of the gsp program, all of these things i have no control over and i'm going to be penalized. so as a business case i can't suddenly stop change mieg supply chains if this can happen in the future. so it's a perverse incentive to retain the kind of supply chain that you currently have. so for all those reasons, i think we have to move into a different reality, but i fully
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take your point. but that just simply means we have to recognize some mechanism to recognize distortions where you've got a producer that is actually doing the right thing and they're competing with another perhaps similarly placed country that's not doing the right thing, that we have a mechanism for differentiating the two. in terms of how long this will take, and where the sort of pressure points are, if you're talking with respect to the uk eu negotiation, then i think first of all many of the things we've talked about, there's a tendency i think in the sort of public press and the sort of generalized media to think of this as sort of a boxing max between the uk and eu and we're in the early rounds of sparring, but that's not what's happening here.
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what's happening here is we are together, the uk and the eu trying to figure out ways of making sure that the gains from trade and the disruptions, particularly the descriptions to trade are minimized because our supply chains are so integrated that we can't actually punish each other without actually inflicting worse damage on ourselves. and this is something that the european commission will come to over time, as their european corporate rates will say to them that they need to have zero for zero tariff deal, they need to have recognition of standards. so i think actually the timing works on both sides, on the uk and the earthquake u uk and the. i'm always accused of being economic i'm far too rational and far too economic based and not emotional enough and i don't understand the european mindset.
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but even if you're driving objective is the political single market, is the political aspects of the single market is the integrity of the european project, if that's the only thing that you're concerned about, britain leaving the eu is not the biggest threat to that. the biggest threat to that is the u.n. rice crisis, crisis in one of these other countries. the best hedge against that is to have a good agreement with your biggest trading partner or one of your biggest trading partners, and that will also perk collate through the thinking here. with respect to other countries and the time, yes, these other countries also know that we're under pressure to agree to this deal. i think the way that plays itself out is they will say to us, it's actually the other way around. we will want them to come to the table more quickly and they will say to us, well we will want to
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wait until we know what your relationship with europe is going to be. and, you know, we hear this a lot. and actually, that -- prior to the lancaster house speech that theresa may made or prior to let's say the end of last year, that would have been a very legitimate thing to say because would you say, well, we don't really know. i mean, if you're going to be in the customs unit why are we having this discussion? if you're going to be the eua then we're not going to negotiate services with you and that's the only thing you want to negotiate so why are we having this discussion? all of that is off the table now because actually countries do know exactly what the uk is going to be. they know exactly -- and, in fact, they know better what the uk is going to be than they know in any other country. because they know that in two years's time britain will not be in the eu but will abe third country negotiating with the european union for a comprehensive trade agreement put don't know that about a lot of other trading partners you
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could be speaking to at any given time, they could be doing all kinds of things. so you have a deeper level of clarity of what the uk will be like and you have to as a third country you have to say well, this it is valuable enough to expend to capital and some time in negotiating with such a country? the u.s. negotiates with many countries that are negotiating with the eu and other countries at the same time, like japan for example. if it is worth doing, if it is worth taking that -- making that effort for the very limited amount of risk because what will happen here will either are a free-trade agreement with europe or we won't. that's basically what it will be. and finance that's the base case, it's worth investigating the time in trying to get a good deal. and the u.s. and many countries regularly and we don't have to
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say this now in the context. tpp, spend a lot of time negotiating agreements that ultimately don't come to anything. we were involved in the free trade of the americas which would have been a wonderful agreement if it had ever seen the light of day. so this happens all the time and they just have to make decisions. it sort of depends on what your economic gains are, really. >> all right. well, or on that moderately optimistic and enthusiastic note i think it's a good time to close. thanks very much to the audience both here, online and c-span and of course special thanks to our guest today shanker singham. [ applause ]
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[ indistinct conversations ] thnchts coming monday morning washington journal will be life from the office of axios. we'll discuss the mission and funding of it as well as the financial and editorial challenges that a start-up news organization faces. washington journal is live from articling ton, virginia beginning at 8:00 eastern on
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c-span. and a three-judge panel at the ninth circuit court of appeals in seattle will hear oral argument on president trump's revised travel ban order in state of hawaii v. trump. hawaii was the first state to sue the president over issuing visas to six muslim majority countries. the ninth circuit court of appeals granlted c-span's request to air the argument live and we'll have it four on c-span monday starting at 12:30 p.m. eastern. the u.s. and china an have reached a ten-point trade deal that opens the chinese markets to credit rating agencies and credit card companies. under the deal china will lift its ban on u.s. beef imports and accept u.s. shipments of liquefied natural gas. chinese cooked chicken will be allowed into u.s. markets and chinese banks can also enter the u.s. market. bill, you ross said the deal should reduce china's trade surplus with the u.s. by the end
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of 2017. senate armeder is vitses committee recently heard from a panel of defense and foreign policy experts and former government officials about u.s. policy and strategy in the asia-pacific region. this airing is about

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