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tv   Global Impact of Brexit  CSPAN  December 29, 2017 9:35am-11:31am EST

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favor of brexit felt like a tectonic shift. it was a major change with sequences that were far reaching and unclear. brexit changes everything, but how? businesses, institutions and policiesmakers have been looking at this ever since. rand's study we are going to talk about today looks at possible outcomes and what they mean for economic policy and our cooperation. i'm delighted to see many friends of the wilson center today, introducing an expert panel, the idea is we will hear from charlie, the result of the study, turn this over to michelle for some comment and fran and howard to weigh in. and vice president at rand.
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including postings in europe, and from 2007 to 2008. at the rand corporation, robin quinville is a distinguished fellow at the council and the senior advisor, and served as vice president for european union and special edition at the council. howard -- howard shatz is the director of rand, initiated research, and the party rand graduate school specialized in economics and national security. and so many varied studies i'm hard-pressed to find something he had.
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michelle egan is our non-rand expert, one of our own at the wilson center, fellow in global europe program, professor at american university school of international service and coordinates european and russian studies program. with that, you are waiting, i will turn it over to charlie. >> thank you very much. robin didn't introduce herself but i will mention she is just back from top political jobs at the us embassy in london and in berlin, and knows quite a bit about this herself and hope she will intervene in the discussion period. i would like to the wilson center for hosting us today, and look forward to our discussion afterwards. the rand corporation's mission is to help improve policy decisionmaking through research and analysis. we are a nonprofit nonpartisan research organization and as
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such we take no position on brexit itself was the british voters decided to undertake this journey but through this study we seek to provide independent, impartial, evidence-based insights on what will be one of the biggest moments for the uk in europe after the end of world war ii. our goal is to understand the economic consequences of brexit. to undertake a study we assembled the congress researchers from rand us and rand's affiliate in europe, and as already introduced with me today, fran burwell who took a lead in the political analysis of the study and howard is our resident expert on foreign direct investment. funding for this report was provided by donors and independent research and development provisions of contracts with the department of defense funded research centers. in addition a grant from the iconic foundation supported
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work on game theory in relationship to brexit as well as outreach and dissemination activities we are undertaking. what we produced is a new piece of analysis but look at the economic impacts of brexit under different scenarios for the uk, the eu and the us. it not only provides a thorough economic analysis that uses the game theory insights to explain the strategy they are choosing. through economic impact scenarios and game period analysis our study, the significance of the decision reached by the eu last week to move to phase 2 in negotiations with the uk. the discussion of the union's future economic relationship with the uk. let me begin by discussing these scenarios. our base case could be considered the no deal case, the uk leaves the eu in 2019 with reaching any agreement for preferential trade with remembering the uk, we call this wto rules because in such
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a circumstance britain will trade with the eu, the us and every other country, only wto band -- goods and markets for its consistent services. we then compared the following four scenarios, the successful negotiation of the uk eu trade agreement which the uk was seeking. second, creation of a us, uk free-trade agreement which the uk has begun to discuss with us trade authority but cannot begin negotiations until it withdraws from the eu and common commercial policy and the uk, eu, us, fda, free-trade agreement, and the transatlantic investment partnership, and the negotiation between 2013-2016 but now frozen in light of political development on both
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sides of the atlantic and finally an extended transition period in which the eu and uk trade arrangement do not change materially, but progressively come into affect. with the sake of completeness, the impact of three soft brexit scenarios unlike the hard brexit scenarios, the uk will maintain access to the eu single market in some way and apply common external tariff towards the rest of the world, three such soft brexit scenarios are one, the norwegian model which would involve the uk becoming a member of the european economic area, 2, the swiss model which would have british trade with eu based on sectorial arrangements giving the uk wide market access to apply eu standards and regulations and finally, eu uk customs union
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like the eu has with turkey. for each of the post brexit trade scenarios we use gravity economic modeling to measure the percentage of monetary changes in gdp growth, gdp per capita, trade and foreign investment for the uk, the eu and the us, we analyze the effect of changes on three kinds, changes in tariffs, in nontariff barriers, customs measures and standards with the force of another agreement, with nontariff barriers over time, progressive divergence in regulations. what did we find from this economic analysis. economically worse off inside the eu under most plausible scenarios, and how much will it
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be? the option of leaving with no deal, applying wto rules would lead to the greatest economic losss, the worst deal for the british economy post brexit. and it would reduce the uk's future gdp by 5% after ten years which is a loss of $140 billion in lost growth, this is approximately 45% of the expected economic growth over the decade. under no deal the eu lose economically but nowhere near the same proportion as the uk. and it would be 0.7% of overall gdp which is a loss of $97 billion so that uk would lose more proportionally and absolutely than the eu under
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the no deal scenario. uk would face tariffs at wto levels on goods exports to the eu and in turn apply to eu exports to britain. the tariff levels themselves are not so high, we determined the uk would inspect in value all cross-border trade as would eu country that assessed the uk would move from eu standards over time resulting in significantly increased nontariff barriers on goods but these scenario would be worse for services. a mainstay of the british economy, as uk service exporters would have only access to eu 27 markets on the basis of the limited market access provided the wto and not a single market enhanced friction free access. no deal scenarios by far the
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worst outcome of the uk would be worse off in all the trade scenarios we considered compared with current status. of free-trade agreement, the trade agreement the uk is seeking would be modestly better. 3 percentage points of growth after ten years compared to the wto baseline. this difference is because the fta would prevent increase in tariffs, and such an fta would involve a host of nontariff barriers to trade, customs checks to verify rules of origin and standards would have to be made. what a free-trade agreement with us which would only be possible once britain left the eu be able to substitute for the preferential access to the eu, our analysis is it would not.
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us/uk fta would be 2.4 percentage points with no deal baseline. significantly worse for the uk and equivalent fta might be with the eu. largely because existing levels of goods and services traded between the us and the uk while significant are substantially less than between the uk and european neighbors. for the us moreover the value of an fta with the uk alone is negligible. it would provide 0.2%, percentage points of gain for much larger us economy. the only truly beneficial trade scenario that we found would be a trilateral uk eu agreement. we found for the uk the t tip scenario is 7 percentage points of gdp better than the wt no
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baseline better than continued eu membership alone, since through it the uk would get preferential access to the us and eu marketplaces. one reason for this outcome being so good is in addition the eu and the us themselves benefit economic and the pool effective enhanced growth from these two larger economies would help the uk. however, we fully recognized the arrangement is seen as very unlikely to occur in political environments on both sides. we assessed other scenarios including transitional arrangements, norway, swiss and turkish. transitional arrangements would be good as long as the nation remained in single markets but economic uncertainty would hurt investors. the norway, swiss and turkish models, with lower trade barriers good for economic growth, with a significant loss
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of uk sovereignty over regulations and standards and budgetary contributions from the uk to the eu. on those grounds these options don't seem politically viable in the uk. accompanying our economic analysis in this study is a new online calculator which is now live on our website. the calculator allows policymakers and economists to alter the decisions for the economic impact on the uk the eu and the us after brexit and allows users to create other scenarios for examination as the brexit negotiations develop and trade talks begin. chapter 4 of our study is based on an application mentioned at the outset of the social science of games.. our aim in using this methodology was to create a better understanding of how a wide variety of structural
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factors influence contours in outcomes of the brexit negotiations but game theory describe the eu first, and the discussions in the future relationships. why the decision to move to phase 2 talks of the future relationship is so important, by using its leverage to commit britain to painful terms of financial settlement before entering trade negotiations, the eu sought to discourage other would be leaders, which we assess is the eu's top priority. the eu's approach could be seen as a 0-sum strategy in which it wins when it can show the uk loses. for the uk, game theory suggests it is an attempt to pick apart european union since all member states have more at stake from the core, the uk can offer to match and the effort
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would be likely to backfire. it is a sensible strategy for the uk to seek to broaden negotiation beyond phase i issues, arrange positive trade-offs. this explains why prime minister may made a commitment in florence a couple months ago to pay its obligations as a member rather than put them on the good negotiating table. finally in the game theory chapter we assess us interests in the brexit process. it is not at stake. and the trilateral outcome, the distant prospect, the us missed the loss of the pragmatic
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british voice in economic policy and as far as direct investment by american firms in the us is concerned from the data it appears to be more motivated by domestic economic opportunities and trade ranges. we therefore conclude in brexit, the impact on european decisionmaking, with political insecurity issues and european cohesion more generally. the worst would be a greater disintegration of european construction which wouldn't be good for the eu either. and in the aftermath brexit, the political insecurity structures of europe have to respond to common interests by strengthening -- the overriding message from our study in the
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best interests of the uk and to a lesser extent the eu to achieve open trading of investment relationships post brexit. the big challenge is the brexit negotiations are likely to be complications of such an agreement. between 2 parties adopted conflicting negotiation position this, with a 0-sum game and that is why this moved to phase 2 is so important. in public both sides declared their intent to have a positive partnership but if different asterisks and aspirations lead the uk and eu to walk away from the table would be significant. this is likely to pose a number of political challenges for the us as well. the common ground for the uk and the eu is the fact the no
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deal option would be damaging to all parties trying to avoid this at the top of the agenda for the uk and eu as economic tops begin. and we look forward to the discussion, and look forward to moving on. >> thanks very much. i give him non-random member of our panel the opportunity to give impressions of this. the reports, align your expectation, you have been looking at brexit and talking about this for a while. does this come out wildly? >> besides recommending the report, very transactional view of europe so this is a
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transactional report. the report's conclusion, no brexit outcome is the best scenario versus no deal is the most costly, what many other reports and analyses have concluded concluding her majesty's treasury, tanks and others. from the sense that this is one of the worst and best options. it emphasizes something at the british economy itself is very unbalanced, heavily geared and waited towards services, it is a differential impact across regions. the city of london is concerned about financial services, we need to unpack the difference between trading goods versus
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traded services and that is very important and what tells us 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 puts advantages to the eu over the uk. and lost that argument, and this report turns out, first of all we need the terms of the uk exit which is just been agreed upon tangentially this week. the second issue which is framed differently in the press but the second stage is the establishment of a framework for future relationship. that is not a trade deal but a framework. the third issue is the transitional arrangements, this report lays out clearly, that
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sequence benefits the eu relative to the uk and highlights the asymmetrical nature of these negotiations, leverage goes to the eu, and by putting up different scenarios, it helps differentiate something that is not always clear to many audiences and that is the distinction on a single market, the custom union is about trading goods, about 0 carats and you have to have an identical trade policy with respect to nonmembers. the uk does not get its trade policy in that scenario and that is an important choice, doesn't get back to the trade sovereignty, single market is very different, that is the uniformity and indivisibility of four freedoms, capital
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services and labor and something the british tribe wanted and expected some indivisibility and some opt outs in terms of labor and enforced by the european court of justice, something the british after the referendum indicated they didn't want. it is very important that the eu is a legal order, something that will not allow britain to cherry pick and you make that clear in the distinction is important in choosing these options and the report tells me something i thought was obvious but not talked about very much in advanced industrial economies which is carrots. we dismiss them as small. we often said tariffs are
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small, only 2% but now that this is opened up one of the eu's commitments, one of the restricted quotas, like agriculture. as you point out 34% of uk exports to the eu are tariff free, a lot more, 70 plus, are now at risk. for me, attention is not just needed on the uk and eu negotiating tariff rate quotas in dealing with the tariff issue, not just let us divide what this is, they are starting to realize others will be affected by this are the wto states who won't say this is just a uk eu deal. this will broaden the debate about tariffs. the second issue is this report
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brings home that this is not just about trade. there are many many unintended consequences or issues at the uk and eu will have to deal with beyond the scenarios. i was struck by the range of issues we do not even comprehend yet. just because we may or may not have a new border it won't be just about customs clearance and the irish tell me 80 trucks go back and forward per day. it will not just be about customs clearance but one of the most messy trade issues which is rules of origin. the second issue, the british will be subject to eu competition policy, mergers and acquisitions, outside dumping and so forth, the british will not be allowed to undercut because then they would be subject to anti-dumping issues. thirdly, the eu has a lot of trade remedies and the british
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will be subject to some of the trade remedies they participate in. the budget is not just a bill for the prior commitments through the budget cycle of 2020 that this report indicates. 12 to 15% of that budget is paid for by the uk. what happened to the subsequent redistribution, which of the member states subsequently are going to pick up the british bill? finally, the issues that we don't think about because we focus on trade but the british are part of the economy with nuclear fission and nuclear materials, what are the costs of moving those? how will britain get access to nuclear cooperation? lastly, regulatory agencies, the europeans over the past couple decades have created a large number of regulatory agencies, areas of interest to the united states to create a
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much 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 have? .. for the british i think there is something different in the united states you have a nafta template when you negotiate a trade agreement. this report tells me the british will have a patchwork of trade agreements they will have to negotiate, not just those that are msn status but there is sort of a preferential trade agreement, there are customs unions that the e.u. has, there are generalized systems of
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preferences with less developed countries. the e.u. has a much more patchwork of trade agreements than perhaps the u.s. does in terms of its trade agreements. so for the uk there will be changes in trade costs to third countries which the e.u. has a preferential trade with. that is something the british will have to confront. the report tells us tariffs but also about non-tariff barriers. they're hard to quantify. they're hard to deal with. i think the report gives us a kind of caution here very important in this debate. overnight the british regulations will not diverge. britain will accept them into law, but over time that is very, very important economic impact. the last two things would be
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that that the eu is moving on. the eu is implementing with canada eu mexico, eu japan and british are not part of that. the question those agreements already signed, now the british exit will the eu have to relook at them because the british are not part of them? so i think this is very, very important. so i think also from the british point of view, the scenarios you create, that don't look terribly good for the british the eu is realizing just how different trade and investment is. they're separating trade and investment treaties. if i was the british and i look how politicized investment agreements are in the eu, they are going to get a trade deal. trade on goods but investments
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quite a long way off. do you want me to continue or finish? >> i happen to know that in the audience there are a lot of people with very lively views. we'll turn to fran and then howard and open it up. i'm confident it will be the wilson center generally lively debate going on. michelle highlighted range of additional issues. this is something i think you're well-placed to have a discussion of. we're in the next phase now? >> right. >> that has happened since your study. tell us what that means, and what other strategic policy consequences we may face i think >> i think today is great day to hold the panel. as we came into the room the european council fin their meeting. i frantically tried to find out if the guidelines were published yet but at least as we walked in
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here. >> not council. summit. >> summit, sorry, of all the european leaders. this was conducted at 27. ie, the british it were not there. theresa may was at dinner last night in brussels and left. the main point of this to confirm which they did do, sufficient progress, those magic words has been made and 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 come 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 accords where they have really kicked the can down the road is really on the agreement about ireland where you can read this and see directly contradictory, provisions some to satisfy the
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dup, which is is the minority party that is 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 that there will be a hard border, a real border between the republic and northern ireland that set of issues will go to the next phase even though it should have been resolved. i think we are now looking for the next few months to be focused on two things. one is the transition, and i think it is entirely possible that they will reach a relatively fast accord on the transition because, as has been stated earlier, the eu holds almost all of the leverage on this. and the british have slowly come to the realization that you can not negotiate a trade agreement in six months. even with best friends. it is really just not done.
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so, the transition that the eu, that president has laid out which would be one which the uk adheres to all the rules, adheres to all the financial responsibilities and obligations and adheres to ecj jurisdiction for a period of two years, perhaps a bit more. that is one of the decisions. how long can it go on. that is one of the negotiating points but 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 to receive their rebate. that is a problem or sticking point as they work towards the transition. there were also comments as the leaders were leaving the summit today, within the transition
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there needs to be some understanding about gibraltar. there is in the guidelines an agreement within the eu, that the spanish will have essentially approval over an agreement about gibraltar 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 could be approved is currently scheduled for march, so that is the time frame we're looking a the, once that is done, then one would move on to the future relationship, and here, the priority issues are 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. it has been uncertain, but doesn't want acanda type agreement, based on the eu canada agreement, ceda that has
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just been done. british politicians say they will get canada plus, plus, plus and nobody quite knows what that means but as michelle pointed out cherry-picking, deciding that you can have parts of the single market is just not going to work out. so the other problem with this, these types of agreements is that, depending upon what is included, the negotiation of a trade accord operates under either qualified majority voting, so not everyone has to agree or unanimity, which is a much more difficult hurdle. and ask the singapore, the decision of the ecj on the singapore trade agreement there is now a division in e.u. trade policy where if it includes things that have member state competence, investor protection being one of those it appears, there is still issues to be worked out, then ebb must
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approve. you could go through a situation as you did with canada where you were waiting for the waloons to approve this agreement. if you keep it to more narrowly-focused trade agreement it just gets approved at the eu level. it is not clear exactly what will happen. even on that, even if it is just the eu, articles with, agreements with third parties and the brit will now be a third party, which is a big mental leap, it will not be a member. it will be just the same as we are. just the same as japan in terms of its, the relationship. and if you have an agreement with a third party, within the eu under article 207, if it includes services and intellectual property then it is unanimity. this is a high barrier because
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as has been pointed out, services is a major part of the uk economy. so we have procedural issues that have to be dealt with here, that will play into what type of an agreement is going to be pursued. let me just say one issue that charlie and michelle did not bring up so far is data. so the transfer of data which is a huge issue in the eu, the uk will adopt, the gdpr, the general director of, gdpr -- that protects privacy, personal privacy and transfer of data, but it is unclear after they leave, an as their own privacy regulations may start to diverge a little bit, will they have to get an adequacy agreement as we do through privacy shield. think about the amount of data that goes back and forth between the continent and different banks and all sorts of things. all the private areas.
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as they talk about the trade agreement, including customs, that will again bring up the irish border question. and i expect that that will be one of the last things that will be a determinant in how they finally figure out what a border is. we will also have to see where financial services is negotiated. it has a part of the trade agreement? is it a stand-alone agreement? what is there in agreement? what regulations does the eu take about euro-clearing and what euro-clearing does need to be done in a member state? the other area of calculation, while this is going on between the eu and the uk, as already been brought you, the u.s. is starting to scope what a u.s.-uk free-trade agreement will look like.
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there will be pressure applied on the uk not to agree with certain things. hormones, geographical indicators by the americans, so they can have a more positive agreement between the u.s. and the uk. so that, it will be in a sense a triangular negotiation without that being officially so, formally so. and to all of this one of the things i think we all learned in writing this and in watching "brexit" is how the unpredictable becomes the norm and how every day you learn there is some new complication that needs to be resolved. whether it is agencies that provide certification, et cetera, et cetera. there is all sorts of stuff that you don't anticipate that is going to come up. i think also we don't know how the personalities involved are going to get through this phase of negotiation. what we have seen, with the
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spectacular, spectacularly over the last couple of weeks, is 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're staying pretty firm. so i think we have a still a difficult and uncertain road ahead to actually find out what will be the future relationship. i can stop there but i do want to say that president tusk also outlined as other areas of negotiation in this initial phase if you will, thinking about the new relationship, anti-terrorism, slash, police cooperation and foreign policy and particularly defense and security. so we will see. we will see some negotiations along those lines. what access will the british
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have to the european defense fund? they bid not join the new mechanism, pesco, but will they have new relationships with it. i will point out alnata, one of the best missions begins piracy off the coast of somalia is headquartered in the uk. there are all sorts of issues to talk about defense and security cooperation as well. >> i will give howard a chance to here, and i'm sure we come back to the questions of security defense policy implications as well. howard, i was quite taken with the calculator. i was wondering if you give us a little bit more on that. also a little bit more on what you would program if there if you were going to come up with additional scenarios. give us a little look into that, if you can. >> certainly. let me start with the scenarios because the calculator is designed to show.
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we chose eight scenarios and chose the fair joe's the eu would face. the no-deal scenario but the other free-trade agreement with the e.u. or the u.s. or both together make a tremendous amount of sense because in general countries trade with those partners who are closest to them. charlie mentioned early we used the gravity model. that is the underlying logic with the gravity model. we looked at soft "brexit" scenarios which we don't have in the calculator. when you look at hard "brexit" scenarios, what about global britain? we took global britain very seriously but we think that,. >> you might describe global britain a little bit, what that
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means. >> sure. the global britain idea that the uk is now not part of the eu customs union or single market. can do multiple trade deals with any partners it wants. so it can do trade deals with australia, china, any countries in asia, latin america, thus build a free trade network that could be better than its agreement with the e.u. now by doing, bying doing, by modeling uk-u.s. agreement or uk-eu agreement we're showing upper bound. u.s. is 20, 25% of the global economist. the eu is about the same size. doing one, one trade deal with the u.s. is much easier than doing multiple trade deals with multiple countries especially with multiple large countries. we've seen an example of that with trudeau's trip to china and his desire to start free trade
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negotiations with china and ultimate failure of that attempt we start with those scenarios. then we go into the calculator. underlying all of those scenarios are assumptions, what would tariffs look like in, in a scenario? what would tariffs look like in a u.s.-uk agreement? we have to make assumptions. how much non-tariffs look like? how much higher would they be than they are now? we can't say our assumptions are correct. we make reasonable assumptions based on available data. so what the calculator allows you to do is say okay, rand, i disagree with you, that non-tariff barriers under a uk-eu fry trade agreement will rise by 5% relative to what they
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are now. i think weville have non-tariff barriers that will not rise. we'll have non-tariff barriers. they will be zero percent. you can program that in to a custom scenario and then the model will then calculate the results for different aggregates. what will uk gdp look like in 10 years with no non-tariff barriers? what will uk trade look like? you can look at non-tariff barriers for services. services are a major issue for the uk. 38% of their exports are services exports. that's where their trade surplus is in services. their trade deficit in goods. you could say, what will the uk economy look like? what will the u.s. economy look like? what will the e uconn my look like service look like.
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when you will find the uk is worse off, slightly worse off, than it would look like under full eu membership. >> thanks very much. i know 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. then you're just hostage to me but i would rather that you all be engaged in this since we have our experts here. so i'm going to take a couple questions at a time but you need to, a, wait for the microphone, and b, identify your sell, okay? we want to know where you're coming from, all right? okay. so i open it up to you all. don't tell me.
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gail. >> i'm gail maddox, and i'm at the u.s. naval academy and i look more at the security issues than the, than the economic issues but there is an area that's overlap i would be really interested to hear your reactions and that, and you mentioned is the edf, the european defense fund. and i was a little skeptical when it was first announced. i thought, oh, yeah, here's another, here's another attempt. i don't know. it seems to me that the union is really been pacing itself and has seemed to at least want to appear that it is really going to go down this path as well as with with the pesco. i would like to hear your analysis of that. how the "brexit" is going to impact some of these security
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issues and in particular the sort of nexus of the edf and the industrial industry defense industries? i think there is a lot of overlap there with what you all have been looking at. thank you. >> very good question. i'm going to actually ask you to go ahead and -- >> okay. there, you are right the edf, for those who in the audience who don't know about the edf, the idea here 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 and defense power base, that it would not only be linked to the united states and to nato. the edf, innovation of that is that it would allow for common acquisition of high-priced defense assets, that then could
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be shared among eu member states and dedicated to what contingencies they might need. and it is overperforminging expectations shall we say. this is a good thing i think for the, what matters to the united states which is that the, that the european, the european countries collectively build more defense capabilities and thereby make a greater contribution to our common security issues. now, keep in mind that many european union countries are not many but a handful of european union countries are actually not members of nato. so getting their contributions to building up defense capacities that would give more pause to adversaries on their borders and elsewhere in the
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build is a good thing. one impact we didn't make much of in the chap other than, if our economic assessments are right, the uk is in for a period of slower growth than it would have had otherwise. we're already seeing some very serious budget austerity in the uk and if we're right it will only get worse as the uk leaves the market and suffers the economic content we're monitoring and will affect the amount the uk can put into its defense sector and, and "brexit" itself will have impact on the uk defense sector. companies in aerospace a major player in supply of defense goods worldwide, how successful
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what kind of access would they have to spending on edf. the way the defense sector works, one of the more national listic sectors, there is more national or by european instinct. i know many major companies in the british defense business are worried about that. so that is likely to be a consequence. >> fran, i know you want to come in on this one as well. >> i want to say it is a broader discussion than the european defense fund in that a few years ago the eu started passing legislation which is now on the books and implemented by the member-states to not discriminate in defense procurement, that did not involve large research projects, i.e., airbus doesn't need to worry about this because their projects have a lot of research but if you're trying to buy
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boots, ammunition, uniforms, that kind of stuff, you are not supposed to discriminate between eu members. it is always been very unclear whether there was then a possibility that you could discriminate against non-e.u. members such as the united states. there is matter of concern. the british will 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 slow. it will be stop and go. there are very much nationalist impulses. so i don't expect that the big projects will be affected in the short term but it is there and the british will find themselves outside. it will be another trading issue, yeah. >> frank, can i ask you a question on that myself.
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the last uk security defense review was in 2015. then of course the "brexit"
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government would do with "brexit." and the second one is, to howard. and howard, did you consider any general equalibrium models when you were doing it? what would that have looked like as far as your calculator? >> you want me to answer that? >> go for it. >> so jeremy corbyn in the election last summer was rather vague. they seemed to be tending a little bit towards softer "brexit" options that, and in the continuum. we tried to capture this in our scenarios. there is a continuum of options, that, are generally characterized as the soft "brexit." and there is norway, there is turkey and swiss.
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keith farmer, who is the deputy, the, shadow, shadow deputy prime minister candidate. these are not deep trade walks. but a customs union is what the eu started out being. there is common external tariff that all 28 members of the the u applied to trade to every other country in the world. exempt one country turkey which is in a customs union. turkish customs goodsentter into
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the duty free. turkey is required to apply a external tariff to everyone. in if the outcome of "brexit" the uk leaves the eu no longer a member of single market which it is customs union is a+, they essentially adopted same regulatory matters. they don't have any customs inspections but they stay within the customs union, the result of that would be would be they would give up the vision of a global britain, because in a customs union, the, if the uk stayed in a customs union they wouldn't be able to negotiate a free-trade agreement with the united states or canada or anywhere else. they would only take those agreements like the canada one, that the eu is itself collectively negotiated. my own guess, when labor really has to get serious, right now they're sort of against the, and
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pointing out that conservative party's internal conflicts and taking advantage of, of difficulties as most opposition parties do. point to the government's shortcomings, rather than lay out in great detail what they would do. does seem what they're talking about is more on the customs union area rather than the single market because the, a single market soft option would, would, like norway option would involve free movement of labor. that is unpopular in the labor base, the strong labor constituencies because the famous polish plumber and other eu nationals that have moved to britain under free movement of labor have been unpopular with the labor base. so, i think, my own guess is that's what they're, that they are talking about.
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but, they are trying to keep their options open. >> steve, question also included one for howard. >> sure, yeah. let me talk a little bit about the modeling. and first of all all credit due to our colleagues martin hafner and martin stupanik. no language barriers. everything worked out real well. >> data transfer. >> yes, exactly. services trade at its best i would say. so we used, we used the structural gravity model which is also known as a new quantitative trade model. that is a little more than a standard gravity model. allows us to use multiple sectors, multiple countries, intermedia goods and it gives -- and points. it is not dynamic. our other choices could be general equalibrium model.
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we opted not to do that for several reasons. first the structural gravity model has been shown in the past to give good answers. >> accurate answer. >> yes. not just good answers. accurate answers. not just the answers you want. that is the first thing. the second thing is, because it had been vetted, it had been vetted. it was accepted in the profession, a general equalibrium model we would have to program that from the start. we would have had to make several different choices. we have had chosen the parameters for those, an example of a parameter, we would have had to have chosen exactly how does trade respond to changeses in prices. exactly, that would be how trade respond to changes in tariff barriers. there were a number of other modeling choices. the other issue against general model is it is something of a black box. you don't really know how you get the answer. it is heavily dependent on a lot
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of model assumptions. there are advantages. had we had more time. had we been able to do that. we could have seen a pathway of trade. so with the structural gravity model, we only see end points. how do we end 3p? we end up this much poorer. this much less trade and it much more trade. with general equalibrium model we would see how the trade evolved. if we included sectors we would see how different sectors traded over time. modeling choices we looked at that the we thought the answers in the end given cost and effort would be not much different, not much better and possibly worse that is the first thing. second thing i should add we did model foreign direct investment. there we used simpler graphty model because in general, foreign direct investment data are not rich enough to use more complicated models. the results of fdi were similar
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to trade which is that the uk just does not do as well under any arrangement as it does in the eu. the eu and u.s. gain from ttip. >> steve, i just know you will be reading the appendices, because there are generally scary equations. [laughter]. all right, moving on, i will go first to moira, then to you. i will take two questions at a time. >> i'm moira taylor, former wilson fellow. my question is about ireland. "brexit" has major implications for ireland. i was wondering when you look at your scenarios, did you look at the, how each scenario might affect ireland and their economy? also do you have any thoughts on what most likely or perhaps the, will you in, most likely,
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perhaps also the best scenario for ireland and the uk on border and trade moving forward? >> great. we have the island question. i will take yours too. >> hi, there, garrett workman from the u.s. chamber of commerce and otr u.s.-uk business council. i want to get into the u.s.-uk assumptions a little bit more. as far as "the ft" a goes did you assume that the e eu 27 in their divergence looks like there were more divergences in the second phase than there were in the first phase? did you look at existing eu agreements with the japan, south korea, et cetera. would uk exceed themselves as a third party or are you assuming they're not going to to be a part of it? what about u.s. agreements with
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like open skies and things like that? will the uk be added to those ahead of "brexit" in your assumptions. thanks. >> terrific. who wants to start with ireland. >> let me make a couple comments about ireland in the scenario. you might want to speak a little bit to ireland. i, on ireland, i mentioned this a little bit with respect to the common external tariff when i was talking about it earlier. the problem, the good friday accord, basically was an arrangement that was a political arrangement that took place in the context of the single market. so, it was possible to achieve a, a settlement to the long-standing fight between catholics and protestants in northern ireland by having a sort of, a one island solution.
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i don't 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 could choose to become irish citizens and irish agreed to have that happen. and that there was essentially a single ireland regulatory and trade arrangement so that there were no borders in or 8,000 trucks and so forth. among the scenarios, if we, if there were a free trade agreement between the uk and the eu, this would mean that the, the two sides, we can talk about this with respect to the second question, but the two sides eliminate tariffs on industrial goods and make some arguments and agriculture between them but the uk in theory would be able to change its external tariffs
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and that would require a whole series of, of checks to make sure that chinese goods are not entering into the uk and then being transshipped into ireland and then on to other eu markets and thereby undermining the common external tariffs in a single market and that is where we talk about rules of origin and then there are standards issues and so forth and those would progressively rise because right now the uk and the eu have the same external tariffs, the uk being a member of the eu, and the same regulations. but that would be, that would mean if just "the ft" a, our second scenario.
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the fta. that would be bad for ireland because you have to have some kind of a border. the agreement last week to start phase two, 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 no one's quite sure, i think there is deliberate ambiguity how you would achieve that. how you would maintain it because, if that means that the uk promises now and forever more to a ply eu regulatory regulatory standards and external tariff rates, one might ask the question what are they getting in terms of enhanced sovereignty by leaving the eu? there is another option you braceally agree morn ireland -- northern ireland which is small part of the uk would function as
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part of irish economy and you would have customs checks over the irish seas. for transshipment of good from birmingham to london derry would be to the custom checks and that is unacceptable to the dup. those problems arise with any of the hard "brexit" scenarios we are talking about, because basically involve the uk out of the single market. if the uk were to be like norway, they would, they would be in the single market but they are still responsible for their own external tariffs and in principle you would still have a little bit of that. the customs union options would be better for ireland and that's 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 whether you want to say anything more about ireland and political side. >> just a couple things. first off the situation is
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complicated by the fact that there is no northern ireland government. >> at the moment. hasn't been for quite some time. >> so i think the privileges the parties in westminster, there is a voice missing in this discussion. >> right. >> i very much agree with charlie when he lays out the problems that they're facing and the, good friday accord includes a lot of funds from the eu and a lot of north-south cooperation on the island of ireland. >> right. >> i actually think that those can continue. >> yeah. >> the eu could design this is a zone of conflict prevention and put it in a different part of the budget and it will all work out. the customs border, the border itself -- >> and service, banks. >> yes but i mean just trying to figure out where this border is going to be unless the uk stays in the customs union is really an issue. >> right.
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>> and it affects all sorts of different industries. there is a great article i saw somewhere about the impact on the racing industry where, you know, horses are going back and forth and back and forth all the time and you can't make them wait eight hours on a van on the border. they will miss their race and not good for them. there are all sorts of things we have not thought about of the there are supply chains that take products back and forth across the border between the republic and northern ireland number of times and people invested in northern ireland on that assumption. >> let me speak to garrett's question about the, the question about how did we come up with the fta options and so forth. in large part we used the most recent european, most recent kind of most modern european union free-trade agreement. that is the canada one as a proxy and this was before we had david davis, who is the
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negotiator for the uk, in this process say specifically he wanted canada free-trade agreement plus, plus, plus. so we were just modeling it for what would be the standpoint of the trade effects in in our scenario. we assume zero tariffs for goods trade. substantial agricultural access but no financial services access in an fta. i mean there is a technical question for you. and the same applies for the u.s., the u.s.-uk and for that manner ttip scenarios. we actually think that, and you could tell me if you think this is wrong but, if there were to be a uk-eu free-trade agreement which of course can only happen
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if britain chooses to do, to be either under wto rules or in an fta. it can't happen in most of the in the softer "brexit" options. we're assuming even within the u.s., the uk would not succeed getting coverage of financial services. with the eu, the issue really is a competitive one. eurozone countries which resented the fact that uk decided not to join the euro, managing with the power and efficiency of the city of london and its financial services center nonetheless became the center of euro clearing and all kinds of securities transactions related to the rest of the 28. and. once the british made the
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decision to leave the eu, paris, frankfurt. lesser extent dublin and malta, everyone is after investment by banks and they're pretty clear there will not be single market-like, passport, so-called, underpass porting access for uk-based banks in the european financial services market. so it's a competitive issue really. with the u.s., there is that. but, we've already had experience in it. tip in which the europeans wanted to cover financial services, largely put up by the british. the u.s. was firm, even with the entire 28, the whole eu, that we were not interested in that. largely, the motivations here and others, you certainly know more about this than most, would say that motivations are part
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competitive 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 terrorist finance. we have anti-money laundering rules and the federal reserve and the treasury, comptroller of the currency, are unwilling to basically delegate those to even the united kingdom regulatory agencies. so we assumed, we, you may differ, but we assumed if there were to be a uk-u.s. fta, it would not include financial services. let me just, one other diversion here, one of 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 bruin, it's, they are a small
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player. they're a small player in negotiating with the eu as we're seeing. barnier is calling the tune and the 27 are sticking together. if they turned around and negotiated with us they would similarly be a small player. we are relatively indifferent. there is not a big stake we would have economically. so we would look at this negotiation from the standpoint of our own principles and our own relationships. as fran mentioned with geographical indications here, we've got fetta cheese made in wisconsin and chablis wine made in california and we would have our own reasons for wanting to make sure the british committed to letting wisconsin fetta and california chablis be sold in the uk as we were pushing for in ttip and resisting the idea that we would protect greek fetta or
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french chablis. the british would quickly find themselves with a hobson's choice between two powerful players that wanted to impose their own circumstances and their own negotiating approach on, on them as the price of the agreement. i think this administration even more so than past ones. >> may i add something to answer? >> yes, but then michelle, you guys dodged a question on eu cohesion and the fta. >> never. >> i want her to give her a chance to comment on that but howard first and then michelle. >> i hope i say not what michelle was not going to say and i tee her up. we did look at cohesion in the eu as part of game theory analysis. we found, we showed several cleavages, potential cleavages. so i won't to into those because i assume michelle will do a
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better job. i will say despite those cleavages, the e.u. has a very powerful tool to stay aligned even if there is great disagreement within the eu, even as we discussed in the 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 patterns that the uk have with member-states vary and something that the report really picks up on and i think, you know, this is really significant for ireland that it has come up
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but significant formality tax cyprus, the netherlands. now that you have global value chains and you have issues of logistics, you have issues of integrated production, it does have a much, much broader impact of the question becomes is, if the malta and cyprus are so dependent on uk exports, whether there will be sort of a trade diversion effect if the uk is no longer a member. the second point going to garrett workman's point is that there are critical agreements in almost every international sector. you mentioned open skies and aviation. one of the things i would like to see policy made -- makers look at how many agreements when the both the uk and e.u. are sigtoresrys? there was a point in time when the eu was not a legal entity. there will be some agreements we'll not fall out of everything in the uk, but there are some in
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the uk we will have to renegotiate. the fact that we have 750 protocols and agreements, some of which the uk is an independent signatory may mean that it will be less critical. the third point that canada plus plus spoke agreements i'm just, like everybody else there is a whole new language going on here and if i know anything about trade, and i look and i actually read the eu's ceta canadian agreement, the eu-japan agreement and i think about msn status and a spoke deal there are implications if you give it to the uk, i'm assuming then you have to give it as well to canada and take a look at the text because it's very, very finely grained. >> only if it is a, this is really wonky, if the free-trade agreement equals as a preferential trade agreement under article 24 of the wto, then they do not have to provide
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mfn treatment. but if they went the swiss route and did a bunch of bilaterals and sectors they would immediately be faced with demands for most faved nation treatment which is the standard of the wto. >> okay. right. i know there are other questions. so, here? then we're going to the guy behind. >> hi, i'm casey may. i'm at the state department. i'm the deputy of the office that robin came from, the western europe office. so needless to say we're very focused on "brexit." my thanks to you, ambassador ries and rand, this is a great study and resource as we start to think through how the united states should approach "brexit." and that's the question i have, needless to say also we're very focused on how u.s. interests are at stake in this. what did your study, either, show or indicate for u.s.
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interests under some of the other scenarios, the transition, the transition, swiss or norwegian model. do any of those scenarios offer meaningfully better outcome for u.s. interests than the others? >> we'll take the question behind you. >> thanks. my name is. i'm a truman fellow at the sais atlantic relations and from the university in -- follows up on other questions. congratulations on this report. i'm intrigued in particular by the trilateral arrangement that you mentioned the u.s., eu. you said yourself will be very complex. i would be interested in some more details about that. is this supposed to be trilateral agreement which would be very different from ceta and different from others or mixed resting on two pillows? or is it one that you assume there is uk-eu agreement with
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two separate ftas with u.s. and e.u. and you would they coordinate? how do you see the coordination going if finally look at u.s. appetite for an agreement like that. as we talk about now already, it doesn't seem to cover very much. somes into the same red lines as ttip. sounds like ceta minus minus. would you have to take probably investment protection as well, institutional aspects of that, that is legally too tricky in europe right now. does the u.s. even want something like that? >> okay. let me tackle those two and others can come in as well. casey's question about u.s. interests and other scenarios. from the standpoint of the u.s. economic interests, all of the scenarios except the ttip scenario have trivial impact on the u.s. economy. the report has, for each one of the scenarios, there is a calculation of the gdp impact,
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long-term tenure, gdp impact of each, on each of the three. so we calculated it for all of them. but it is trivial. the only one that makes a difference to the u.s. economic interests is the so-called ttip scenario which is trilateral. and to your questions about, so what would that look like? we didn't, we only modeled it. we didn't 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 2020 or 2022 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 an fta with the eu, it should be probably a
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trilateral or even a plural lateral involving the nafta countries as well. in this way i think structurally it would resemble the trans-pacific partnership or tpp, which is what president trump withdrew from on the first day of, second day of his administration, but is proceeding itself. so there are 11 countries in the tpp now and, a number of them have various preferential trade agreements with each other and the undertaking that is, the tpp undertake something one of all these parties as contracting parties and it is also open to accession by other countries. i think that would be the pattern. and i would, obviously there were three years of serious negotiations about a ttip in the last administration and with europe and it faltered on a
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number of ground. and, most importantly of which was the investment, so-called investor state dispute settlement. or isds which was very unpopular in europe. . . without such an agreement, and even if it were mildly positive think it would not be that big a deal. but elimination of tariffs and
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consolidation of border controls and so forth across the atlantic would have big growth enhancing possibilities. that's always been the case and it may be that in the future there will be a political environment for it and that would be the best outcome for the uk by far as we establish because it gets the benefit of trade liberalization with the continent and with the u.s., and the trade liberalization that takes place between the eu and the u.s., all three entities grow faster. we will have to see what happens with the nafta renegotiation but if we still have nafta it would make sense to have nafta parties also be a party to some bigger undertaking. >> sounds like full employment for trade negotiators. >> i think what the study makes
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clear is if you're going to have u.s.-uk agreement it is politically motivated and inspired rather than economically. the economic consequences are miniscule. for the u.s., yes. >> and not as good for the uk. >> and the problem i think for the uk is that once the political decision has been made to launch such a bilateral negotiation with the u.s. i fully expect ustr will become very, very tough. and the british government, or david davies at least has been going around saying all the eu bilateral trade accords expects to be able to just renegotiate those backcrossing by crossingt it in uk and having the same terms. i think that's a fantasy. i think that these countries, the other trade partners are going to look at the uk as a
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much smaller entity and look for more advantageous trade terms. we've seen this in the eu and the uk put forward a list of wtos, tariffs schedules and it ruined that this is going to be the easy part of the deal. giving it up. >> the u.s., australia, new zealand and some others wrote a letter saying sorry, you have to negotiate. you just can't present this deal and assume we will agree. that's going to be a a challene for the uk. >> michel, i see you nodding. >> i concur with the difficulties that they will have. yet the point perhaps to think about is the post-2008 economic climate that the british are going to be negotiating in. they're talking about global britain open for business, but the one context to this is if
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you look at other countries, extra eu exports have stagnated and receiving a rise of state-owned enterprises, bailouts, localization initiatives, textbased export incentives via the countries beyond europe. the uk's tried to to go shape these new free-trade agreements and what i would say is an inauspicious business and regulatory climate with others. i think the post-2008 situation is a very different one than perhaps the remember with negotiating in the single market in the 1980s. >> i'm here at the wilson center. two questions, one the regulatory burden. my guess is the u.s. and china for whom europe is an enormous market have to meet eu standards to send their goods there, which is one of the motivations for
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ttip. a lot of the standard didn't really make any functional difference, , why do we harmonie them. what about the internal reaction by great britain? my impression on the brexit vote which had many elements, part of it was in income distribution question, london, their version of wall street got all the goods, and here we, the rest of us, toil away and left behind. could it be that the end of this focus on london would end up with a lower gdp but a high percentage of gdp going to the non-london area cracks and with the it then shipped their own internal policies with research and development and policy would focus on developing more competitive goods, and also non-financial services related exports? >> let me start to tackle that. a good question, can't.
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there is, for all of the talk of reciprocal negotiations, and we saw how difficult it's been to try as you mention harmonize or make compatible regulations across the atlantic in a brighter different sectors. we succeeded. we have agreement on manufacturing practices in pharmaceuticals. we have agreements in of our little controls, a lot of specific relatively narrow agreement had been achieved. but broadly speaking it's been difficult. the uk, once out of the eu, will face the problem that smaller economies and everywhere, which is the gravitational pull of the big economy, your big trading partner, on the regulatory side. right now the british industry
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meets all of these standards because they are members of the eu. it's a legal obligation. but when the uk, is the uk succeeds in leaving the eu, it won't be a legal obligation but it will be a commercial necessity. you are already saying 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 the so-called reach rules for chemicals, that the eu imposed. we didn't 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's worth saying again, 50% of the british trade is with the eu.
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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 certify that they do so. in order to continue to export from a britain to the uk. same token, they have to meet u.s. standards in order to send their goods to the united states. at the end of the date the difference will be that they won't have any role in making the regulations but they will still have to follow them despite the ideas that they will break free of the yoke of brussels regulatory policies. on the question of the intro british -- intro british, what the impact will become integral to britain, southern england
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versus the rest of less-developed or less prosperous parts of britain. yes, i imagine it will be changes based on whatever kind of final arrangements they reach, but it's kind of hard at this point to determine, and we didn't really seek to look into those internal distributional questions within the united kingdom. >> you mentioned that though locus is offered with a larger trading partner. my question as as a follow up n this idea of global britain, you have talked about it in the context of the uk having the ability to negotiate trade agreements around the world. we've also heard political
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rhetoric about global britain in terms of foreign-policy priorities, the inability to set direction. my question would be looking at that defense security cooperation with you but the uk relationship for the commonwealth, the bilateral relationship with the u.s., do you see the uk center of gravity shifting on those foreign-policy priorities as they look to work from the eu and how this global britain focus? >> i don't really see a shift, and right now if you look at uk foreign-policy, it is much more closely aligned with the continent of the eu 27 that it is with us. climate change, iran, et cetera. i think the uk is going to be totally absorbed for the next two to three years in the set of issues we have on the table here today with brexit. the they would be little, few resources available both
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monetary resources but also shall we say administrative resources for launching new initiatives or really reordering britain's international priorities. i think the budget and the impact of brexit on budget and the uncertainty that surround are also going to be a very large, a very large disincentive for serious international initiatives. i think the uk may even struggle to keep what it's doing now. but certainly i think, the alabama to this is, 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.
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i don't think that's going to change, but with fewer capacities for doing that. i think also one of the things we have to figure out is a lot of this, if you're negotiating new trade agreements, with other people, et cetera, there is a real pressure on the british civil service. there is a capacity issue because 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? >> dave knapp, retired army, i don't represent anyone. i think you've done a great job of proving what a bad idea this is. you've done with your european colleagues. my question is how do they call you fake news? and how do they justify this as
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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? >> well, thank you, dave, for that question. i presented this study in london on tuesday and in brussels that afternoon. i got a variety of reactions. one reaction was 5% of gdp, that's nothing. it's worth it for our sovereignty. and others said this is just project here all over again. project fear was the derisive
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nickname that was levied by the levers against my case the government made that hm treasury study in april at the 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 phono . we made it brexit happens, but there are a lot of ways it could happen. we thought it might be interesting to look at the possible economic consequences of each of those ways. and our study is a little bit novel in this field for modeling in the u.s., with the u.s. stakes are. there is a frequent visitor to london this time, and a number of times during the research phase of this, and as an agent we have an affiliate in cambridge, i i saw him there on for that. there is quite shall we say
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cocktail party chat in london about how might it all go badly. or how might 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. 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 a bad way to make post i think, or the government falls and there's either a new election or a new government put
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together that says to the 27, we would like to withdraw the article 50 notice. for those of you not steeped in this, the article 50 notice, article 50 of the lisbon treaty is one that sets out the procedures for country withdrawing from the eu, which didn't used to exist before, and that's what set it to your clock going and so forth. article 50 itself has no procedure for a country changing its mind and pulling it back. but there is the assumption i think among, if you will, remaindered circles in london and for that matter in brussels where there are some who say good riddance to the british, they've always been trouble, they've always been exceptional us and so forth. i think a broader sense across the eu is one of her great.
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i think it was suggested. if the british in the new government that had electoral mandate to take it all back and say we want to remain good members of the eu, it may be possible that the 27 council makes a decision that agrees that the article 50 notification is moot. however, that's only between now and march of 2019 when the two years expires. at the end of the two years that are not members of the eu in less there is unanimous decision to extend the transition. and so i think if this remorse or buyers regret, shall we say, or levers regret comes into play in 2020 or 2021, then the british would actually have to apply to join the eu and it had
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to go through a treaty negotiation. one of the consequences of that would be that the uk would lose its opt outs. most important, its opt out from the hero. and so the year 2022 and some, i don't know, lived in -- reapplies to join, you may remember you can't stand this before. they joined in, they applied in the 60s and were vetoed. they joined and 73 and only two years later they had a referendum about whether to withdraw. which was one of the conservative party supported it was a labour government at the time that actually sought to withdraw from the eu in 75. so in this miraculous circumstance in which some subsequent government applies,
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it would be really the left once they are out to come back in, because that would not only have to join the euro, it would have to allow free movement and all 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. >> i'm going to have to remove the crystal ball from you on this one. >> a cloudy ball. >> a brief point, i would caution not to look at some of the vote 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. this is about the sovereignty of parliament, and it's hard to
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privilege the sovereignty of parliament and then give that sovereignty back to brussels. i think when you look at these boats you will see as many voting against because the government, against the government because they think may is not tough enough with the eu and as many voting because it issues with brexit. >> i'm going to use the moderators prerogative to toss one last question out who did each of you. that is, if you had a recommendation to give to policymakers, whether that's here in the u.s. or uk or the eu, what would your one recommendation be? on going to start with howard on the end. >> so one recommendation is very difficult but i will try to hold to that. >> i expect you guys to jump on this so i gave you a narrow
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parameter. >> tried to give the customer what she wants. but but i want to return as a bs to your remarks. first of all, trade between uk and eu will go on, okay? the will be a slightly lower level and the uk will be worse off but for example, services trade between u.s. and eu is enormous. combined services trade is about $400 billion. it's not the trade will stop. there's also no doubt that the u.s. or the uk economy was somewhat unbalanced more towards financial services. we had similar situations in the u.s. there's analysis in the late '90s, early 2000 about expansion of the u.s. financial sector. so the speculation about wheel and can be distributed somehow more evenly within uk is a good one. what the response will be is for still is a problem the uk could
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have addressed within the eu, and then you might say, well, adherence to the eu single market and customs union prevented the uk from taking certain steps that could of made the situation better. leaving the eu will likely shrink the financial sector a little bit, so that's one start. the next question is, the one recommendation for uk policymakers is, what exactly is your new scope, your new freedom of action that you could 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 want to maintain some regulatory harmony with your trading partners. might be very white set. i don't think there's been much work or any work at all on bush trying to understand what the uk's new freedom of action is, if any, in terms of their
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integral economic policies. >> michelle. >> i would preface it with one speculation that i haven't heard talked about and one related to the report. the speculation is that 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. european court of justice of being brought into the debate about citizens rights and the protection of eu citizens post brexit. but it was not surprising if they make a decision or i consulted or had something to say about the withdrawal agreement. and i would also say to you that as a policymaking perspective there is an assumption that regulation between the u.s. and eu will be a commercial necessity. i want us to broaden out and think of not just talking about this word regulatory alignment,
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but think about all the ways that the uk engages with the eu and international institutions through good manufacturing practices, international forums, standards versus regulation, regulatory dialogue, mutual recognition. there's an awful lot more technical details that they uk, eu and the 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're in washington i will make a recommendation for u.s. policy. i can't constrain myself to only one. on the first one is easy. i think that the united states should resist all temptations to put our finger on the scale of
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the negotiations between the uk and eu. because while we are friends with all sides and care about the outcome, to try to intervene is likely to turn out badly. secondrecommendation is that in light of 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 as the british has spoken. that's what's happening. they will work something out. we can engage in a dialogue with the european union and the united kingdom and our own industry and social injustice
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and so forth about what kind of transatlantic marketplace do we want to have. and how can we do it in such a way 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 we 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. we would have to see what kind of transition would have been there.
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it could be rather a challenge. the british have also made clear they would like to stay in the student exchange program. it would like to continue to have access to the eu's fast 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 the eu will be generous at least for a transitional, and longer transition than the main transition on these elements. but i'm not optimistic that the eu will be generous. the other recommendation i would have is to really seriously think about staying within the customs union. the more i started to look particularly in the context of this i wish brouhaha that we had last week, but just in how things moved because a lot of goods go from the republic of ireland to the uk and into the continent. i heard one set of figures that
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trucks right now go through at 30 seconds each. if you put them up to 90 seconds each because of customs procedures used for backing up traffic to the m25. i think know what is really quite prepared for this, and even though i'm 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 people's daily lives and the availability of goods and the opportunity to travel. >> i want to hang to forgiving as so much food for thought, and so for our audience, too, for the tigers questions that you asked. you have held their feet to the fire so i thank you for that. so a round of applause to yourselves and to a distinguished panel. thank you so much for joining
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us. [applause] [inaudible conversations] [inaudible conversations] >> we take you live to the u.s. senate for a brief pro forma session.
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the presiding officer: the senate will come to order. the clerk will read a communication to the senate. the clerk: washington, d.c., the clerk: washington, d.c., known s of the senate, i hereby appoint the honorable thom tillis, a senator from the state of north carolina, to perform the duties of the chair. signed: orrin g. hatch, president pro tempore. the presiding officer: under the previous order, the senate stands adjourned until 4:00 p.m. on tuesday, january 2, 2018. january 2, 2018. >> in the new year to new senators will be sworn in. democrat doug jones who won the special election


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