Transcripts For CSPAN3 Shanker Singham Discusses Brexit And Trade 20170419

Good morning. Welcome to the Heritage Foundation and our douglas and sara allison auditorium. We welcome those who are joining us on our heritage. Org website. For those inhouse we ask that our cell phones and other mobile devices have been silenced or turned off and for all those watching online or on television, youre welcome to sends questions to comments at any time simply emailing 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 trities as well. He joined heritage after a decade 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 advanced. Please welcome me in welcoming ted broman. Thanks very much, john. Welcome to the Heritage Foundation for this event on brexit, u. S. uk free trade relationship and to be held on june 8th. Were 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 certificate parties 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 already seeking to negotiate or at least to discuss free trade deals with upwards of 30 nations. Now this question is even more you are jenlt. 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, they will not 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 called free 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 youre interested in following up on the u. S. Approach on this question. Secretary rosss 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 leading 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. Theres 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 worlds leading trade in competition lawyers. He is the former head of Market Access at squier sanders, and currently the ceo of comutare. He has worked with companies around the world on market opening and transition issues including the earlier 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, its 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 romneys president ial campaigns in 2008 and 2012. Please join me in welcoming shank ra shing gum [ applause ] thank you, very much. Ted and thank you to the Heritage Foundation for having me. Its not the first time that ive spoken here, but it certainly is the most dramatic time that i have spoken here. Ill 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 its 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 ive had conversations with members of parliament and other politicians over in the uk this morning and yesterday and im happy to report that this is not a uturn 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 e. U. 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 runway with a substantially increased majority to better negotiate her brexit plan, which is unchanged from the plan that was in place before she called the election. Well 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 its obviously very important, even if those votes are not binding but clear signals are sents 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 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 countrys independent trade policy, this is true this is true of any country, youre 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 dont produce and products that are not directly competitive and substitutable with products that we do produce. We can reduce nuance tariffs that are below 3 or 4 . We can deal with canada has done which is to reduce unilaterally on and ints immediate goods tariffs to zero, auto imports are 4. 5 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 theyve done is allowed the competition agencies to have a voice in regulatory prom youll gas stations 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 youre more likely to get a better 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 youre 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 its 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 overm another system and evaluate whether those are damaging to competition and damaging to 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. Its not that we laws, were obviously leaving the European Union in part of European Regulations so this is a baseline that is fairly soft and were not certainly wedded to it and we dont have large numbers of vested Interest Groups that are going to prevent reform of those laws, but its a mechanical and a technical process we have to go through as we extra kate ourselves from the European Union. Then we have the bilateral pillar. What can we do bilaterally . This includes and ill just go 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 countrys independent trade policy. Were 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 understand estimated that getting to that point has required a 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 dont 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 dont like the rules of the eua. Were not in that position. Were not in that position because theresa may was able to give clarity in both her lancaster house speech and article 15 letter that essentially said that were not going to be in the Customs Union, were 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 thats what we will have and thats what michelle has said he will seek and thats 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, its not the negotiator here. They have their views and its very important that they express their views just as its important for members of the Uk Parliament to express their views but they arent the negotiator. Its much more important to think about what bonea is saying and what the council is saying and the commissioner is saying. Its fairly clear that as we go through this two year process, well 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 thats unlikely giving the timing. Its not unlikely because of the 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. Its 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 weve left the eu and without yet having a 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. Thats 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 cant obviously sign an agreement until were 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 theres 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 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. Were 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 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. 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. Well have to manage the divergence to the extent there is a zie verns with the European Union but its very much in the American Interest to ensure that you dont have a situation where the worlds fifth biggest economy on the trade policy chest board 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 were 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 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. Its going to be very helpful for the uk as it moves away from that soft baseline of regulation that we talked about, its 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 thats 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 with other countries that we have through the eu, so there are 40 or so eu agreements with other 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 its where the other country is willing to be bound bit terms of the agreement that it already has and that will depend on the nature of the trade relationships. 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 acp countries, the developing countries that europe has preference relationships with either through everything but arms or gsp, generalized system of preferences 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, 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 towards an open setting. But we recognize that many of those countries are beneficiaries of preferences and will be concerned about 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. Its simply untenable for a developing country as was said to me quite recently, i wont 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. Its 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, thats not going to be a very well received position. 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 thats the incentive to improve and not to remain in sort of kalsified and ossified supply chains but that is a change and differed one of the important aspects of uk foreign and trans Development Budget, the difet budget is connected so even where we have across the board cut in the size of government, 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 im 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. Thats 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 its 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 theres a lot of singy there. Then theres the third pillar which is the pure laterally. In all analysis and im very happy to recognize from heritage with whom ive worked extensive of distortions, beyond the border barriers these are the real barriers in modern International Trade. Ese are the things that make supply chains less efficient. It isnt about tariffs any more its about regulatory protection, its about internal distortions and in measuring those internal distortions and dpifg the effect of what they are, we have identified that if we can gather a Like Minded Group of countries to actually work on a reduction of the behind the border barriers and distortions in a way that it would simply be impossible at a wto level, for example, were 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 distortions by 30 , that ends up being around about a 2 injection into gross world product year on year for 15 years, which is a transformative change but it can only be a accomplished by the really difficult stuff in International Trade going behind the border and dealing with anticompetitive distortions. Thats why its 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 access session agreements and hopefully will include the European Union at 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 plur lateral 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 dohar 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 p 4, the 3rks 4 plus 1 and that became a tpp. Thats how you build this sort of comprehensive trade policy so its not always just about where are the biggest markets, can we do deals with the biggest market. Theres an element of trade strategy thats 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 thats the plur lateral pillar. And then multilaterally. We are obviously going to be in a wta recification 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 subsidies. How much of that do we claim . Theyre not those are the three somewhat difficult areas that we need to deal with but theyre 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 zealans or the u. S. Theyre going to want to start that discussion with what is our tlq 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, thats going to help this overall process and its an intimate part of the Free Trade Agreement so you cant 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 thats the first discussion that these countries will want to have over the next two years as we come out of the wto. The other pieces of the multilat ral agenda are what does it mean to have the worlds 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. Its not an optional extra as it is for many other countries. What does it mean for the builtin Services Agenda to have the uk cat liesing plur lat ral agreements with countries. It is woefully inadequate after 20 years. 22 years since the gaps. We have the annex on basic tell comes 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 doesnt even include some of the other countries. So theres 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. 20 years, 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 nptd trade policy would be a trade leader. Why would it not be . So theres an assumption in geneva that the uk will sought to play this role, an expectation that it will start to play this role. When the world looks at the uk it sees one thing and when we look at ourselves we see something else. But that is the process 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 sight and director of Foreign Investment and we need to start playinghat role in the global economy. If i can just so those are essentially thats 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 were 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 say lack of ambition, trying to simply replicate what we have as opposed to actually building an independent trade policy that suits the nature of our economy. Thats the big prize and we think that is a significant prize, not only for the uk economy but for the World Economy as ive described. How do we get from here to there . We cant be in the Customs Union so therefore we need to have interim measures that minimize the trade disruptions. That is things like 0 for 0 tariff deal with the European Union. Its 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, Financial Services say 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 mechanism which is essentially home state prudential, home state recognition recognition of your home state regulator as long as youre doing things that are reasonably necessary for prudential regulation and youre not doing things that are anticompetitive. 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, thats a somewhat subjective judgment and lends itself to consultation. Things that relate to damage to the market, consumer welfare that can be demonstrated lends itself to a dispute settlement mechanism but the notion that we cant do Financial Services agreements in trade because of the prudential carve out is nonsense. There is an equivalent prudential carve out in everything we do in trade. In the wto itself there is a defense for human mora forls, 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 we dont hide protectionist regulation under the banner of prudential regulation when it isnt actually prudential 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 approach is a way of recognizing the importance obviously of safety and soundness concerns but also recognizing that thats 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 result. It should be safe and sound but if thats the goal, if safety and soundness is the goal then we simply would regulate them into the ground so they cant do anything. Thats 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 were fighting over now. Weve already agreed in the article 50 letter that we wont be in the Customs Union or 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, even in things like immigration, in industrial strategies. These will be very difficult issues for the uk, but they are vital and theres one point here thats 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 contrained by the need to have a successful result. If we dont have a successful result which means if we arent able to build that four pillar trade policy approach, were not going to have a successful result. And that is 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 we will get Services Liberalization more easily are also agriculture exporters and they will demand and the u. S. Will demd more agriculture openness from the uk and in certain areas we think we can deliver. We can deliver in tariffs and quotas on products. We do produce we think we can deliver by moving our direct Payment System more into whats known as the green box by moving away from land based subsidies which benefit English Heritage and the protection of birds and not actually farmers. And we can improve our Regulatory Environment. For example, theres a precautionary prison pel. We have no objections to the precautionary principle. We have pay kirn about the way the European Union applies an interprets the precautionary principle and there is water between what we think it should be about and the way its being interpreted in europe. Our baseline for that, and our baseline for everything must be compliance with wto agreements and compliance with the spf and sanctuary agreement means if we simply do that, if thats all the uk does, we will have gone further and you will do better, 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 on foreign products and introduce more of an innovation principle than necessarily to go a longside the 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 pillar 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 negotiating simultaneously with the u. S. And with the European Union, which will fundamentally change and i believe making 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 of die ver jent regulation between the uk which there will be over time we will diverge, smiechlz because we will moving in a more competitive direction and sometimes because they will be moving in a less competitive direction over which we have no control, so we must manage that divergence but do it in such a way that were able to deliver for uk industry and for Global Industry ultimately pro competitive regulation in the area of standards and these behind the border barriers. When you regulate in ways that are anticompetitive you are imposing costs on your own economy, destroying wealth out of your own economy and the bigger opportunity for us is to stop doing that and to start actually generating and creating wealth both in the uk and the global economy. Thank you. [ applause ] thank you very much. Im going to take the usual moderators privilege and ask the first question which may actually be a twopart question. If the audience would like to ask a question or two well have a couple minutes left. Theres a microphone going around. If you could state your name, if you have an affiliation state that as well. Please state your question in the form of a question, not an op ed. Im going to take the privilege of asking the first question or maybe questions and these are very basic but i want to try 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 british speakers but also from american speakers that no one is going to want to negotiate with the uk because its not important enough. Its really not that significant an economy. And i hear this so often. Obviously youve expressed some of the fallacies behind this but i wonder if youd care to rebut that more clearly for the folks who think the uk outside of the eu will be of no particular count in the worlds economy and financial circles . And then second, you raised several times a point which i think is so fundamentally important for brexit, and id like to expand 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 is to look at their entire internal governmental regulatory Interest Group yeah legislative apparatus. Your certainly familiar with the work of an american economist olson and his great 1982 book where he argued that the sitting up of the regulatory system inside democracies or nondemocracies that have the good luck to win their wars, like britain, tends overtime to create lower growth. And that of course when once wants to win ones rules but there is also an advantage to be gained from losing one once in a while as germany found out. This is a unique opportunity that you have a very large economy that gets to reexamine its economy without losing a war. Thats a remarkable opportunity and i wonder if you could expand on that and the question of britains significance. Sure. Thanks very much. So britains significance, when youre looking at a country to youre looking at your trade policy, this is a third country, not the uk and youre 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. Wed all love to have a Free Trade Agreement with china but the degree of difficulty is extremely high and if youre going to get a deal with me if anything thats going to deal with its enterprises and distortions inside the border. So if you look at britain through that lens, what do you see . If britain had been dropped into the Atlantic Ocean completely, you know, without the 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 fifthbiggest is the u. K. And if you look at the u. K. Through that lens, it certainly qualifies as a very big economy with whom you would want to do a trade deal, in fact. I think for many countries, the doing the trade deal with the u. K. Would be the largest economy theyre actually doing a trade deal with. So thats sort of checks the box on that front. But more importantly, it is a country that is very open. That doesnt 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 baggage. The more political will in support of doing a trade deal, the easier it is for other countries to conclude them. And that is absolutely the case for the u. K. You know, we have four at least four cabinet secretaries who secretaries of state, who will start every conversation about trade with an argument for the moral case for free trade and free markets. I would suggest to you thats quite unusual around the world. And it wont be the case forever. Notwithstanding this election coming up, which i dont think will fundamentally change that. There will be other elections. There will be other governments in the u. K. In the future. This is a moment, you know, for the world. It is very much an inflexion point, and we should take advantage of it. The global system should take advantage of t. There is essentially, its almost like a new player is being crafted in this twoyear period on the trade policy stage. How what that player is, what 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 cha chessboard. But we have the option of creating a much more powerful piece. And that will be very important. In terms of this opportunity of the u. K. Has, this sort of once in a more than once in a generation, once in a few hundred years, probably, opportunity, that the u. K. Has to sort of really look at itself and determine what it wants to be, and is related to this last question, this is a debate that were going to have now, rhetorically, it is obvious, where the u. K. Wants to be. I mean, you just have to read the speeches of may and liam fox and david davis and all of the cabinet members who talk insessentally about Global Britain and open britain and freetrading nation and the center of free trade, et cetera. So rhetorically, were there. We dont have to, you know, 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 thats why, again, the two elements of that trade policy, i think, are incredibly important to this. One is the pro lateral prosperities own idea. We need to be with a nation in competition on the merits as an organizing. And that is not true of most of the worlds countries, and its in countries where it is not. Not organizing and to the great cost. So i think that is part and parcel of what we have to do. The u. S. Agreement is the other. I think and this is a twoway street. This is also ensuring that the u. S. Remains a a country that is open and governed by competition on the merits as an organizing principle and Property Rights protection and so forth. Thats very important for the world, where the u. S. Remains in that in that position. And obviously, that has been called into question. Recently. And there is a role for the u. K. There. Not only in helping through the u. S. Negotiation, helping us to remain more open, but us, you know we need to be forceful in our discussions on 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 its the impact of elimination of distorted regulation in australia, anticompetitive regulation. And i think concluded that a reduction of distorted regulation led to a a benefit to the australian economy of 2. 5 gdp or 5 gdp. It was a significant benefit the australians got. So i think we have an opportunity here to look at European Regulation as it has ported over and nationalized as part of law to determine what is the effect. And therefore to prioritize what we actually want to change. All right. Lets let the audience have a crack here. The gentleman here got his hand up first. So and then well move to the lady right in front. Hello. Im a finance policy analyst with national journal. And i kind of wanted to know what role do you think that the potential Scottish Referendum will play in this. You know, considering that during the brexit vote, every scottish District Voted to remain in the European Union, and i noticed that one of the pillars of brexit is agriculture and scotland does hold a significant portion of the agricultural economy in the u. K. Well, first of all, in terms of agriculture specifically, you know, this is one interesting point that we have in our actual the u. K. s production subsidies or aggregate measure of support. We actually have only 38 Million Pounds worth of production subsidies, and they are two programs in scotland, lamb and beef. But to compare that, that voluntary couple support, you compare that with europe, france alone has an only in one program voluntary support, has 1 billion euros in subsidies. So portugal, spain, 500 million. This is the order of magnitude. We basically are de minute miss in that area. So yes, scotland has a significant offering with respect to the rest of its economy in terms of disportion and subsidies, its not actually a huge amount. I think in terms of the scottish potential for a Scottish Referendum, i think if i were scottish, and i were looking at this, i would say, well, what is where are my trading relationships . This is a very different vote if it happens. This would be a very different vote than a vote that you would have while the u. K. Was in the European Union, which, of course, was the reality in the last vote. The last referendum. Scottish referendum. You are now looking at an extreme amount of uncertainty if you leave the u. K. Because youre leaving your biggest trading partner. Which itself is leaving the European Union and will have different rules. Youre leaving the ability to ride on the back of the u. K. Agreements with other countries. That entire International Independent trade policy, you would be leaving that. And you have to ask ourselves, can we replicate Something Like that, by ourselves. I would suggest that is quite unlikely. And then what is the European Response to us leaving the u. K. 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. They already have to deal with greece and other countries that do not satisfy the economic criteria. And scotland, without the u. K. Largely because your oil revenues are down from 3 billion to 60 million, is not going to satisfy those criteria. Its economy is not in good shape. Its masked by its relationship with the u. K. So you put all that together, and i think scottish voters would are likely not to vote for independence. And i think thats 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 to sort of call their bluff, in a way. And say, look, you know, 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 he wants to do is align everyone around a plan. What ive laid out is a lot of work. It is a very, very big challenge. You see mobilization in the u. K. Government that you havent seen since the second world war. And to deliver that, we have to be aligned. And i think scotland will align. There are is maybe another point about scotland, which is sort of in the longer run worth making. That achieves its political breakthrough 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 unit than scotland was. And in some ways, you can see the rise of sport for Scottish Independence as a recognition of a temporary reality that scotland appeared to be economically sustainable and viable on its own terms, thanks to north sea oil. I personally have no doubt that if scotland pursued sensible, economic policies, it could be very successful and prosperous as an independent nation. The problem is the snp is the party in all of the United Kingdom least wellplaced to pursue such policies. So that is i think the fundamental difficulty. So i tend to concur. 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 whitman. You made a couple of points that i thought very interesting. One was about nafta being an instrument for reform in mexico. And other was the comparative openness of the u. K. And the u. S. Right now. We have within the u. S. , shall we just mildly say leading voices isnt naftas worst thing we ever did. And also a Free Trade Agreement with britain. And many of my british friends have thought we should do that forever. We have 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 view 1776 as a diversion over openness also. But what do you think our real prospects are, and what about alignments with mexico and the consideration of what in the world might happen to nafta as this administration examines policy, shall we say . Well, you referred ted referred to wilbur ross oped. And i would agree, it replays very close reading. I think whats happening in the u. S. Right now is, there was some very highlevel statements made about economics. China is bad. We must do something about china. Mexico is bad. We must get out of nafta. Now, those highlevel 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 more deeply at behind the border barrier and the spp, prosperity partnership, and the next level of this, which is to look at behind the border barriers in mexico. And if i were the mexican government, i would 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 were essentially saying is that free trade does not stop. The advocacy of free trade does not stop at the border. The countrys border. That actually, if you that we want to embrace free trade and free markets, but we want you to, as well. Because if you dont and you distort, then we dont do anything about it, then we are merely importing your distortion into our market with the effects we have seen around the world. So if thats the approach, and i think reading the wilbur ross oped, certainly there is an opening. For that to be the approach. And if thats the approach with china, you know, as Rob Lighthizer said in his Senate Confirmation hearing, the wto does not deal well with chinas industrial policy, which is an absolute fair statement of fact. We do need to deal well with that. And adam smith talked about the monopoly. The competition in trade the in fact, trade is just a subspecies of competition. I mean, competition is the main issue here. And if we can move our own discussions as tariffs have come down, these internal barriers have become more important and had a bigger effect, we have to deal with those. And whave to deal with them in ways that arent the the sledgehammer of anti dumping legislation. We have to move from price to costbased mechanisms. If you were artificially reducing the cost of your companies through some distortion through some government regulation or activity of some stated company, 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 thats 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 prosperitys own with our other trade agreements, because we want to come up with ways of recognizing the effect of distortions in the world. And this is the only way, frankly, were also going to be able to integrate less developed countries into the system. If they have to compete with china distortions, you know, we dont want to repeat of what happened when the multifiber agreement was removed. Or ended. When, you know, China 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 youre efficient and you wipe out scentral america and textile firms, thats fine. Thats competition. But not if its, you know, with a bit of government, you know, steroids in the tank. So, again, if thats the approach, it will help us into great developing countries into the Global Trading system. And it will enable us to do what we frankly need to do, which is to maximize the efficiency of Global Supply chains. Im not sure if shanker would agree with this. He might. One of the things that in my view, at least, has done the most damage, the cause of free trade, at least in the United States, i think much less so in the u. K. , where the idea of free trade is a pleasing novelty to a nation that invented it but hasnt actually done a lot of it for the last 40 or so years. One of the things that has damaged it most in the United States is this perception, not entirely without basis, that its been at least in some cases, china more unilateral free trade than bilateral free trade. And if the approach that were setting out here for the u. S. And the u. K. 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 dont we take both of these questions at once and then we can wrapup after that. Thank you. Transnational strategy group. The question was about the development. And you just addressed this issue, the developing countries, africa, caribbean, pacific. And my question is about the gsp plus that the European Union offers, a special concessi concy tariff regime. This would be advantageous for some countries. Im thinking of pakistan, where when it joined gplus, generalized systems, a scheme of references, as they call it in europe. Privileges in 1974. Its textile exports, immediately jumped up by 20 . Most of that is particular to the u. K. So, of course, in pakistan, theyre wondering whats going to happen to gsp plus privileges and benefits when the u. K. Leaves, because that really is their market. And lets take this gentlemans question at the same time, as well. And answer both of them. Thanks. I have a very quick question. A lot of negotiation has to happen in the next two years. How does the u. K. Avoid being the weak partner, given that were working to raise 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, well go through our rectification process. The binding 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 at that rate. So what we can do and there will be, for some countries, for the eba type countries, the leastdeveloped countries, we can simply port over the eba program. As you said, a lot of them the bulk of their trade into europe, or at least a significant percentage of their trade into europe comes into the u. K. So we can we can do that for those countries. But at the same time, we have to be moving towards reduction of tariffs in those products where we dont produce where we dont 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, this sort of whole supply chain. The cotton garment textile the Cotton Textile garment supply chain is massively distorted in india. You know, they have had a cotton export ban, which artificially, you know essentially favors their textile producers who were able then to have lower prices on global markets. Pakistan, by contrast, actually, has been much more open, fewer distortions in its Cotton Textile garment supply chain. So we have to recognize somehow that reality. So we cant simply have a situation where we have a low or zero tariff to those products coming into the u. K. Where pakistan is undistorted, relatively, and india is highly distorted, relatively. So well have to figure out ways of insuring that, you know it could be a safeguard measure, where essentially you say, yes, we are open. But if you can prove if the pakistan textile industry can prove which will not be difficult, because it is a matter of Public Record on which we have written, that youre competing with a producer that is distorted. That a safeguard applies and perhaps protects your original gsp position or takes you back to the original gsp position. But gsp in the way that we have seen it so far, you know, its there because the other countries, the developed countries are highly protectionist in those sectors. It 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 dont see any advantage. I mean, they have done it. And credit to them. But there is no advantage to the pakistan textile industry of being more efficient. Because they are not rewarded for it. They benefit from the gsp, which, as you say, can be withdrawn if there are labor issues or Environmental Issues or some other issue that has frankly nothing to do with that particular industry. The other you know, major problem of the preference mechanism is it chemicals mys the supply chain. Because if im a cocoa producer, for example, and im seeking to go up the value chain and produce chocolate, i cant do that. The chocolate tariff coming into europe is 40 . The gsp plus rate is 4 . So thats fine. But if something happens, you know president does something the europeans dont like maybe garner does really well as a country and graduates out of the gsp program, you know, all of these things. I have no control over. And im going to be penalized. So as a business case, i cant suddenly stop changing my supply chains if this can happen in the future. So its 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 take your point. But that just simply means we have to recognize in some mechanism to recognize distortions where you have got a producer that is actually doing the right thing and competing with another perhaps similarly placed country that is not doing the right thing. But we have a mechanism for differentiating the two. In terms of how long this will take and where the pressure points are, then i think first of all, many of the things we have talked about theres a tendency, i think, in terms of the public press and the sort of more generalized media, to think of this as a sort of, you know, boxing match between the u. K. And the eu and were just in the early rounds of sparring. But thats not whats happening here. I mean, whats happening here is, we are together, the u. K. And the eu, trying to figure out ways of making sure that the gains from trade and the disruptions, particularly disruptions to trade are minimized. Because our supply chains are so integrated that we cant 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 corps will say to them that they need to have 0 for 0 tariff deal and a recognition of standards. So i think, actually, the timing works on both sides. On the u. K. And the e. U. , to come to an agreement quickly, and to agree sensible interim measures. Im always accused of being an economic im far too rational and far too economicbased and im not emotional enough. And i dont understand the european mindset. But even if your driving objective is the political Single Market, is the political aspects of the Single Market, is of the integrity of the european project. If thats the only thing that youre concerned about, britain leaving the e. U. Is not the biggest threat to that. The biggest threat to that is a crisis in one of the 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. I think that will also percolate through the thinking here. With respect to other countries, and the timing, well, yes. These other countries also know that were under pressure to agree this deal. I think the way that plays itself out is they will say to us actually, the other way around. We will want them to come to the table more quickly. And they will say to us, we will want to 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 tre theresa may made, that would be a legitimate thing to say. We dont really know. If you were going to be in the customs unit, why are we having this discussion . If youre going to be in the e. A. , were not going to negotiate services with you, and youre obviously not going 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 u. K. Is going to be. They know exactly in fact, they know better what the u. K. Is going to be than they know in any other country. Because they know that in two years time, britain will not be in the e. U. , but will be a third country negotiating with the European Union for a comprehensive Free Trade Agreement. You dont actually know that about a lot of other trading partners that you might be speaking to at any given time. They can be doing all kinds of things. So you actually have a deeper level of clarity in terms of what the u. K. Will be like. And you have to as a third country, you have to say, well, is it is it valuable enough to expend some capital and some time in negotiating with such a country. You know, the u. S. Negotiates with many countries that are negotiating with the e. U. Or with 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. Well either have a Free Trade Agreement with europe, or we wont. Thats basically what it will be. Its quite a binary choice. And if that is the case, its worth investing the time in trying to get a good deal. And the u. S. And many countries regularly, and we dont have to say this now in the context of the tpp, spend a lot of time negotiating agreements that ultimately dont come to anything. We were involved in the free trade area of the americas, which would have been a wonderful agreement, if it had ever seen the light of day. This happens all of the time and they just have to make decisions. It depends on what your economic gains are. Great. Well, on that moderately optimistic and enthusiastic note, i think its a good time to close. Thanks very much to the audience, both here, online and on cspan. And, of course, special thanks to our guest today. [ applause ] coming up live today at noon eastern, todays White House Briefing with press secretary sean spicer. That will be here on cspan3. And today is the 242nd anniversary of the event known as the shot heard round the world on concords north bridge, which triggered the start of the revolutiona revolutionary war in 1775. Tonight well have the opening of the museum of the American Revolution in philadelphia, with remarks from former Vice President joe biden and historian and author David Mccullough. That will be tonight at 8 00 eastern here on cspan3. This week on q a, the american spirit, who we are and what we stand for. A selection of speeches going back to 1929. The speaker written about the most is joe mccarthy. There are a dozen books about mccarthy, yet no biography of the senator who had the backbone to stand up to him first, margaret j. Smith. Do you remember how you went about preparing for that speech . Oh, did i go about it . Hardest ive ever worked on anything ive ever delivered from a podium. Historian David Mccullough on his become, the american spirit, a selection of his speeches going back to98