Corporation projects the u. K. Is likely to be economically worse off. This study explores the effect brexit will have on the u. S. Economy, politics. This is live here in washington d. C. On cspan 3. Ill introduce our expert panel. We will turn this over to michelle for some comment and then ask them to weigh in. Charlie reese, Vice President at rand. He is former ambassador to greece. In iraq he served as coordinator from 2007 to 2008. Fran is a distinguished fellow at the atlantic council. Until january 2017 she served as Vice President for special initiatives at the council. Howard is senior economist at the Rand Corporation and profess so er at the rand school. He has written on so many varied studies im hard pressed to find something he has not written on. Michelle is our nonrand oeexpe. She is professor at American University school of international as much as and door d coordinates their international program. Thank you very much. Robin didnt introduce herself but show is just lack from our top political jobs and knows ki quite a bit about this. I hope she will intervene in the discussion period. I look forward to our discussion aft afterwards. The mission is to improve policy and Decision Making. We are a nonpartisan research organization. By take to position on brexit itself. It is the british voters that decided to undertake this study. We provide evidencebased incites on what will be one of the biggest moments for the u. K. And europe after the end of world war ii. We a semiabssembled a team and already introduced with me today are fran and howard. Funding for this report was provided by donors in the independent of rands contracts for the department of defense. In addition it supported the work on game theory in relationship to brexit as well as some of the outreach activities we are undertaking. What we produced is a new piece of analysis under different trade sen ncenarioscenarios. It provides a thorough Economic Analysis but uses game theory incites. Through Economic Impact scenarios our study helps to explain the significance in the decision reach last week to move to phase 2, the discussion of the future economic relationship with the u. K. Let me begin by discussing the scenario. It could be considered the no deal case. It could be that they leave without reaching any agreement for trade with the remaining members of the eu. We call this wtl rules. In such a circumstance in every other country only under freights for goods and established market. We then compared the following four scenarios. First the successful negotiation of a u. K. Trade agreement which the u. K. Is seeking. Second the creation of a u. S. uk. Trade agreement. It was under negotiation between 2013 and 2016 but is now frozen. And an extended transition period which they do not change materially. Now, for the sake of completeness we also assessed the Economic Impact. It is unlike the hard brexit scenarios we assume they will maintain access and apply the external tariff towards the rest of the world. Three are one the norwegian model. Two the british model which would be based an a series of bilateral arrangements. And finally an euu. K. Agreement. Our study used gravity economic modelling to measure the monetary changes in gdp growth and per capital. We analyzed immediate changes in nontariff barriers including customs on another agreement and over time through the dis. The uk will be economically worse off under most scenarios. The key question is how much worse off will it be . The option of leaving it with no deal and applying the rules will lead to the greatest Economic Losses. It is clear no deal is the worst deal for the british economy post brexit. It would reduce the future gdp by 5 which is a loss of 140 billion. Under no deal the eu would lose out but by nowhere near the proportion of the uk. The Economic Loss would be about 0. 7. The uk would lose more absolutely than the eu under a kn nodeal scenario. Why would it be so damaging . Because they would face levels on the goods expert and would in turn apply them. Although the tariff levels are not so high we determined that the uk would have to inspect in value all cross border trade as would the eu country. They would result there significantly increased nontariff barriers. A mainstay of the british economy. As uk Service Exporters would have access to markets and not the Single Market enhanced virtually friction free access it has now. The uk would be worse off in nearly all of the trade scenarios as compared to the current status. A Free Trade Agreement with the eu, essentially the spoke trade agreement would be modestly better. So would a Free Trade Agreement with the u. S. Be able to substitute for the uks access to the eu . Our analysis suggests it would not. It would only be 2. 4 better than the no deal baseline. It would be significantly worse for the uk than the equivalent might be largely because existing levels between the u. S. And the u. K. Are substantially less than between the u. K. And european neighbors. So the only true would be a trilateral agreement, much like the ttip might have been. We found out it would be 7 Percentage Points better than the rules baseline, even better than membership alone. They would get access. One reason for this being so good is in addition the eu and the u. S. Themselves would also benefit economically. The effect would help the u. K. We understand that it is very unlikely in the current political environmenenvironment. We addressed other scenarios including the norway, swiss and turkish models. Economic uncertainty would hurt investors. The norway, swiss and turkish models would imply low are trade barriers would come with a significant loss of uc. K. Sovereignty and budgetary contributions. On those grounds these options dont seem politically viable in the u. K. Accompanying our analysis in this study is a new online calculator which is now live on our web site. It allows policymakers and economists to alter the key trade assumptions. It allows them as the brexit negotiations begin. Chapter 4 is based on an application of the social science of game theory. It was to create a better understanding of how they are influencing the contours and out dp outcome of the brexit negotiations. It explains why they sought first to settle the divorce settlement before discussing future relationships. From the stand buoyant tpoint i a strategy in which it wins when it can slow the uchl. K. Looses. Since all Member States have more than the u. K. Can offer to match and efrlt would be likely to backfire. It is also a sochbsable strategy for the u. K. To seek to broaden the negotiation as the more issues on the stable will help arrange positive tradeoffs. This explains why Prime Minister may to pay rather than put them on the negotiating table. Finally we assess finally in the study we assess u. S. Interests. Our most important is that core u. S. Economic interests are not at stake. The only scenario that we examined that had an impact was the the ttip outcome. It will miss the loss of the pragmatic voice in eu economic policy. As far as direct investment is concerned from the data it appears to be more motivated by domestic economic opportunities. We conclude that the bigger u. S. Stake in brexit is the potential impact on european Decision Making where they worry about political issues and on european cohesion. The worst impact would be if brexit lead to a greater broader which wouldnt be good for the uk either. It is to achieve some sort of the open trading post brexit. The big challenge around trade are likely to be the complicationsover complications of coming up with seech such an agreement. The agreement to move to phase 2 is so important. The nodeal option could be damaging to both parties. It would be at the top of the agenda as kplik talks begin. There is much more to our study. To me these are the highlights. Howard, fran and i look forward to our discussion and look forward to moving on to our discussion period. Thanks very much. I will give the nonrand member of our panel to give her impression of this. Did it align with your expectations . You have been talking ability this f about this for a while. Thats a great question. Besides recommending the report, because i would start off and say britain friends to have a very transactional review and this is a transactional report. No brexit outcome is the best scenario and no deal is the most costly. I think is british economy itself is heavily geared and weighted towards services. So within britain itself there is a did i have rfferential imp. I think we need to sort of the unpack the difference between trading goods versus trade and services. That is very very important here. I think the report tell us something very important that tends to be forgotten. The first thing is as the report points out the sequential nature of the agreement being in three phases puts the damage over the uk. They wanted things simultaneous. I would say first of all we need to terms of the uk exit which has just been agreed upon this week. The second issue, which is framed differently in the press but the second is the establishment of a framework. Thats not a trade deal. Thats framework. The third is the establishment of the transitional arrangements. This report really lays out clearly why that benefits them. It is a distinction between a Customs Union and market. It is about trading goods. It is about zero tariffs. You to have an identical trade policy. So the u. K. Doesnt get its own trade policy in that scenario. It is a very important choice. It doesnt get back sort of the trade sovereignty. It is about the uniformity and indy visibility of the four freedoms. It is something where the british try wanted and expected some sort of indy visibility and some i suppose opt outs in terms of Free Movement of labor. It will be enforced by the European Court of justice, something they indicated they didnt want. So i think its very very important that the eu is a legal ofrm order. It will not allow britain to cherry pick. The report also tells me something which i thought was very obvious but is not talked ability very mump, which is the tariffs. We often dismiss them as small. We often said the tar rafs are small. They only 2 . What are the high tariffs and things like agriculture. So as you point out, 34 are tariff free. That means a lot more, 70 plus, are now at risk. And so for me i think attention is not just needed on the uk and eu negotiating tariff rate quotas its not just let us divide what this is, i think they are starting to realize others who will be effected by this, other states who wont say this is just a u. S. A uk eu deal. I think it will broaden the debate about tariffs. The second issue is that this report really brings home this is not just about trade, there are many unintend consequences. Here i was struck by the range of issues that we do not even comprehend yet. First of all just because we may or may not have a new border it wont be just about customs clearance and the irish tell me that 80,000 trucks go back and ford wa forward per day. It will be one of the most messy trade issues. The second issue will be the british will be subject to eu competition policy, mergers and acquisitio acquisitions. So the british will not be allowed to undercut because then it would be subject to antidumping issues. Thirdly, the eu has a lot of trade remedies that it uses. The british will be subject to some of those trade remedies they often par tticipated in. Its not just a bill for the pry jor commitme prior commitments. 12 to 15 is paid for by the uk. What happens to the redistribution . Which of the Member States will pick up the british bill . Finally the issues that perhaps we dont think about because we so focus on trade but the british are part of nuclear materials. What are the costsov of moving those . And lastly, regulatory agencies. The europeans have created a large number of regulatory agencies and areas of interest to the United States to yecreata much easier access. Those regulatory ageneral scies now moved. Secondly, what kind of access will the british have . Finally the one that struck me as less salient in terms is that we will have border issues in spain and whether e will also h issues in cypress. The range of things we think about is interesting. For the british i think theres something different. In the United States you a nafta. The british will have a patchwork of trade agreements they have to any geshuate. And so i would say thats something that the british will have to confront. I think the report also tells us not just about tariffs but also about nontariff barriers. They are hard to quantify. They are hard to deal with. I think that the report gives us a kind of caution here which is very important in this debate. Overnight the British Regular la lregularlation regulations ae not going to diverge. I think it is an important Economic Impact. And the last two things would be that the eu is moving on. The eu is developing with eu japan, eu mexico but the british are not part of that. The question is those agreements that are not already signed, will the eu have to relook at them because the british are not part of them . And so i think this is very very important and i also think from the british point of view, you know, the scenarios you create that dont look terribly good, the eu is realizing how different trade and investment is. They are separating treaties. If i looked at highway political sized investment agreements are in the eu, they going to get a trade deal. Trade on goods but investments 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. I think well turn to fran now and then to howard and then open it up. I am confident it will be generally lively debate going on here. I will turn it over to you. Michelle highlighted this range. We are in the next phase now. Tell us what that means and what other Strategic Policy consequences we may face. I think today is a great day to be holding this panel because just before we came in the room they concluded the their meeting and i was trying to find out if the guidelines had been published yet but they havent yet at least not as we walked in here. Yes. Its a summit. This is a summit of all of the ye european leaders. The british were not teresa may was in brussels at dinner and then left. 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. These are not in significant accords. Where they have really kicked the can down the road is the agreement about ireland where you can see contradictory provisions. Some satisfy the irish who threatened to use the veto if there will be a border between the republican and north of ireland. That set of issues is going to go into 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. I think its possible we will reach a relatively fast agreement. The british have slowly come to the realization you cannot negotiate a trade agreement even with best friends. Its not done. So the transition would be one in which the uk adheres to all of the financial responsibilities and obligations and adheres to jurisdiction. Thats one of the decisions, how long can it go on . Thats one of the negotiating points. So they will be a taker, a recipient of eu rules. One issue i can see coming up in this that is unclear to me is whether the british will continue to receive their rebate. I think it will be a problem or a Sticking Point as they work towards the transition. There were also comments as the leaders were leaving the summit today. There needs to be some kind of understanding. There is in the guidelines an agreement within the eu that the spanish will have essentially approval over an agreement. This could be a Sticking Point over the long term. Once it is done then one would move onto the future relationship. Here the Priority Issues are the trade agreement and indelucludi customs. The challenge is that the uk has been kind of schizophrenic. Schizophrenic might not be the right but but it has been uncertain. Cherry picking deciding you can have parts of the Single Market is not going to work out. So the other problem with these types of agreements is that depending on what is included the negotiation of a trade accord operates urnder qualifie majority voting or unanimity which is a much more difficult hurdle. If it includes things there is still issues to be worked out then everybody must approve. You can go through a situation where you were waiting for them to approve this. If you keep it to a more narrowly approved agreement it just gets approved at the eu level. Even if it is just the eu articles with agreements with third parties and britain will now be a third party which is a big mental leap. It will not be a moember. It will be just the same as we are, just the same as skbjapan terms of its relationship. If you an agreement with a third party under article 207, if it includes services and intelle intellectual property. Services is the major part of the uk economy. So we have proceedural issues that will play into what with type of agreement will be pursued. Let me say that one issue that charlie and michelle did not bring up so far is data. So the transfer of data which h. They will adopt it protects personal privacy and the transfer of data but it is unclear whether after they leave and as their own privacy regulations may start to diverge a little bit will they have to think about the amount of data that goes back and forth between Different Bank and all of the private areas. As they talk about the trade agreement inclu