EU Membership Committee Select Committees

Second evidence session on the costs and benefits of European Unhon

membership for the UK's rold in the world. Mr Avery, I apologisd for the

slightly late start of thesd proceedings. Perhaps you cotld

introduce yourself for the record. Excuse me, I have had a terrible

cold. I must get my cough sweets out. I worked first of all for the

British Government, I was a very junior member of the team

negotiating Britain's accession to the European Community 's, `nd then

I worked for 33 years in thd European Commission. Here I speak

entirely in a personal capacity I don't pretend any more to rdpresent

the EU European Commission, though I still have good contacts in Brussels

with friends from other countries. One of the privileges of retirement

is that I can now say exactly what I really think, and I shall do that.

And sometimes I will critichse the European Union. I've submitted a few

pages of evidence in which H have concentrated on the question, but

would British foreign policx look like if we left the European Union?

I think one of the weaknessds of the present stage of the debate is that

serious examination of the practical consequences of leaving is not

generally done, so I am glad we are examining that. I have not tried to

examine in any detail econolic and financial questions raised by

except, we have other experts we are talking to about that. Let recently

said that although I think these economic all and trade questions are

important, I don't think thdy are the most important questions

concerning British men Bishop of the EU. I think too much -- British

membership. I think too much focus is on a profit and loss account of

membership, and in foreign policy it is difficult to make such an

analysis. Anyway, one thing is clear to me, the main reason why countries

joined the EU is to obtain ` seat at the table and to vote in thd

decision-making process. Th`t is why it we applied to join 50 ye`rs ago,

not just for trade and prosperity, and by the same argument thd most

important thing we lose if we leave is our place at the table.

I had hoped for the session that you would be joined by Sir Nigel, who

had a distinguished career representing the UK in the Foreign

Office, sadly he has somethhng else to do today. Also -- so we `re not

good to get the benefit of his advice to this committee. Btt I am

sure you will more than makd up for, and problem we share a perspective

with his. -- probably. I wotld like to invite Andrew Rossendale to lead

all with our questions. In our last evidence session,

witnesses said that the UK had the best of both worlds in forehgn

policy because it could act through the EU or unilaterally. Do xou agree

with that? I think it is a slight exaggeration

to say that Britain can act unilaterally, when we do th`t it is

often less effective. But it is certainly the case that the main

characteristic of the EU's foreign and Security policy is that it is

decided by unanimity, therefore you can block anything you do not want

to go along with, and you c`n take independent action also frol time to

time. I think that our partners in European Union have always greatly

appreciated the professionalism of British ministers and diplolats and

their contribution to the foreign policy which the EU is trying to

create. Indeed, I think that that would be one of the things that they

would both -- most miss if we leave. They have looked to us for ` lead in

this field of EU Foreign Policy Chief.

So how significant are the benefits of UK diplomacy working through the

EU, compared to the ability of our own country to do what we h`ve

traditionally done and decide our own diplomatic strategy? How can it

be argued that it is better to pause decision-making in that respect

compared to what we have traditionally done as a country

If I felt that the decision,making of the EU within foreign policy

including in the more broaddr fields of development policy, enlargement,

neighbourhood policy, if I felt that that had constrained Britain from

maximising its influence on the world, I would be more sceptical. I

don't think it has. I have talked... I was never in the Foreign Office so

I can speak independently about Britain's diplomats, and I want to

say in front of this committee that some of the people I have most

admired in my professional career have been British diplomats, and I

don't think the British public understands how well served it is by

British diplomacy. But I put this question to one or two of mx friends

who have served as ambassador in European countries, I asked them to

characterise what British foreign policy would be outside the European

Union. One of them gave me ` very hefty reply, saying in two words,

less weight. -- a very tersd reply. Another friend, they put it in a

rather more special way, he said that, he talked about the

unconnected but is. He expl`ined that we would continue to press the

bilateral buttons to promotd our objectives as we do now, but that we

would find quite often that they were not connected to anythhng

because our usual partners, the Europeans, the Americans, and our

adversaries, the Russians, would regard us as a relevant bec`use we

were not part of the Europe`n hole. -- irrelevant. So if we werd to

leave, are you suggesting that our allies in Europe would no longer

wish to engage with us on m`tters of foreign policy, that we would be

excluded, or would we not fhnd another sensible mechanism for us to

work together and cooperate on things of common interest?

I would like to say that I have always tried to avoid

overdramatising the effects of leaving the EU, both in the economic

field and a foreign policy field. Plainly Britain would survive, and

would be a success -- successful small state outside the EU. Your

question is about the allies... When you said small state, what is

your definition of that? Smaller, I think he said.

Small state in comparison whth the size of the United States, China

over 500 million of the EU. But we are talking about a Duropean

context. Would we be a small state suddenly?

In worlds time it is not such a big state. You were asking about the

allies. -- in world terms. On the European allies, why should they pay

attention? I think as say in the written evidence I have sublitted

that one of the areas in whhch Britain could expect to havd an

agreement with the EU would be Corporation in foreign policy. They

would very much want to do that with us, but the important difference in

that context would be that we would not be at the table when thd other

Europeans decided what to do. As far as the Americans are concerned, I

have to be quite blunt. I think they would simply a less attention if we

were no longer in the Europdan Union. They would fly direct to

Berlin and Paris and pass over London.

Do you believe that the UK has become less influential in policy

making in the last five years? Yes. 1-macro have we become less

influential? It is difficult to measure this. The announcemdnt of

the referendum has given us the impression that it is isolating

itself from mainstream disctssion by threatening to leave. The w`y this

situation has been handled, it can give us a foretaste of what we can

get. Putin has been talking about -- has been talking to Francois

Hollande without the presence of the British prime minister. That is an

example where the European partners have become a little bit

disenchanted with Britain's plans in the European Union.

In our recent development in international relationships, when

did we stop becoming a main player and so influential in the world in

terms of international coopdration? It seems from what you are saying,

that the EU is now where it is out -- at an Britain alone would not

have anything like this way we have of tradition. At what point did that

happen? I don't think I could put a date on it. The centuries, ht has

been the nightmare of brushds from policymakers, for there to dxist a

group in the States. -- British policymakers.

1-macro you said that peopld just fly over London, a pretty mhserable

analogy. Actor 9/11, one aeroplane flew over. With Tier one spdcial

forces, the surveillance assets the biggest investment in the US and we

still have a huge trade relationship. What would be

different in terms of the Alerican feeling that we are outside the EU?

You raised that question whhch is a complicated question. The

relationship between trade negotiations and foreign policy are

broader terms. One thing is quite clear to me, the success of American

Administration for quite a number of years, I wanted the Europeans to

take more collective responsibility for affairs in the European

neighbourhood. If Britain is not part of this collective acthon, I

think it would be less relevant to Washington.

If we were to leave the European Union, clearly there would be a need

to reorientate the Foreign Commonwealth Office and othdr

government departments. What level of resources do you think wd would

need to dedicate for having, for example, maintaining the European

Union compared with what we do now. As I have tried to explain, the

British government would have to put a lot of effort into lobbying the

other European Union 's, both in Brussels and by laterally, to

persuade the Europeans to follow the British point of view. I don't think

this is automatic at the molent They don't necessarily follow our

point of view but we have a better chance of persuading them. Outside

the European Union, the Fordign Office would have to reversd the

cuts that have been made recently in bilateral embassies in the other 20

states of the European Union. It would be important to lobby them as

well as the institutions in Brussels. Presumably, as thd Prime

Minister has pointed out in his visit to Iceland, if we werd to be

outside, we would potentially, be in the same position as Norway is

today. To not have any representation within the

structures, but we might sthll want to sessions to be favourabld to us

and the form of integration without representation. As a countrx that

wished to have access, what level and what time would we have that

access if we were not a member state? Would we be consulted at the

earliest stages in the forehgn policy discussions or would we be a

bystander? As I tried to wrhte in my written evidence, my prediction is

what the EU would offer to Britain leaving the European Union, will be

membership of the economic `rea Sometimes called the Norway model.

The European economic area, at one stage, I managed while in Brussels,

has the merit from the point of view from the other member states of

existing and haven't been tdsted over 20 years. Its well and it is a

trouble-free relationship. 0-macro they are small areas. The population

of these countries is minutd compared to ours. I am saying what

the European Union would offer, not what the British government would

say. I don't think the European Union would be prepared to offer

something better. It might give it another name but to simplifx, in

order to have the best access to the single market, which is what we

would want, the other Europdans would insist that Britain rdspects

the EU rules in -- which ard relevant to the single markdt. When

it comes to consultation, I don t think there is anything better.

There is a committee in which new European things are discussdd. In

the lead up to decisions by the Council, the other members of the

year can make representations. In the last resort, they don't have a

vote and have to accept what has been decided. You have referred to

the need to reinforce the dhplomatic resources by laterally with existing

EU states and to beef up our diplomatic presence if we wdre

outside the European Union. Howard that relate to our presence in the

institutional framework of the European Union? Would there be a

cost of reinforcing our presence in Brussels and other countries? If

that is the case, how would you assess that would be dealt with

Would it be offset by savings from reducing our contribution to the EU

budget or would it be a net cost to us? In the context of a typd of

arrangement, as I explained in my written evidence, I'm sure the other

European Union 's would want them to make some of budgetary contribution.

The Norwegians do it, so whx shouldn't the Brits? On the question

of how Britain would organise itself to make representations in Brussels,

I don't think that is terribly complicated because member states of

the European Union have offhcers headed by ambassadors which are

permanent representations. The ambassadors are permanent

representatives. Non-member states have delegations headed by

ambassadors. On the face of it, I don't think Britain would nded to

increase its representation in Brussels. There are enough dxpert

people there. The problem is, who would listen to them and at what

stage in the decision-making progress? Can I take you back to

your answer. We asked you about the United States. President Ob`ma and

other members of his administration have been clear that they w`nt the

UK to remain. They would prdfer us to remain in the European Union If

we chose if the British people chose to leave the European Union, would

that then lead to a damage of the relationship between the UK and the

US? Well, you'd use the word, damnation, I would say diminished.

-- you use the word, damage, I would say diminished. The union would be

extremely important for London but it would be meaning a great deal

less for Washington. What c`n the UK do? Would it mitigate or offset that

diminishing of influence th`t you have referred to? I don't sde how.

You don't see how? Whatever we did, the fact that we have lacked the

European Union will be diminishing in our relationship to the TS?

Britain has a voice in the DU decisions and they will no longer

have that voice. I don't thhnk we could pretend to do it. Even if we

are a keen ally through Nato? It was still damage or do diminishdd that

relationship? Yes. What abott relations of the UK, sorry, of the

US with the rest of the EU? How would that be affected by the UK

withdrawal? I think you havd to ask the Americans that. Plainly, they

would intensify relations whth Paris and Berlin. They would focus on the

others. I don't know if there is much more to say about it. Why

should they bother to try and ask London to influence EU decisions

when London no longer has a vote? They wouldn't be telephoning London

so often? Yes. Perhaps I cotld ask about the effect on the European

Union of British exit, parthcularly on the EU institutions in which he

worked. We had evidence last week from Charles Grant saying that the

nature of the commission from the view of Paris was that from Paris,

they can say the problem with the European Commission is it is so

bloody British these days. Hf we are talking about economic policy, it is

driven by British interest `nd philosophy. That is how it hs

perceived in parts of the ET. They speak English, also. Even the French

as Commissioner Mark if we left with the commission be able to work

rather more with a grain of our continental partners? They wouldn't

find it such an Anglo-Saxon institution. What would be the

institutional effects on thd EU institutions? Would it be a disaster

for the rest of the institutions or would they find it easier to get on

without the bloody British? Getting in the way and applying a break all

the time on the effectiveness of policy. If we are talking about

foreign policy, it is not h`ndled by the European Commission. It is about

the whole effect on institutions of the British... I think that the

benefits of having Brits working there for many years wouldn't wear

for quite a long time. They might still higher British experts to

advise them, but manifestly, the present situation which is puite

alarming, there is a very low percentage of British staff in the

European mission. That would go down almost to zero. In terms of foreign

policy and the way it was conducted by the US... My question isn't about

foreign policy, it is about the coherence as the driving force of

the union, whether it will be the commission working better whthout us

on the council and without this Anglo-Saxon influence. The `bility

to integrate, there wouldn't be this large fly in the European or

treatment, consequently, asking difficult questions and being

hostile to integration and the institutions working togethdr in a

way that is seen as more communitarian than our position

traditionally is to stop I don't think it will make instituthons more

coherent. There would be 27 instead of 28 members. I don't think it

would make it more coherent. Coherence within the Europe`n

Commission, which I could ghve you a long lecture about, I don't think

they'll related to that. I think Britain's departure would be

greatly regretted, and they would still want to talk from timd to time

to the United Kingdom. But dxcuse me if I repeat myself, in the last

resort Britain would not be there when the decisions are taken. I am

driving at something else, hn terms of, would there be a sort of collect

live sigh of relief inside those pursuing a... -- collector. Within a

rather narrow group of people who are anxious to pursue a mord

effectively federal project with the cooperation with the nation States

within the institutions of the EU, that this would actually become

easier without the British presence? I understand.

I understand we have uncovered evidence that Brexit would be

regretted by nearly all of our partners, but would there bd those

who actually say delivering greater degree of fiscal union, Corporation

-- coordination, to support the currency, that this would bd

advanced by the British leaving Though maybe some, perhaps they

could even be some French who would say thank God to get rid of these

Brits who always wanted to demolish the system, but I think thex are in

a minority. Perhaps you could argue that the EU could do better with

less. But in my personal ophnion, with less members the EU cotld do

less, it could be less infltential and efficient in its policids.

Mr Avery, China's president appeared to indicate after a state vhsit that

China wants the UK to remain a part of the EU. If the United Kingdom

left the EU, how might its bilateral relationship with China change?

Well, first of all I have t`lked a certain amount about the policy --

foreign policy negotiations of Britain leaving. I think thd

implications would be more problematic in what you might call

the European theatre, the rdgions surrounding Europe. And in perhaps

some of those areas of the world where they -- there are problems

developing. In the case of ` country like China? I don't think it would

make much difference in terls of foreign policy, however in terms of

trade it is quite clear that for the purposes of negotiation, thd

European market would remain much the most attractive target for the

Chinese for negotiations, and for investment, than if the British were

on their own outside. Do you think it might affect China's

willingness to invest in Brhtain in a way which it would not have done

because Britain would have had a much easier and quicker accdss to

the single market which you wouldn't have if the UK left the EU?

That seems to be one of the reasons that motivate foreign investors

that we have the right and unfettered access to the single

market. However good access we had to the single market as nonlembers,

it wouldn't be entirely unfdttered? Do you think Britain's political and

particular economic clout mhght be affected by the fact that there was

no longer the same access to these, we would be less influential when it

came to decisions made by the EU? Yes, I think that would be the case.

You alluded to Russia earlidr on in your statement, and gave us the

impression that they are negotiating with Angela Merkel and Francois

Hollande, I would dispute that as a result of the structures of the EU,

that may be to do with our own Prime Minister's priorities. But can I

press you on how you perceive our relationship with Russia to change

if we were to pull out of the EU? Well, first, in the context of

Ukraine, the instrument that we British have decided to use is not

the military instrument, it is the instrument of sanctions. It is not

clear to me whether with handling Russia, either this parliamdnt or

the parliaments of the other member States are ready to investmdnt the

Tory action in confrontation with Russia. -- military action. So let's

imagine the way we would handle Russia would be by economic means.

There I think it is a questhon to which I don't have a clear `nd so,

whether outside the EU written would take a tougher line with thd

Russians, or a weaker line than the other European partners. I lean

there is a certain scale of attitudes within Europe tow`rds

Russia in which this countrx is rather on the hostile side, not

quite as hostile as some of the smaller member States but you know

what I mean. But personally I think the most likely scenario if we talk

about the use of economic ldvers to deal with Russia, is that wd British

would want to do the same thing as the others are Europeans or the

Americans. So we would prob`bly spend our diplomatic efforts trying

to persuade others to adopt the same sanctions and levers as ours.

I understand your perspective about Britain's approach, but if we had a

Government in the future th`t was far more interested in promoting

bilateral trade with Russia and a rapprochement with Russia, `nd we

were outside of the EU, then surely it would be easier for us to engage

in those sorts of discussions rather than being constrained by the

uniform approach of the EU? Well, let's hope that this scenario

would come about, that relations with Russia would be possible to

relax. Personally I don't sde a scenario where, faced with the kind

of regression we have seen hn Ukraine, Britain would want to take

a softer line than the other European partners.

OK. Moving on to the neighbourhood policy. If the UK, if we were to

leave the EU and consequently withdraw from the neighbourhood

policy, how would this change the way the UK engages with countries on

Europe's eastern and southern borders? By pulling out of this

accord. Well, I guess that Britain would

wish that the countries in puestion, Ukraine, Belarus, Georgia, `round

there, we wish to promote to the maximum stability and presbxtery in

these countries. This seems to me a given of British foreign policy --

prosperity. So the question is how to do that. And...

I regret, we have a division and the meeting will be suspended.

Can we resume the meeting, Lr Avery, if you can remember where you were

15 minutes ago. I was asked about British foreign

policy in relation to the e`stern European countries. I was trying to

say that I don't think that the aims of British policy would be

significant the -- signific`ntly different outside the EU, the

question is the means by whhch we could affect them. And I have to say

that in the case of these so-called neighbourhood countries, and also

the countries which are in the EU's accession progress -- process, like

the Western Balkans, the EU offers financial and economic instruments

and methods of corporation ,- cooperation, and levers of political

influence, but Britain could not much on its own. -- that Brhtain.

My last question to you reg`rds the strategy of enlargement. If the

United Kingdom was to pull out, -- of this structure, with that in your

estimation affect the way in which the European Union tries to increase

-- continue to increase its member should? -- with that.

I was quite heavily involved in the enlargement process, and I want to

make the point that the enl`rgement of the EU was taking place

systematically not through some sort of imperialistic ambition from

Brussels but because the nehghbours knocked on the door. So it has been

a reactive process. And I think it will continue to be so. It hs

correct that her Majesty's Government ever since 1973 has been

among the most enthusiastic for success -- successful enlargement of

the EU, for most of this th`t I sometimes questioned among the

European partners. -- for motives. But I don't think in the case of the

Western Balkans, Britain's leaving the EU would diminish the attraction

for them, or the EU's commitment to try to bring peace and stabhlity to

that part of the world. Turkey is a different kind of question, it is a

very big country, it will soon overtake Germany in populathon size,

and would be, already is, the biggest state that ever applied to

join the EU. And I think with Britain in or outside the ET, the

prospects of Turkish membership at a very long way off. And I wotldn t

put too much money on it. However, in the meantime, the EU, with us as

member, is strongly engaged with Turkey in trying to bring Etropean

values and European democracy to a reform -- a reformed Turkey. I think

the possibility of Turkish membership can still be a vdry

powerful evil of influence to get the tax to behave the way wd want

them to. -- lever. -- to get the Turkish people.

In terms of enlargement, how do you think Brexit is viewed especially in

the Western Balkans which mhght realistically the next set of

countries to come into the DU? I don't think they pay a lot of

attention to aid, it is not the number one, number two or even

number three domestic foreign policy programme. Since Britain has often

been a good friend to that part of the world, I think they would regret

it. But I don't think it wotld inflect in any significant way their

attitude or the attitudes of the European institutions. I have - as

I have said in my written evidence, I think Britain is a nonmember of

the EU would probably wish Like the Norwegians do to provide financial

aid and technical assistancd to Serbia and other countries. We want

things to come right in that part of the world whether or not we are in

the EU, but there we would hn the case of the Western Balkans, be

assisting and helping foreign policy, not deciding it.

Would we really be that intdrested in the Western Balkans if wd weren't

in the EU? Britain, like the international

community in general, is colmitted to try and find ways to bring peace,

prosperity and security to that heart of the world. Many reports

have been written, thousands of trees felled on these probldms, but

nobody has come up with a convincing alternative to moving them `long the

path towards European membership, taking on European values, Duropean

governments and so on. I find it hard to believe Britain would not

want to support that. How else can we give them presbytery and

stability? But I want to investigate hdre

whether, we made an enormous commitment in Bosnia in the 199 s in

the Bosnian crisis and were leading players in trying to resolvd that

and provided Paddy Ashdown `s the EU's commissioner. If we weren't in

the EU, we would surely havd said that responsibility to the Duropean

Union? And it would have bedn, we would not have -- there would not

have been that sense of British interest, and there would bd

somebody else's responsibilhty to all of that effort in there. -- put

all that effort in. I don't think it would be whthin the

British tradition to considdr stability and was buried to in that

heart of Europe as somebody else's responsibility. -- stabilitx and

prosperity. It will be a bit like mucking about

in Costa Rica if the Americ`ns were engaged in them, wouldn't it? We

would be looking to the leadership from the United States if it wasn't

their backyard. If we were not in the European Union and therd were

these problems on the Europdan Union Southern border, if we weren't in

the European Union, the levdl of our interest and role in it, it would be

much to diminished, wouldn't it Other non-EU members like Norway

consider it is worth investhng. I wouldn't like to think that the

Norwegians are more alt to risk it than we are. I am sure Brit`in will

want to ensure the best outcome for that region of Europe, whether we

were in or out. For me, it hs clear that the instruments of the European

Union are the best to use and it is -- if we were not members, we would

want to follow the European Union without directing it. Just to move

on to paragraph 14 in your written evidence, you mentioned... H don't

want to go through another experience in a referendum being the

independent referendum in Scotland, but you said difficulties for

Scotland to join the EU werd exaggerated. I am interested in this

point that you make, that should the UK leave the European Union and

Ireland remain within it and Scotland remain within the Duropean

Union, would the UK rely on Dublin and Edinburgh for more of its

influence in terms of broaddr foreign policy influence? I have

given this very provocative... Not to provoke. We have to think in

concrete terms of how British foreign policy would actually be

conducted if we were nonmembers There would have to be an effort in

Brussels lobbying the EU institutions. We would have to step

up our bilateral efforts and that means we would have to lobbx Dublin

and a certain scenario, Edinburgh, to persuade these member st`tes to

follow the line we wanted in Brussels decisions. One might say

provocatively that Scotland remaining a part of the EU could be

beneficial to what remains of the UK. I think he is challenging for a

vote. What do you think the standhng will

be on the UK if we achieved and the vote in Scotland was to stax in the

EU, some say that would trigger the opportunity for a Scottish

Nationalist to put a robust case to repeat their referendum if

circumstances had changed whthin our own union, and it led to Scotland

withdrawing from the UK, wh`t do you think would be the effect on the

global standing of the rest of the UK? In a scenario where...?

Gosh! Will the rest of the world notice? It is plain that thd

standing and size of the rest of the UK would be diminished. I don't

think it would be dramatically diminished because, how manx are

you? 5 million Scots? I don't think it will make a dramatic difference.

It won't have been seen and would be seen as a shameful event for the UK.

A shameful event, you said? If the UK split up. The others, I think the

other member states didn't want us tease -- see that, it would have

implications for the rest. Just to respond, I think it is clear that

if, in this scenario, Scotl`nd being an independent state, Scotl`nd will

take a similar point of view to the UK on a very large number of issues.

I don't think Scotland, in lany ways what would be very sympathetic and a

like-minded member of the Etropean Union. On a final question to move

away from the Scottish example, I gladly keep on it but we might

behave sometime. I deliberately mentioned Dublin because I think

that is an interesting analogy. You mentioned Scotland would be a friend

to the UK and would have sililar foreign policy goals. Is th`t the

same case with Ireland? Has Ireland been a good friend and will it

continue to be a good friend? The case of Ireland is a bit different

for historic reasons. There is different economic interest. The

general point is valid. Thex support less regulation. Thank you for your

evidence. I think we managed to provoke you sufficiently to describe

Mr Gethin's party policy as shameful. Sorry, I am speakhng out

loud. I am extremely grateftl for your evidence. May I make one last

remark? It is often said th`t the founding project of European

communities in the last century was to bring peace within Europd and it

succeeded in this sense that military action between one or other

member states of the Europe`n Union is not on the radar. It is

inconceivable. The enlargemdnt in the last ten years has extended this

to a wider part of Europe. H often say that if that part of thd project

was successful in the last century, what is the Project for this

century? For me, it is simple. The project of the European Union should

be to promote the interests of the citizens and protect their values in

the wider world by means of collective action which can be much

more effective if we do it together than if we do it individually. In

that collective action, I w`nt our country to play a leading role. I

think we have got the gener`l gist. Thank you very much indeed. I invite

our next two witnesses to come forward.

Gentlemen, thank you very mtch for joining us. If we could introduce --

if you could introduce yourselves, for the record. I am Professor of

economics at Cardiff. Thank you for inviting me. I have written

extensively on the European Union and I have the first edition of a

book in 2005 called Should We Leave The European Union? I am about to

bring out the second edition next month. Withdrawing on your

expertise. My name is Steve Walker from the London School of economics.

Thank you for the invitation. It is an honour to be here. I teach at the

London School of economics International political economy and

international trade. We sublitted a joint written submission. Mx bit was

the trade part of that. That is my area of expertise and I am trying to

cover the other aspects of written submission. Perhaps I can ask Mark

Hendrick to begin our questhon. Could I start by asking you both how

you feel that the EU is levdrage in its economic weight in purstit of

its foreign policy goals? I will have a go at that one. I thhnk if...

You have to be defining pop foreign policy goals in terms of whdther

they are to maintain open trading investment systems. Is it to

maintain stability in the international financial markets Is

it to bring sustainable devdlopment in neighbouring come true is like

Africa and Middle East? These have security implications, forehgn

policy implications. Perhaps climate change, also, is an area whdre there

is security interest at stake. How effective is the EU in promoting

these policies? It varies in terms of maintaining an investment system

effectively. In financial m`rkets, as we have seen, not so effdctive,

although we have to bear in mind that most of the competence issues

in financial regulation still rest with the member states. In terms of

promoting sustainable deferlent in neighbouring countries, effdctive

but could be more effective and I think more effective in the trade

field than in terms of provhsion of aid. In climate change, I think the

EU provided leadership in the whole debate on climate change at a time

when no one else was providhng much leadership. Those are very general

points. The other area, I stppose, where trade may support or provide

leverage in foreign policy, is in terms of providing the bedrock for

bilateral relations with other countries. This brings us onto the

whole question of bilateral relations between the EU or the UK

and third countries and the whole question of trade and investment

agreements. I think the way I would characterise it, is that in the

academic debate, we talk about club models. In other words,

multilateralism has been rather superseded by what is called a club

medal. TPP, EU, Japan, Asia, these are all clubs and it is the big

clubs that we tend to infludnce our products. I don't really sttdy

foreign policy so haven't got much to say about this. It is a foreign

policy in the UK EU relationship which is what Mr Avery was talking

about. I think that the key thing for us is to remain friendlx with

our allies and they will sthll be allies. The economic interests and

political interest will still be the same. I don't see much implhcations

of leaving for any of these foreign policy areas and that is thd bit I

will focus on. The key thing for us is our relationship with thd EU and

what relationship we want. Having defined that appropriately, we can

go on to rebuild the same alliances, the same common interest policies as

we have now. As far as the broader policies of the EU in foreign

policy, I haven't got any comment. As a follow up to that, cle`rly

Britain has lots of aims in terms of trade, economic stability, helping

international development and climate change. Can I ask you

whether you feel that Britahn, as of the EU, adding to the weight of the

EU, could be more effective in pursuing those goals or whether a UK

outside of the European Union would be equally as effective? And whether

or not we can still do both and remain inside the European Tnion? So

we would get the benefit of both worlds. I would like to hear the

response from each of you. The EU's effectiveness in these

areas, I think in terms of laking an -- maintaining an open tradhng

system for example, I think the UK would have this influence in

maintaining open trading. Mx argument would be as I say, it is

the largest -- the UK can still play a part but it would be a sm`ller

part because it is a relatively smaller economy. That's in trade and

investment. In finance, the UK still has quite significant lever`ge in

the IMF, the G20, the financial stability board, the various

technical standards, the UK sits in all of these so could have lore

leverage. And has in the past. On climate change, I think there's

impact because again if you take the analogy of the size of the larket,

the UK doesn't pollute very much, and therefore it is not so crucial

in international climate ch`nge negotiations by itself. On trade and

development the UK has made quite a significant contribution, m`intained

0.7% of GDP for foreign aid, but if that is not linked in with what is

happening in trade you have issues of coherence, and so it may not be

as effective. I realise this is the foreign policy

committee and you are very interested in foreign policx, but

the main national interest of the UK is to have a thriving econoly, and

to control its own affairs. The reason this whole issue of DU,

Brexit and so forth has arisen is because it isn't just a question of

combining and sitting at thd same table and having foreign policy

influence. It is how far we control our own affairs when being ` member

of the EU that is committed to becoming a much more powerftl state

in its own right and has got qualified majority voting which

controls a lot of our own ddcisions. As Jack Delors said in 1988, it

won't long before 80% of Brhtish laws are decided in Brussels, and

that is what has thrust this right into the centre of the stagd is an

issue. And really beside th`t the question of whether we have more or

less influence on joint fordign policy making with the EU is fairly

small potatoes. I think the question here is from the point of vhew of

our national interest, if wd are outside the EU for other re`sons, we

will still be there as allids and having common interests with other

players and no doubt we will coordinate with them just as we have

today. The seat of the tabld won't be there, but there will be other

tables at which we will be sitting. We will have benefits of thd club

without being members? I think foreign policy's always been

conducted by self-governing nation is to maintain and pursue their own

interests. I come from a foreign policy household by herself, was

always claimed it was about the interest for your own citizdns as

best you can. And the questhon then is obviously do you want to be

governed by somebody else do you want to be a common and are in some

alliance with them, and the answer to that question is what lids at the

heart of, to answer that we have to answer the question do we w`nt to be

part of the EU or not? Where we have shared common

interests, yes but when it comes to foreign policy, we will alw`ys have

foreign policy -- shared foreign policy with our allies.

I hear what you say, but we have previously taken evidence that on

trade deals for example, having the ability to collectively negotiate

being a much more powerful dconomic unit delivers a better deal than say

a deal that Iceland can cut with China or a smaller country would be

able to cut. Is that not thdn affecting our economic well,being?

Well, this is another compldtely irrelevant issue. Let me explain

why. You asked me... I am going to talk about why it is irrelevant The

fact is, if we are an indepdndent, self-governing nation we will join

countries like Japan or Singapore or the US in the world trading

community. And we will be a small nation of slightly over 30 lillion

workers in a world market of 7 billion people. And one of the

things that comes out of applied trade is that when you are hn that

position, trade agreements `re totally irrelevant to you. Because

you are part of a global market And you are a very small player in the

global market. This is known as the importance of being unimportant If

you are very small, you cannot influence the price of the goods you

tried out, you are part of ` huge market of 7 billion people. And we

are only 30 plus million. Therefore we will, as part of the world

trading environment, we won't have any influence on the prices of the

goods we sell. Our job is to be competitive and produce good goods

and services. And on the whole window, thanks to the liber`lisation

of our economy. -- on the whole we do. We have now a very compdtitive

economy, we are now a nation of entrepreneurs, and shopkeepdrs. And

this is why... I want to make the point that you don't seem to have

understood. Which is that these trade agreements are totallx

irrelevant, there were make any difference to anything. What we need

is to get out of a protectionist trade arrangement, namely the EU

customs union, and everyone says how wonderful it is to be insidd the EU,

but they then forget it is ` highly protectionist organisation, not just

in agriculture but also manufacturing, and it is prdferable

to be in the global market tnder conditions of free trade. That will

give us huge gains. So the trade issue, far from being a gre`t

negative in terms of leaving the EU, is a huge positive. What happens is

that people think you cannot negotiate -- it is terribly negative

because it cannot negotiate these trade agreements. But they have

understood -- misunderstood the relevance of these in the global

market. So why do countries sign bilateral

trade agreements? Well, oftdn large countries do. The EU is currently

negotiating a huge one with the US. And the fact that people signed

trade agreements when they `re very large is the case, because they are

large. And they have monopoly power. But if you are small, you do not

have monopoly power, you have no incentive to sign a trade agreement.

I'm not saying the word then betrayed agreements, that if we

leave the EU, some people s`y we will have to rush around inside a

lot of trade agreements. I don't agree. We may sign the odd trade

agreement if the -- I think we will sign an agreement with the DU,

mainly because the EU needs to sign an agreement with us becausd it

sells as so much stuff at inflated prices, and the irony is yot only

join a customs union, it can only be in your interest if you sell people

are a lot of stuff within the union much more than you buy from them.

But we are in a -- and opposite position, the EU will have ` strong

incentive to build a trade `greement with us. It will be an agredment to

give them some access to our markets. I have costed us ldaving

the EU on the basis that we sign no agreements. Now, I think it is a

matter of practical life th`t there will be some agreements that will be

signed. For what reason? Because of vested

interest. The reason is vested interests, not the national

interest. Who's vested interest?

Well, there are lots of people queued up -- queueing up to say we

should not leave the EU bec`use they have a vested interest. Who's vested

interest, can you answer th`t question? The point is this, that

the vested interest for us staying in the EU, inside the biggest trade

agreement we have signed on the last 40 years... You said that you signed

trade agreements outside thd union, we have now moved outside the EU.

And you said that we signed trade agreements because of vested

interests if we stand alone. In who's vested interest do is signed

those agreements? Please answer the question? Said when we leavd the

EU... Let me try to answer ht. When we leave the EU, we are in the world

know where we have left the EU, there will be a lot of upset vested

interests. The car industry, for example. Some parts of the city Any

industry that currently gets protection from the customs union,

OK, will be a vested interest, will be very upset when really. @nd what

I am saying is that therefore we are very likely to be -- have to be in

the process of negotiation combust -- because those vested intdrests

will say we want transition`l agreements. And the EU self -- the

EU itself will also want an agreement. Quite unlike what many

people say, which is that wd are going to be so badly off outside the

EU, what I say is the opposhte. We would be better off if we dhdn't

sign any trade agreements, but lots of people will be pressing ts to

sign agreements, both the vdsted interests that are losing, `nd also

the EU itself. So the vested interests outside of the EU would be

like the automotive sector hn my constituency, the Midlands, which is

now producing a car every 20 seconds, there would be harled in

some way and would thereford want us to signed trade agreements. Right?

Yes, when you abandon protectionist agreements, the print will ,- people

who are protected get damagdd. They don't like it. I think in practical

terms it is inevitable but we will sign various agreements to give

transitional protection to various industries, I think a lot would

change immediately. Because they matter for the UK. Well, whdnever

one changes policy environmdnts some people lose, and we have a

tradition of trying to compdnsate losers. So as to get consensus. I

think that tradition will prevail in this case. I think we will try and

negotiate transitional arrangements that will help these people to move

to a more dynamic future. Lhke the automotive sector. Some parts of it.

Some parts don't need it. I understood that the usual ptrpose of

trade agreements would be to reduce the barriers you might face between

the two independent small entities within a trading system, who have a

mutual interest in trading, but you would enter into agreements in order

to try and reduce the barridrs between the two entities, r`ther

than malice protection withhn them. And so that the usual purpose is

then to try and open trade from work as as a market of 30 million

labourers, whatever, would then be seen to protect ourselves from

competition outside it was the vested interests inside the UK would

be working to protect our internal markets. If we're talking two small

nations, would they sign a trade agreement, from a point of view of

each of their national interests, they should abandon each from their

own internal point of view their tariff, because it is self harming.

Because the reason for thosd tariffs is some eternal -- eternal ,- in

vested interest. So if sometimes you get a situation where two countries

get together and find that they can kind of trade one vested interest of

against... And therefore improve their own situation. I can just

about the gap -- get that. But in terms of the kind of politics and

facts of trade agreements, what you are actually trying to do is is

impossible to get that perfdct situation and then abandon the

barriers completely, and th`t trade agreements are a rip to redtcing

this barriers progressively,, beginning to address the policy of

protectionism in countries. They are a route to begin to sweep the

barriers away. I would buy the free-trade argument, I think no

barriers are best of all, btt they exist.

If the UK were to abandon free and unilaterally free-trade, whhch would

be his best policy, bar in vested interest, then there would no point

in engaging in any trade agreements with anybody because we havd already

reduced its own self harm from its own tariff barriers will stop if you

are a small nation, a tariff barrier has the effect of self harmhng you.

You create inefficiencies in your own economy. You don't affect

anybody else. You raise the prices in which other people sell to you,

to your consumers, and your tariff between them and the world larket.

When you abandon the tariff, you lower the price to your consumers

and make your consumers and economy better off. If we had already gone

to free trade, there would be no point on any other trade agreements.

In the real world, we probably wouldn't go to complete fred-trade

and anything we could do to persuade our own vested interest to `bandon

certain sorts of protection would be good.

The Econometrics -- economics position is perfectly reasonable and

history of British liberalism. history of British liberalism.

Unfortunately, trade agreemdnts don't quite work that way today

Most trade agreements are b`sed on reciprocal commitments betwden

parties, meaning that your negotiating leverage in an `greement

depends on the size of your market and how open your market is. If you

have a large market which is relatively closed, you have

significant negotiating levdrage. If you have a relatively small market,

it is very open and you havd very limited to go shooting leverage The

EU has a bit more but it is also fairly open. On white countries sign

agreements, I have sat throtgh any discussions with NGO's. The reason

is that with tariffs down to low levels, 2%, 3%, it is about

nontariff barriers. 80% of the benefits from TTIP, and the TPP

agreement between the US and Asia, 80% of the benefits will cole from

removing nontariff barriers to trade. This goes on to regulation.

These agreements are geared to facilitate trade. You have

standards, in terms of health, safety, environment, food standards,

which differ between the economies. What the parties to these agreements

are trying to do now is fachlitate trade by negotiating how yot can

find equivalence between thd different standings. This is why the

trade negotiations are taking place today. That is the main focts of the

effort. It is not really th`t. There are always vested interests in

trade. Some of the major tr`de agreements have been agreed between

large economies and they ard effective in removing some of this

vested interest. If you look at the liberalisation commitments tnder

tariffs, we are talking abott 9 % of tariff lines being liberalised. Even

in agriculture, there has bden significant movement in gridvance --

agreements. It is important in terms of the multilateral system but these

agreements have taken over from what was agreed as more true nattral

professionalism. It is only about specific binding commitments. You

can still trade and liberalhse, but what you don't have, is any

guarantee that you won't face discrimination in the Chinese market

or the Japanese market. One quick point, we would like to see a day

where we don't have to have trade agreements and where we havd a

proper market globally. The main point of this is by not being in the

EU, the United Kingdom could have whatever trade deals it chose to

have with other countries around the world, to harness the Commonwealth

English-speaking world, global market which is in our country. It

restricts us from that freedom to do just that. With the trade ddficit we

have with the EU, the only losers would be if you tried not to trade

with us or put barriers up which will be the European Union htself.

We have the ace card. We have the upper hand on this. This is the key

point. By leaving the EU, wd abandon the customs union. In the 1875

campaign, they tried to explain that it wasn't a great idea to join a

customs union because it was highly protectionist. He got nowhere will

stop he didn't get his point across. It has come back now 40 years later

and it is central to this whole thing. What people are saying is if

we leave the EU, it is disastrous because of the legal leverage. The

truth is, we will move if wd have got any sense, to liberalisd the

economy, fundamentally under free trade will stop it isn't in our

interest not to have free trade It pays us to be a global playdr under

free trade. It pays us to sdll our goods to other people in thd world

market and to take their goods at world prices. That will lowdr our

cost of delivering. We have done a simulation of leaving the ET and the

first thing that comes out hs an 8% drop in the cost of living on day

one. Because of the move from EU prices to world prices. That is

really worth having. It means that we then are in a world which we can

sign and trade agreements. We will be forced by the EU for the reason

you have given, that they sdll so much to us, to have an agredment

with them. The last thing they will want us to do is walk away without

some sort of free trade agrdement with the EU. They are so dependent

on our markets relative to our dependence on them. They ard selling

us stuff at inflated prices at a massive scale. There will bd that

trade agreement with them bdcause they will push for it. Otherwise, as

I have argued already, we don't need to do trade agreements with anybody

else. Frankly, we can take the world price. If we do a trade agrdement

with New Zealand or something, it won't affect the world pricd you

get, it will affect what New Zealand has to pay for that our goods. The

New Zealanders, if they put a tariff on that, their consumers have to pay

more. It is a problem for them and not for us. I am sure we will do

trade agreements. I am saying that they are not necessary for our

well-being in terms of leavhng the EU. They would be a nice add-on for

people like the New Zealanddrs. Can I just ask a question, which is the

current situation we are in the European Union. We are wherd we are.

At this point, with what we have got, to what extent of the Duropean

Union current interest in trade reflect the national interest? Does

it acts as a multiplier for our economic influence in the world or

is it effectively putting constraint on us, the current situation?

I will let my colleague spe`k. In many respects, the UK has bden part

of the customs union and it has formed part of a single European

market. You have this framework agreement. Over the past 15, 20

years, the UK preferences h`ve been reliant with the rest of thd EU In

that sense, the EU reflects the UK preferences. I think the UK has been

fairly effective in shaping the European Union trade policy. It has

been one of the key players in making it more liberal, helped by an

enlargement to include some other countries. You can make a c`se that

on agriculture, the UK may be more liberal. Broadly speaking, ht is in

line with UK interests. Takhng away from the economics of it, what about

in terms of how influential has the UK been, in determining priorities

for the European Union's economic diplomacy? I think it has h`d a

major impact. The UK has bedn very effective in shaping the detailed

debates within the trade policy committee, within the commission and

shaping the views and opinions within Europe. It has been one of

the main protagonists of promoting open trading systems that some

people would say supported by other countries. Yes, I am not sure I can

say any moron that. Those who favour us staying in the European Tnion

often say that if you are in the European Union, you were able to

influence what is going on `nd from what you have just said, it seems up

till now, Britain, being in the European Union, has been able to add

positive effect and affect changes in the European Union? Yes, I think

so. In a previous session, xou asking questions about what will

happen in a future which is difficult to answer. I would make

the case that the UK will h`ve more influence being a member of this

bigger club. If you are looking at how the rules of trade and

investment are being set, they are being set through negotiations. One

of the core elements in TTIP is regulatory regulation betwedn the US

and EU. If the UK is not sitting at the table, is not part of the EU in

these negotiations on how you reconcile different domestic

regulations, the UK won't h`ve any influence. The UK can be a price

taker, but it will have to `dopt the regulations that have been `greed

between the EU and the US. Ht can still trade, but it won't h`ve any

more influence on the outcole. It would have more influence if it was

in the EU. 1-macro I love this fact is that we have this great hnfluence

on the EU and make it a much better place. It may be true. Your question

originally asked, what was the cost for the UK in this arrangemdnt? That

is the thing that worries md. I have already answered about the fact that

the customs union is extremdly expensive to us. The regulations

that are increasingly put on as in labour markets, financial m`rkets,

very onerous to us and cost us serious resources. They also hold

back growth. Many of these regulations are not in line with

free-market principles. When you add all these things up, it may well be

that we have a forceful libdralism inside a fundamentally illiberal EU

political and economic philosophy. The costs to us large. The

questionnaires, in our national interest, it may be great for us to

contribute to the wider world interest by making the EU a more

liberal place and encouraging trade agreements, but at huge cost to

ourselves in being in this particularly -- particular club The

club wants to have more and more control over what we do and its

control doesn't seem to be hn our interest.

review the optimal friendshhp - review the optimal friendshhp -

framework for the UK's relationship with the EU if it chooses to

withdraw its membership? Ard looking in particular that the so-c`lled

Swiss or Norwegian model is that people have talked about. -, I am

looking. -- models. Optimal model if the UK with Drew --

If there is such a thing. If there is such a thing.

Let me build a scenario frol my previous point, the point I was

trying to make is that it is not that the EU is imposing regtlations

on the UK, the health, safety, environment standards that `ll

countries have two comply whth. If the UK left it would still have

to show compliance with the standards if it wants to export to

the US or any other market. And in terms of the costs, the nontariff

barrier costs, nontariff eqtivalent cost of entering the US market are

something like 20%. One esthmate is 20%. So if the UK didn't negotiate

bilateral agreement with thd US its exporters would be at a 20%

disadvantage to the EU if the EU was able to negotiate an equivalence

agreement with the US on terms of market access. Sorry, bit tdchnical.

What about the relationship between the US and the EU... The pohnt I'm

trying to make is that the TK would still have to adopt the samd

standards, either EU standards or some other international st`ndards.

So the more optimal way would be to keep with the European standards

because at least we have had some role in influencing those. So then

if you are looking at other options, if you look at the Swiss option

maybe a bit closer than the Norwegian one, Switzerland

negotiated bilateral agreemdnt with China. So this is a scenario that

the UK could negotiate bilateral agreement with China. You nded to

look at the details of this, though. And it calls for some caution

because this was negotiating with China was really not much more than

existing commitments on services, it has got nothing on investment,

nothing on these nontariff barrier measures. So in other words all got

was a tariff agreement and some provisions of intellectual property.

So this is an illustration that the UK would have more leverage. But the

UK, it is difficult to say, you cannot really predict what the UK

would get outside of the EU. But if you look at what the Swiss got it

wasn't very much. Can answer this 1) I will answer it again becatse

Doctor Wilcox, a great expert on trade agreements, but as I have said

they are totally irrelevant to the UK in this respect because he is

talking about trade agreements with large blocks, large and knobbly

suppliers, and my answer to you if you want to hear the answer, maybe

you don't want to hear it. H ask you to look at the Swiss model `nd the

Norwegian model. I was good to say, we do not want either model. I did

answer this, the model we w`nt is the model of a standard,

self-governing country. Why does everybody is so we have got to

become a small dependence of the EU even when we leave? In order for the

new regions and this Swiss to trade with the EU, you have to colply with

many rules and regulations which I as a former MEP have sat down and

worked on directives and rules that actually you have to comply with in

order to trade. You saying the EU is suddenly going to drop all these

requirements to comply with certain standards on food quality, `ir

standards or so rules on how services operate, just becatse

Britain chooses to leave thd EU and wishes to dip -- behave differently

to other nations like Norwax Osasuna?

9% of our GDP is exported to the EU. -- Norway and Switzerland.

Every exporter has two is comply with all they countries -- standards

of the country they exported to But if you ask me do we need all the

regulations of the EU to sell but then percent of the GDP to the EU, I

would say no, because the other 91% will be free of those regul`tions,

and it will operate according to the regulations we as a self-governing

country think are good for our industries. There is no reason to be

the same as the EU. If the DU insists on certain things, hf you

export to the UK you will h`ve to do it. If you are telling me that the

other 91% of the economy has got to comply with everything in the EU in

order to comply with that 9$, I say where has that come from? On all

exports, as thick if you ard exporting to other markets xou have

to comply with the standards expecting. -- I think. But lutual

recognition rather than necdssarily harmonisation. Yes, but those have

to be negotiated. Certainly the UK standards could be lowered. If that

is what the voters want, yot could do that.

Related to this then, can I ask how significant this will be for the

political relationship tween the US and the EU, and how would Britain,

the UK in particular, fair outside an arrangement? In terms of

political relations, I think to consolidate transatlantic

relationships -- relations. So if the UK were not part of that,

it may have some knock on effect, I'm not quite sure what. I would

look more at the economic ilpact, and that would be the UK wotld still

face, UK exporters into the US market, and US financial services

exports into the US market, would face a disadvantage compared to the

rest of the EU. Because the EU, a TTIP, if it is successful, but it

won't happen overnight, the TTIP, if TTIP is successful, then it will --

exporters from another part of the EU would have a preference `s to

what these agreements are, preference of the UK. So thd UK

would then have to negotiatd an equivalent agreement in orddr to

match those preferences. And as we have heard from the US negotiator,

the US with no doubt negoti`te with the UK but other bigger markets

would take priority. If we were outside of the EU, presumably the

standards we would be left with we would have to negotiate simhlar But

can I ask you, what other prospects you believe for a successful

conclusion of ten two? -- TTIP. TTIP, my own view is that TTIP is

going to take some time for it to be fully implemented. If you look back

at EU, US efforts at deepenhng market integration, they have come

in fits and starts, so it whll take some time before it has any real

impact. And can I ask you, hf the UK were excluded from TTIP, do you

think it would risk falling behind the transatlantic curve on setting

standards and regulations? Xes, I mean, the approach to dealing with

these trade facilitating regulations will be shaped by the EU and US in

this regulatory corporation. -- cooperation. So the UK will have to

follow either export accordhng to US standards or export according to the

EU standards. And these standards are very very important. Very often

they are aimed at promoting health, safety, for example with cars, crash

testing standards in terms of making sure that when there is an `ccident

passengers have a good chance of being safe. In a sort of frde-market

world scenario, without these sorts of standards, what sort of ` global

market might exist if we didn't have the sort of standards being set

through TTIP between the EU is - EU and the US? This comes to the whole

globalisation debate, and whether globalisation is a race to the

bottom in terms standards, health, environmental, social stand`rds But

the case for TTIP and these other agreements is that it sets `n

international level below which there were a pressure, in other

words downward pressure, resulting in globalisation, accommodation

between economies, would be stabilised on the basis of what the

Americans set. And if we had our own trade agreement with for ex`mple

China, outside of the EU, how effective do you think we would be

in terms of making sure that for example children's toys or other

exports from China that werdn't uncovered by the sorts of standards

we would like to see, how effective we would be leaving in making sure

that goods and services that we bought from Japan were safe and

reliable? -- China. The UK could still prohibit the importathon of

unsafe products according to whatever UK standards were. If you

had health and safety stand`rds for children's toys you can still

import. So the economic powdr to be able to exert influence is needed to

put things right politicallx within China, to change the way thd market

operates? On the case you mdntioned, I think yes, because the Chhnese

have done this, they have shifted into accepting those kind of

international standards, in an area where China hasn't yet quitd adopted

international standards I think it would probably be much harddr to get

them to shift, to change for example one area is on Government

procurement. I figured it would be very difficult for the UK to get any

kind of fair treatment in the Chinese procurement market outside

of the EU. Thank you. Can I bounce my own thesis of both

of you. For the United Kingdom, our unique selling points as it were,

things like legal services, financial services, education

services, culture and media, pharmaceuticals perhaps, thdse are

all things with a global market rather than a regional one. Is it

possible if we are outside the European Union for us then to pursue

a much more aggressive and specialised agenda around those

industries and services? In terms of trying to get market entry to other

markets. Or I suspect Professor Minford would probably say we don't

even need to. But let's... Doctor Wilcock has told us a lot about why

we need these trade agreements. They economically they are prettx small

potatoes. I think the main thing is to have Robert that people want

Pharmaceuticals, -- products. You had a list of industries whdre we

are very competitive. Peopld falling over themselves to buy our products.

And that is what you want in a global market, you need to be highly

competitive, producing a lot of interesting products that 30 odd

million people get good prices in world markets because they have got

good products. The key thing is we should be part

of that global markets. Abld to compete with it and in it bdcause we

are buying imports from the global market and not from a protected EU

market which is excessively expensive. We make ourselves much

more competitive and we are focusing our advantage which is to produce

the things you just listed which are high-tech, skilled labour intensive

products. This is where our advantage lies. What is happening,

and this is the big cost to us that comes with this baggage, thd cost is

we are forced with a lot of injuries as who are protected in the EU. --

industries. We are distorted into industries that we are not very good

at. The global market, we c`n focus on these industries where wd are

good and make sure they are highly competitive and then, as I said

earlier, we don't need tradd agreements. I am not against them. I

am happy for other people to have trade agreements and there lay be

minor things. In the case of the US, it is our oldest trading partner.

Massive trade with the US in these products you are talking about

already. The EU has much less trade with the EU and the US than we do.

For us, TTIP is a minor extra element in the story. I don't

disagree. We need goods and services and we need to be able to produce

those competitively in order to sell them. I am not saying free trade

agreements is the only thing. Let me illustrate with an example. Trying

to sell insurance services hnto India. Are we better off dohng that

would the heft of the Europdan Union, trying to negotiate dntry for

British insurance companies through them all would be -- we'd bd better

on our own or are we able to survive by not attempting to broker

agreements with India but hoping they will buy British products? The

trade agreements only ensurd that there would be unfair treatlent of

UK suppliers or EU suppliers. It doesn't mean to say that thd UK

insurance industry can't go to India and try and sell the servicds to the

Indian government. If the insurance sector is regulated in Indi` that it

precludes foreign investment, then you face... Batters by the benefit

of the trade agreement comes in -- that is where the benefits of the

trade agreement comes in. Wd have to get into negotiation with India to

investment in the insurance sector. investment in the insurance sector.

How does the UK get past thd vested interest of the Vernon -- Indian

insurance industry, so they can buy Indian politicians to delivdr the

regulations in order to protect them? It is a matter of massive

indifference to us whether the Indians inflict harm on thelselves

by refusing to buy insurancd services or not. Our insurance

industry is well competitivd. It is not infinitely large. It has a

definite size and is limited in size. It is a -- it is in a nation

of 30 million workers. If the Indian economy decides not to allow British

insurers, there's plenty of other people who will be ready to buy

British insurance. It is a global market. The insurance industry in

the City of London is the world s biggest market and it deals with

every part of the world. It is not dependent on any one countrx to sign

a trade agreement. The insurance industry is going to survivd fine,

whether or not India wants to liberalise. We would prefer it if

India liberalise. It is good for India. From our point of vidw, the

bigger issues here do we want to be part of the global market whth free

trade or inside the EU come inside a customs system with excessively

interventionist mobility -- regulatory policies. They dominate

this detail of trade agreemdnts once we leave this organisation. May I

return to the world trade organisation. There was concern

expressed by those saying there was punitive tariffs on the UK by the

EU. We know it is not in thdir interest to do so. We offer a large

deficit and I accept that point I doubt whether they will be `llowed

to do so. There is a concern out there that the EU could would tell

at eight -- could retaliate with massive punitive tariffs. C`n I take

your view on that? Most-favoured-nation is means you

keep the tariffs as they ard at the level of other countries. Whth the

states, ... That will be my understanding. In the worst,case

scenario, what can the EU do to us? The EU is a member of the WTO. It

will have to offer tariffs to the UK. It means that as far as these

tariffs are, there is no tariffs higher than the EU at the moment so

there may be an increase in tariff. Can you give us a scale? It depends

on the products. Agricultur`l projects -- products can go up 4%,

cars, 8%. It will be signifhcant. More importantly, the tariffs are

going down. You can negotiate an agreement. It is the nontarhff costs

that will come in. If the UK is not part of the EU and not part of the

customs union and if it has different tariffs, then it has to

prove origin status. If you are exporting from the UK to thd rest of

the EU, you have to prove status. The costs of proving that c`n be 5%

of production costs. You have border control costs which can be 4% of

production costs. The trade costs that are more important than the

tariff issue, there is some of the issues that would need to bd there.

The UK could keep the existhng tariff, but there is no point in

leaving the EU. On some things, there is a government procurement

agreement that has been negotiated within the WTO. That would have to

be renegotiated. It is based on bilateral commitments betwedn the EU

and the US. The other signatories also. The UK would have to

renegotiate that and tried to get access. That might be difficult to

negotiate. I cost of the business of leaving the EU with the asstmption

that we have no disagreements with anybody. The EU applies any

non-tariffs and what happens is we become a normal country outside the

EU, which is something that many countries are and we face world

prices. That is immensely bdtter than being inside the EU's wonderful

tariff wall. If a text too lany bad industries. Compared with what we

would have if we were out there in the global market, selling the

things we are good at. It is enormously liberating for us and

would stop is thinking of otrselves as a regional player, which we are

not. Give us the mindset of a global player facing world markets. We are

a small global player. We h`ve to produce things that are good. We can

sell for high prices to anybody around the world. As I have said,

the world is a big market place If summary wants to put extra tariffs

on us, it makes no difference to my calculation. I believe the DU wants

to sign an agreement with us because it is in our interest. It sdlls so

much stuff. The boot will bd entirely on the other foot to what

most people say. Instead of going cap in hand saying, please sign an

agreement, please sign an agreement with us because we want to sell to

you. We are not wanting to keep you here as long as Hillary Clinton was

kept here by the progression committee! Thank you both vdry much

indeed. Always stimulating to have your evidence, Professor. Thank you

for your expertise. It is vdry much appreciated. Thank you so mtch to

both of you. Order, order, this meeting is now adjourned.