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- The aim of the paper is to assess the implications of Brexit (Britain’s withdrawal from the European Union) for British, intra-European, and global trade.
The aim of the paper is to assess the implications of Brexit (Britain’s withdrawal from the European Union) for British, intra-European, and global trade. Essay Example
Assessment of the Implications of Brexit (Britain’s Withdrawal from the European Union) for British, Intra- European Union, and Global Trade.
The likelihood of UK’s exit from the European Union has become a source of concern. There are major implications that the EU and the UK need to be prepared for. As argued by Springford and Tilford (2014) British Prime Minister David Cameron of the Conservative Party had offered a public ballot on the membership of EU in case the party won the elections in the year 2013. Most surveys carried out in the public domain revealed that most of the Britons would prefer to exit the European Union. The Independence Party in the UK which has great support supports the exit. This promise by Cameron caused an intense debate Brexit. This debate has focused mainly on the effects of withdrawal of Britain.
Those for the EU argue that trade and investment have heightened between Britain and the EU due to the single market hence the exit would probably weaken the economy in Britain. On the other hand, Eurosceptics insist that many regulations are imposed on Britain for being a member of the single market which tends to bring little opening on European markets. If the UK decides to leave it would not be the first one as other overseas territories have withdrawn: Algeria and Greenland in 1962 and 1985 respectively. The EU has a withdrawal time frame of two years as indicated in Article 50 of the EU’s treaty though the time might be longer if both sides agree that it is necessary.
Impact of Brexit for British, Intra-European, and Global Trade
As per the European Movement International, UK relies on upon the EU imagining that 12.6 % of the UK GDP is associated with tariffs to the EU. 31% of GDP among the 27 participating states are connected to the UK exports. The UK is a service based industry, and this segment alone makes up about 80% of the economy. The UK also leads in the EU in Foreign Direct Investments (FDI) as it blends an English speaking and a labor market that is flexible which offers barrier-free access to the EU single market. Another key factor of the scope of FDI flows market size, and the market in the UK is expanded by its membership in the EU. In a competitive market, the barriers that mostly matter to investors are non-tariff barriers like federal requirements that are divergent together with regulations. If UK exits the EU, there is a likelihood of losing entry to the single market hence making it a less appealing destination for companies that would prefer to use the UK as a platform for their ventures in the EU market.
Springford and Tilford (2014) stressed that the single market in the EU utilizes a few instruments to improve trade. It relinquishes duties on products; it sets up four flexibilities i.e. the freedom of organizations and persons to offer their products, administration, and labor or to contribute; it additionally tries to cut down the cost of potential exporters. EU can achieve this by making less administrative measures requiring the majority of the member states to allow products that have consented to those guidelines to be sold without obstacles. British Eurosceptics demand that in case of Britain abandoning it would have a troublesome time finding a route through an organized commerce concurrence with the European Union as the UK still has a vast deficiency with alternate members from the union. In the worldwide market, the UK reimburses for around 4% of the overall exports both goods and services. This quantity is dropping as many developing markets end up noticeably united into the worldwide economy. The UK would have a much selling power all alone than when in the EU.
The European Movement International argues that if the UK is to benefit from 1.6% of GDP increment by 2030, it has to improve its economy on three areas:
1. It would have to pursue a liberal policy for labor migration;
2. It would have to cut through to China, USA, India, and Indonesia;
3. It would also have to lower regulation on climate change, social and financial services rules and also employment protections.
Most models reveal that it is a high-risk option as it may produce significant income losses for the UK economy. These models might not be acceptable from a political viewpoint as they would produce a novel degree of competition in most sectors by cutting through to other countries like China. The Brexit sentiment is also being driven by immigration sentiments hence the government would not want to introduce liberal policies on immigration. The UK might also neutralize one of the main pros leave arguments if it decides to endorse the single market as it will be required to agree on the autonomy of people. The exit would also have an effect on the UK citizens since the current plan where people receive UK state pensions and are also entitled to health care in other member states which are usually later refunded by the UK would not be available as it would stop. The UK citizens would be deprived the right to cast their vote in local elections in their residential country.
In case of Brexit, it would expel one of its two military powers that are fit for deduction on a worldwide scale. While it’s diplomatic, understanding, international aid, and delicate power stay extensive. Britain’s military capabilities might be reduced. France might be left as the single major military power without the UK (Tim, 2016). According to James et al. (2017) Defense and Security have also emerged as an important factor in the Brexit debate. In the referendum carried out on 23rd June 2016 in the UK on its membership of the European Union, polling data suggested that different and security considerations were not drivers of the referendum result. Economy, Sovereignty, and immigration were the areas of concern for most voters.
Nonetheless, the role of Britain in the EU army, relationship between the EU and generational lines determined voters’ responses. 69% of those between the age of 18 and 24 believed that UK would be best protected against terrorism while in the EU compared with 42% of voters aged 65 and over. The impact of Britain’s decision on defense and security has not been clear since 23rd June 2016. The commentators on the UK side have suggested that the vote invalidates the important assumptions of the National Security Strategy and also that the British military might struggle in implementing its procurement plans if the defense is not exempted from government cuts in case the government is unsteady. Some have also suggested that cooperation between Britain and its allies will survive even after Britain leaves EU. Others argue that the British government may be spurred to invest more in defense especially in time and resources.
It is not clear on the repercussions of trade price between the UK and the EU because it is not exactly known how their relations would change. The consequences can only be forecasted by using assumptions about how to trade price change following Brexit. To overcome this, two settings can be analyzed: an optimistic setting,
Whereby an expansion in trade costs between the UK and EU is not extensive and a negative setting, whereby there is a bigger rise in exchange costs. In the idealistic setting; the presumption is that after Brexit the UK’s exchange interactions will be practically indistinguishable to those appreciated by Norway. Norway enjoys open market agreement with the EU as it is a member from the European Economic Area (EEA). In this way, there is a free market amongst Norway and the EU as there are no taxes imposed on trade. By additionally being a part of the European single market it embraces rules and methodologies which are made to cut down tax-exempt boundaries to the single market. By not being a member of the EU, Norway faces some non-tax hindrances that don not exist to the EU individuals like anti dumbing duties and rules of origin requirements. In the negative setting, the supposition would be that UK does not prevail with regards to arranging another new agreement with the EU.
Therefore, the World Trade Organization (WTO) rules would govern the trade between the EU and the UK. This would imply a greater increase in trade prices than in the optimistic setting. This is further escalated by the fact that WTO has made little progress on reducing taxes as compared with the EU. In the optimistic setting, we take the assumption that in 10 years after UK has left EU, intra-EU trade prices may fall 20% quicker than rest of the world while in the skeptical setting we expect that intra-EU costs may keep on falling 40% speedier than in rest of the world.
By Britain leaving EU, it would not only mean that UK would not make any contribution to the EU budget. This is because for having access to the single market some substantial amounts is given to the EU by countries which are members of the EEA like Norway. Norway’s contribution to the EU is 83% on a per capita basis. Therefore we might take the assumption that in the EU budget UK’s contribution might fall by 17 percent in the optimistic setting. Furthermore, in the pessimistic setting, where we assume that UK is outside the EEA, we presume that the UK would have saved a bigger percentage of its current contribution. The 0.53% saving may include only the public finance components. In this case, it omits all the movements that the EU makes directly to universities, firms and other non-governmental bodies.
This fall in trade might also affect other countries. EU members like Ireland, Netherlands, and Belgium, might suffer from Brexit as they trade a lot with the UK. Other countries outside the EU such as Turkey and Russia might gain as trade is focused towards them. (Swati et al. 2016). As argued by Campus et al. (2015), Norway’s growth in production has been affected by not being a member of the EU’s market integration programs. Mejean and Schwellnus (2009) show that trade prices between most countries in the EU have been dropping at the rate of about 40% as compared to trade costs between other OECD countries.
It is evident that if Britain left from the EU, it would bring forth great economic and political costs. The place of UK in the world and the authority it carries in international events might be reduced. Leaving the EU will have a short and long term effect that will be felt in the future. To stay or should be a decision left to the people of Britain to make though it requires debating based on the implications internationally fully. Britain ought to consider the wider geopolitical system together with their allies in their decision making.
Black, James, et al. «Defense and security after Brexit.» (2017).
Dhingra, Swati, et al. «The consequences of Brexit for UK trade and living standards.» (2016).
Oliver, Tim. «The European Union without the United Kingdom: the geopolitics of a British exit from the EU.» (2016).
Springford, John, and Simon Tilford. «The Great British trade-off–The impact of leaving the EU on the UK’s trade and investment.» Centre for European Reform, January (2014).
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