Economics · International Affairs

Brexit – The British Exit

As Britain gears up for a referendum on June 23rd on whether or not to remain within the EU, the campaign for both sides has gone up a notch. The Remain campaigners include the Labour Party, the Scottish National Party and the Social Democratic and Labour Party among others. The Leave campaigners include the Eurosceptic and right-wing UK Independence Party, the Democratic Unionist Party and the Traditional Unionist Voice. This blog post will analyse the arguments raised from both sides – the Remain and Leave campaigners for the Brexit (British Exit) debate. The campaigns remain divided on the question of impact on the economy, dependence of the UK on the EU for trade, employment opportunities, the costs associated with retaining an EU membership vis-à-vis the benefits and the alleged breach of sovereignty through an increasing amount of control exercised by the EU in national legal concerns, among others. Additionally, a deeper analysis may be found in the rise of Euroscepticism, the movement highly skeptical of the deeper integration within the EU.

Creation of the European Union

The European Economic Community was a creation of Post-World War II measures to secure peace against the scourges of war resulting from surging nationalist sentiments. Winston Churchill’s vision was to build a United States of Europe, to integrate nations within the European fold and to create a European identity. Britain wasn’t a part of the initial 6 members of the Community, and applied for membership only in 1961 by the Tory party in power at the time. The sceptic Labour Party proclaimed the end of a thousand years of history of Britain as an independent European state. The first referendum in the UK was held in 1973, with 67% in favour of an EU membership.

Since then, the UK has undergone a process of integration with the larger European community of states by creating interdependence in various areas like coal and steel to dispel possibilities of covert mobilization of armed forces, for general economic cooperation, and law and order measures. It has also enacted treaties to unify governing institutions under the European Parliament, which along with the Council of the European Union and the European Commission exercise the legislative functions of the EU. The European Commission, consisting of representatives from all states and headquartered at Brussels has power to enact legislations on a wide array of subject matters, which the UK is bound by. The EU countries also share a common debt and agricultural policy. This has in turn led to a growing discontent with the loss of sovereignty over the country’s internal matters.

An Appraisal of Costs and Benefits to the UK

  • The Single Market

An EU membership impacts the UK economy in a large way. The Single Market’s influence with its four freedoms of movement of capital, people, goods and services within the EU is felt the most. The removal of barriers to free trade incentivizes specialization by states in areas where they are most efficient, and facilitates trade of specialized services among states. The membership of the Union is incentivized by imposing tariffs on trade imports for nations who are not part of the EU. EU is one of UK’s most significant trading partners with a 52% share of the total trade in goods and services. The Commission also exercises substantial power in negotiating trade agreements with nations outside the EU. The UK believes that further removal of cultural, regulatory, legal and administrative barriers to trade are necessary in extracting complete benefits from the trade policy. Supporters of the membership argue that if the UK withdrew completely from the EU, it would have to pay much more in tariffs for import and export to be able to access the trade market. Leave campaigners however remain optimistic and slight the significance of the EU as a trading partner, relying on relationships with fast-growing countries like the USA, India, China, etc. to establish bilateral trading agreements through the World Trade Organisation. They also believe that the membership hinders their trading relations with non-EU countries, as all such agreements must be coordinated at EU level in accordance with the Common Commercial Policy (CCP).

  • Membership costs and impact on the economy

Eurosceptics and supporters are engaged in a battle about how beneficial the membership is, as compared to the costs incurred to avail it. The UK contributes more to the EU budget than the direct benefits they receive. The bulk of the EU’s spending used to be consumed by the agricultural sector, while recently it has moved to funding the poorer EU countries for research, development and infrastructure. Significant amounts continue to be spent on implementation of EU-wide policies, like the proposed banking union. It is argued that the UK will save billions in membership fees and from the tariffs imposed on them by EU laws, while supporters argue that the benefits of being in a single market system far outweigh the costs.

The impact on the economy as a whole as estimated by research organisations in cases where UK is able to strike favourable trade deals after withdrawing from the EU range from a permanent loss of 0.8% of GDP to a permanent gain of 0.6% of GDP. The estimates for a worst-case scenario is around 6.3% to 9.3% reduction in GDP. A withdrawal from the EU also directly affects the people who have gained employment under EU schemes, while other estimates propose that a Brexit will create more than 3,00,000 jobs. Supporters of a continued EU membership argue that the attractiveness of UK as a low-cost manufacturing hub will be lost, adversely impacting the car industry the most, among other sectors like Airbus manufacturing. The EU will shift their manufacturing bases to lower cost EU countries that have remained in the union. It has been suggested that UK can either play a renegade at the margins or play an increasingly dominant role within the EU, and in the global market with the support of the Union.

  • Immigration – Employment and Multiculturalism

Though there are no concrete studies to show the impact of immigration on economic welfare as yet, there is a wide consensus that immigration results in a displacement of residents in low-skilled jobs. The estimates however widely depend upon the locality, characteristics of migration, employment policies, etc. which makes it difficult to arrive at a certain hypothesis. The impact of immigration on overall standards has however been positive, as measured by a few studies. If the UK were to leave the EU, it will have complete control over its domestic immigration policies, however if it chooses to remain part of the Single Market, it would have to accept EU regulations and immigration policies would depend upon ensuing negotiations.

Rise in immigration stemming from a free movement policy among the EU nations has been a contested topic among Britishers. With Angela Merkel advocating open borders, a handful of EU nations including France and Hungary have called for a retaking of control over their own domestic policies. The immigration has put a huge strain on centralized benefits like the NHS.

Underpinning multiculturalism is a tolerance of other cultures, which conservatives seem apprehensive of. The liberal, educated populace of Britain is divided with the former on the issue of such integration. The conservatives remain staunchly in support of preserving a British national identity, which it believes will be under threat with the unregulated influx of migrants. The reason for Euroscepticism’s exponential rise over the past few decades culminating into a yes or no vote, is primarily because of a stronger sense British national identity vis-à-vis a supranational European identity. Native Britishers are more concerned about preserving their British-ness in spheres of law-making and the composition of their populace than of an abstract European identity. They view immigrants as a threat to their cultural and political values.

However, no concrete estimates can be made with regard to the impact on the economy and trade because of the various contingencies attached to either scenario. With polls showing a majority of Britishers favouring an exit, it remains to be seen what the outcome of the 23rd June referendum will be, and what path the UK forges ahead.

By: Vidushi Sanghadia, NALSAR University of Law, Hyderabad

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