Analysis of Brexit in Terms of Trade

Final paper: “Analysis of Brexit in terms of Trade”

International Trade and Commerce

Professor Marco Castro

Wednesday, December 6

Isabella de la Jara and Silvio Miranda

Introduction

Edward Bulwer Lynton once said, “The pen is mightier than the sword”. Before we start talking about Brexit it is needed and introduction of the topic. Before everything happen in 2016, it is necessary to go back some 50 or 60 years ago with the creation of one of the most important political economic unions that have ever existed, the EU or European Union. However previously that the EU existed there was the EEC, Economic European Community. First of all, how did it started? Here the quote at the beginning of this essay can apply, the Economic European Union started after World War I and World War II when it was decided than greater economic and social-political ties would lead to less wars. So in 1957 the Economic European Union was officially created, when France, Luxembourg, West Germany, Netherland, Belgium and Italy decided to sign the Treaty of Rome. The major components that this treaty had been: “they were determined to lay the foundation of an even closer union among the people of Europe”. By saying this they agreed to try to achieve a progressive political integration. Other component in the treaty was to bring down the tariffs barriers between the members, for twelve years, nevertheless when in 1968 the EEC saw that it had a great economic success it decided to revoke it, and makes it permanent. Adding to it, a free movement of goods including, persons, capital and services.

At the beginning the United Kingdom did not wanted to join the EEC. They were in favor of free trade, but they wanted to be able to put the tariffs that they wanted into third parties. They also were against a project, which its long-term aim was to surrender the supreme authority the states had into European institutions. The UK even proposed the foundation of EFTA, European Free Trade Association, with Portugal, Switzerland, Sweden, Austria, Norway, and Denmark, The main purpose of the organization was to constitute a mere free trade area, without any political integration. However after the United Kingdom saw how the Economic European Union economy was growing fast they tried to join. The United Kingdom tried to join in 1963 and 1967, however it failed to do so. It was vetoed, by Charles De Gaulle, French leader at the time, because of fear between the bonds that the UK had with the United States. The absence of the United Kingdom was a negative factor in the Economic European Union. In 1973, the United Kingdom finally was able to join the EEC after the resignation of Charles De Gaulle in 1969. With the UK also came the integration of Denmark and Ireland that same year. Only two years after the United Kingdom entered, they passed a referendum to see if they will stay or leave the European Economic Community. It was elected to stay on the EEC with 67.2% saying yes and 32.8% saying to leave. In 1993, the name of the organization changed from European Economic Community to European Union. By this time there were already 12 countries in the European Union. With every year that passed by the United Kingdom always tried to do more and more renegotiation of the key aspects of the European Union, today composed by 28 states. For example, in 1995, the United Kingdom did not open their borders as the rest of Union to create completely free movement within the union. Another example would be that the UK decided to keep the British pound as their currency instead of adopting the Euro. In 2009, the Treaty of Lisbon came into play, and this is when everything changes inside the EU. The Treaty of Lisbon is an agreement, which amends the two major treaties that are the basis of the EU, Treaty of Rome, and Maastricht Treaty. It also states that a country can withdrawal from the union if they wanted to only needing to inform the European Council in advance before it can conclude their membership. In June 23 of 2016 the prime minister of the UK announced the intentions of the country to leave the EU, but according to Article 50, until the end of March of the following year was official. However this does not means that the UK is not part of the EU it only means that they have the intention to leave the union.

Analysis

Coming back to Brexit, Brexit is a simple term used to the United Kingdom’s decision to leave the European Union. As mentioned before the European Union’s purpose was to create a single entity between its members, in which it is allowed a free movement of people, goods, and money, under a single market. What lead to the United Kingdom to leave the European Union? First of all, the UK Independence Party thought that Britain’s participation in the EU was a restrictive element for the country. Another argument was the big fees that the UK needed to pay the EU for being part of it, and how the money spend in the fees could be beneficial for the country itself. Also the political party did not agree in the free movement that the European Union has, and which is its primary initiative, and they want to regain border control and reclaiming business rights. UK’s prime minister was against the UK leaving the European Union, this lead to the prime minister to resign to his position so that someone that truly believes in what is happening lead the country.

Nevertheless is impossible to know what Brexit will lead into, the damages that will cause into the UK and also does that will cause into the EU. This can be said because no other country has left the European Union before. One major speculation that could happen is a downside in the overall GDP per capita in the union as a whole. In the graph we can see how the UK, since joining the European Union have had a better growth rate than even the United States, and also the highest growth rate between the three major economies in the EU, France, Germany and United Kingdom. [pic 1]

There are two ways Brexit will go; they are called “hard” Brexit and “soft” Brexit. There are some differences in the characteristics between each of them. To start with, “hard” Brexit will mean that there will be independent trade deals, also they will loose full access to the single market, to add, the United Kingdom will not only have full control over immigration from the European Union but also they will apply new rules between their own territory, which could lead into reverting the WTO, World Trade Organization, rules. Nevertheless there is “soft” Brexit. The so-called “soft” Brexit characteristics include, that remain close to previous and existing arrangements that they had with the United Kingdom, also not subjecting British exports to border checks, accepting the freedom of, movement of goods, services capital and people, this last one meaning that the people from other members of the European Union residing in the United Kingdom have free access to work and to live in the country.