Brexit - International Trade and Commerce

BREXIT

Lydia Manzanares

Joseline Ordoñez

UAM College

International Trade and commerce

December,2017

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1. INTRODUCTION

The European Union is a unique economic and political union between 28 European countries that together cover much of the continent. It was created to foster economic cooperation under the idea that countries that trade among themselves will become economically interdependent, more likely will avoid conflict; the idea was created in the aftermath of the Second World War. As a result, the European Economic Community (EEC) was created in 1958. It integrated six countries: Belgium, Germany, France, Italy, Luxemburg and the Netherlands. These countries who signed the Treaty of Rome, invited the United Kingdom to the previous negotiations to create a common market; however, the country decided to back away due to presuming allegation that the project of applying an external tariff will harm the trade with the partners of commonwealth countries. (Union, 2017)

Not content with the threat that this project implied, and due to distrust the British tried to boycott the whole situation; they did it through the creation of a free trade area among the 19 countries of the European Organization for Economic Cooperation, antecedent of the OECD (Organization for Cooperation and economic development). Later, in 1960, they would promote the creation of the European Association of Free Trade, which included Sweden, Norway, Denmark, Switzerland, Austria and Portugal; leaving then to European divided in two commercial blocks.

In 2007, the United Kingdom accepted the Treaty of Lisbon but with important exceptions. The protocol provides that the letter is not applicable to the United Kingdom, in the words, it has no binding force in regards of the rights that are not recognized in the country (Negrete, 2017). On the other hand, in 2012 the United Kingdom would be outside the Stability and Growth Pact, a set of rules that have as objective to ensure that the countries of the European Union maintain public finances sound and coordinate their budgetary policies.

Finally, the financial crisis increased the distrust of the British regarding the European Union, which led David Cameron to promise that if he was re-elected in elections of 2015, would renegotiate the position of the United Kingdom in the EU. On November 10 of 2015, Cameron sent his list of demands to stay in the European Union. (Negrete, 2017)

Consequently, on 23rd June 2016, the United Kingdom voted to leave the European Union with 17.4 million people voting Leave and 16.1 million voting Remain (equivalent to 51.9% and 48.1%).

This following paper analyzes the situation that is happening with United Kingdom and the European Union. It will outline the reason why BREXIT happened, and the possible benefit and threats United Kingdom will be encountering through this situation. In addition, it will remark the advantages and disadvantages the European Union will face for the next coming years. Finally, it will compare how Brexit affect other regions such as Latin America in terms of trade.

1. ANALYSIS 

The withdrawal of the United Kingdom from the European Union was put to public vote in 2016; allowing citizens to determine the future of the nation for years to come. The winning vote of leave was influenced by many factors that have been piling up throughout the years, same factors that undermined UK politicians and citizens’ support for the EU.

• Immigration

Immense migration flows into the union led to an increase in the number of people seeking work in the UK which caused a high level of uncertainty for people, industries, and the economy. The EU and its member states share the competence in the area of immigration, therefore, there are certain common immigration rules valid across the EU, while other aspects are determined by each country. Contrary to British negative view of immigration, in 2004, the UK government authorized full freedom of movement rights to all the accession states. As a result, it received a wave of people from Central and Eastern Europe, the Baltic States, Cyprus and Malta (Riley, 2016). This result was enhanced by the fact that Ireland, Sweden and the UK were the only three states which provided full free movement of workers. Even though, it was the British government decision not to exercise their treaty right to restrict free movement, the surge of workers was blame on the EU. This British act played an important role in the referendum result.

After the approval of the act, the former prime minister tried to negotiate limits on EU migrants, but he was dismissed. Martin Schulz, the president of the parliament, said that the EU’s four freedoms: people, services, goods and capital were inseparable (Riley, 2016). Thus, full access to the single market could only come in exchange for signing up to the four freedoms. This declaration restricted UK’s control on migration and fueled the anti-immigration sentiment.

The EU migrants have played an important role since 2004. According to the consulting firm PwC, workers from the European Economic Area accounted for 31 percent of the UK’s food-manufacturing, accommodation 18 per cent, warehousing 17 per cent, food and beverage services 13 per cent, and construction 10 percent (citation3). All these statistics have raised concerned on many business owners that are particularly dependent on EU workers, because the BREXIT could pose restrictions on the labor force acquired from the union.

• Economy

The strong union that the UK joined in the past, is no longer as prosperous as back then. The EU has been constantly outperformed by other advanced economies such as the United States, Canada, Australia and New Zealand. This has created doubt about the capacity of the EU to generate economic growth, stability and provide all members with the supposed benefits of being part of the bloc.

A further burden on the EU institutions and the Member States aroused with the Eurozone Debt; an event that affected greatly the economic health of the single market and exposed the flaws in the Euro group. The crisis started in 2009 when the world first realized Greece could default on its debt which was followed by potential sovereign debt defaults from Portugal, Italy, Ireland and Spain. In response to this series of unfortunate events, rigid fiscal policies were established. Eurozone countries had to cut back spending in a period when economic growth rates were low and a high percentage of debt was in the hands of foreign creditors. Even though, the UK is not a member of the Eurozone, the endless fiscal contractions have a direct impact on the nation. The economy of debtors’ countries contracted reducing the value of the single market to the UK; and flooding Britain with more people looking for work. As the economic crisis spread to all countries in Europe, the UK acted as an employment shock absorber for the Eurozone and has soaked up workers from CEE states. In the same way, as main trading partners (the EU accounting for 48 per cent of goods exports from the UK) the crisis affected the supply and demand of products because of the lower purchasing power from a weaker euro. (Digital, 2017)