Brexit And The European Union: Potential Implications On Trade And Immigration
The term “Brexit” is an envelope, containing two words “Britain” and “Exit”. It is a shorthand way of saying the UK leaving the EU, therefore merging the words Britain and Exit to arrive at the term “Brexit”.
On the other hand, the European Union often known and referred to as the “EU” is a political and economic union of 28 member states primarily located in Europe. It is an aftermath organization of the world war II with the primary aim of fostering economic co-operation amongst member states with the notion that nations that trades together will more likely avoid embarking on war with each other.
Internal single market has been the EU’s major development through an organized established framework of laws that apply in all its member states. The “single market” is a type of trade bloc in which most trade barriers have been removed with some common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise and services. It basically permits goods and people to move around its internal market as if the member states were one country without regard to national boundaries.
It is possible to setup a business or take a job anywhere within it. The idea was to boost trade, create jobs and lower prices. But it requires a common law making to ensure products are made to the same technical standards and imposes other rules to ensure a “level playing ground” for all member states.
This idea of course is not without its own challenges, as critics have said that it generates too many petty regulations and robs member States of control over their own affairs, and that mass migration from poor to richer countries has also raised questions about the free movement rule.
The agitation by Britain for liberty, free trade and of trying to manage globalization much better than the EU is doing from the comfort of Brussels has been the major factors that gave rise to the call for Brexit.
The UK referendum of the 23rd day of June, 2016 in which everyone of voting age took part in deciding whether the UK should leave or remain in the European Union has been viewed as a landmark event in the history of the European Union and will have an unimaginable implications on the economy (trade & immigration), politics, and policies of both the EU and the UK.
The breakdown of the said referendum shows that England voted massively for Brexit, by 53.4% to 46.6%, Wales 52.5% to 47.5%. However, Scotland and Northern Ireland both voted for stay in the EU with Scotland having 62% to 38% while Northern Ireland backed 55.8% to 44.2%.
Following the unprecedented referendum, the UK is on the verge of severing its ties with the EU. Notably, given the UK’s decision to withdraw from the EU, it has been argued, any person (company) doing business in the UK or with the UK will have to be on the alert by monitoring the potential implications on trade and immigration issues that will crop up consequent upon UK’s exit, now traditionally and more popularly known as and called “Brexit”.
The EU – UK separation process will be a complex venture or voyage to embark upon, as it will bring with it a whole lot of political and economic changes for the UK and other countries. As of August, 2016, the terms for the said withdrawal have not been established and there is no indication that Theresa May, may do so within the shortest possible time. This means the UK still remains part and parcel of the EU and still is bound by its rules and regulations.
The room for possible withdrawal from the European Union has been made available vide article 50 of the Treaty on European Union (the Lisbon Treaty) which is the leaving mechanism of the EU. The said treaty, creates the procedures for a member state to severe its relationship with the EU even though, the said article 50 has never been used before at least to serve as a working precedent on the present situation. The article 50 requires an intending member state seeking to withdraw from the EU, to first notify the EU of its withdrawal, a situation which will then in turn obliges the EU to try to negotiate a withdrawal agreement with that state.
Further, the said withdrawal must however be in consonance and/or conformity with the member states constitutional requirements. Once Britain activates and/or invokes article 50, it will have a two year timeline within which to negotiate a new treaty to replace the terms of EU membership, in that regard, Britain and UK leaders would have to iron out issues that will border on trade tariffs, migration and the regulations of every other issues that touches on economy. It should however, be noted that this official notice has not been given by the UK immediately after the almighty referendum of June, 2016, and Britain’s “leave” vote, does not however in my thinking, represent that formal notification. The major reason for the UK wanting to leave the EU, leave campaigners have stated was because Britain was being held back by the EU, which they said imposed too many rules on business and charged billions of pounds a year in membership fees for little in return. They also wanted Britain to take back full control of its borders and reduce the number of people coming to work or live in the UK. The central point from the vote therefore being that the British people want to see as reduction in immigration.
But whether other EU member states will grant the UK access to the single market, while at the same time being allowed to restrict the rights of EU citizens to live and work in the UK will become a new key agenda in negotiating a new agreement with the UK. Professor Patrick Minford, an economist and a former economic adviser to Margaret Thatcher has argued during the lunch of his new publication titled “Trading places”: In the new Brexit economy, that the only way to achieve the objectives that were voted for in the Brexit referendum is for the UK to go for a clean break with the EU and trade with the EU outside the single market. He added that such trade would occur under World Trade Organization (WTO) rules and unilateral free trade with all countries. He went further to state that by being prepared to leave the EU single market, there is no necessary agreement between Britain and the EU on immigration.
The major focus of the EU – UK negotiation will centre on trade and immigration. But the starting position are that the EU will only allow the UK access to the single market (which allows tariff free trade) if and only if the UK will allow EU nationals unhindered ingress and egress in UK.
To what extent will this be possible in view of the fact the UK wants controls on the numbers of people who come to Britain from Europe? EU and UK wants trade to continue after Brexit and the task for UK will be to do enough to tackle immigration challenges while targeting the best possible trade arrangement with the EU. The UK should however be prepared to face a more difficult challenge over what becomes of UK citizens working on the EU countries. That is to say whether they will be able to enjoy the free movement rights, but this will definitely depend on the nature of deal the UK agrees with the EU, meaning, if the UK wishes to remain in the single market, it would obviously make way for free movement of EU nationals and vice versa, but where the UK government will opt to impose work permit restrictions, then other countries could equally reciprocate, which means Britain would have to apply for visas to work.
The task of reducing UK immigration have for sometime now become the talk of the day and have led to diverse discussions as to whether leaving the EU will reduce migration and whether it is the only possible way of reducing immigration. The views of commentators in this angle are in a discordant direction, while some argues that leaving the EU is the only way or most sensible way to reduce migration, others posits that Brexit could have relatively limited effect on migration.
Honestly, assessing the implication Brexit would have on immigration cannot be readily ascertained now since one does not know the nature of relationship that will replace UK’s EU membership. It is visible that the UK could adopt the Norway and Switzerland approach which went into a some kind of agreement with the EU which included a somewhat free movement policy and have implemented same as part of their economic co-operation agreements with the EU. If this happens in the UK, the implication of Brexit on migration could be relatively limited.
Alternatively, UK withdrawal from the EU could mean a total end of free movement and the withdrawal of admission requirements for EU nationals who want to live and work in the UK. This means EU citizens would have to face the same rules as non-EU citizens and vice versa. Will Britain have to reach a new agreement with the European Union following its decision to cut ties with Brussels? The answer is yes, but the task will be herculean and will have to be carried out under the heat of a two year timeline. Upon the invocation of article 50 of the Lisbon treaty, which requires notification to the European council of EU leaders, the UK will be giving formal notice that it will be leaving the EU. Article 50 opens a two year window for renegotiation of a new legal framework for Britain’s trade relationship with the EU. Although this two year deadline is subject to extension. This negotiations will cover issues like customs procedures, passport controls for business travelers and regulation on issues like environmental health and safety standards.
As to whether tariffs will be imposed on UK goods and services under a new trade deal with the EU is entirely possible under a new UK - EU deal. Presently, UK companies are able to trade with the EU on a tariff free and quota free basis, but after negotiations for a new trade deal, I do not think there is anything that will stop Brussels from imposing any tariff on all UK products. The risk that the EU will also impose quotas which limits the amount of goods and services that can be sold into Europe is also possible. As it stands, EU member states participates in many preferential Trade Agreements (“PTAs”) that have been negotiated by the EU, which eliminate customs duties for member states when trading with each other. The EU in addition, also establishes export policies, sanctions, and trade remedies for its member states. Upon exiting the EU, the UK will no longer benefit from the EU’s PTAs, and will have to negotiate these deals independently. Future trade between the EU and UK would require certain taxes and additional declarations on exports and imports if UK eventually exits from the EU. As a member of the EU, the UK has unlimited access to the single market, which means the UK enjoys no tariffs on imports and exports between member states.
Brexit will therefore become a barrier to these rights and privileges accruable to every member states of the EU viz-a-viz access to the single market. In the absence of the single market therefore, UK will have to negotiate a bilateral free trade agreement with an interested nation. These entails UK will have to join a free-trade-area which is a region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA).
Such agreements involve co-operation between two or more countries to reduce trade barriers such as import quotas and tariffs and to increase trade of goods and services with each other. If people are also free to move between the countries, in addition to a free trade agreement, it would also be considered as open border.
One of the recurrent themes of the UK referendum campaign on EU membership of the UK was how tasking it would be to re-establish trading terms between the two players if the UK has withdrawn from the EU. Pundits have argued that it could take many years for the EU and the UK to negotiate a “Free Trade Agreement” (FTA) and even if a deal is struck, that parliamentary input and ratification can extend this further, Nick Clegg a former British Deputy Prime Minister and an advocate of the EU has warned that based on past experiences, it was likely going to take many years for the EU and the UK to agree a Free Trade Agreement.
All in all, it is the humble suggestion of the present writer through this article, that the European Union will likely and diplomatically be harsh with the United Kingdom leaving the EU. The argument therefore is that, a tariff – driven trade war would be mutually harmful to both the UK and the EU and it is therefore time for companies engaged in business with the UK to critically examine the potential implications on trade and immigration.
Companies should however be monitoring the Brexit negotiations with an eagle-eye to determine if potential customs duties or other restrictions with respect to movements of people and goods would put their businesses at an irrespirable lose.