With the beginning of a new decade, the debate over BREXIT has finally met its end. The United Kingdom, under the leadership of Boris Johnson, has officially pulled itself out of the European Union, ending almost a 47 year old membership. After almost four years of negotiations and discussion, the UK and EU have finally been able to come to a consensus over a withdrawal agreement, which received Royal Assent on 23rd January, 2020 and was voted upon by the European Parliament on 29th January. This article tries to shed light upon the consequences of BREXIT on the EU, the UK and the rest of the world.
A Brexit deal has been agreed upon by the UK and the EU. This deal provides for a transition period extending upto 31st December, 2020, allowing both the parties to negotiate upon their future relations and the stakeholders to adapt with the new arrangements. This deal will dictate the relations between the UK and the EU, and includes the following key features:-
Britain will no longer be a part of the customs union of the EU, i.e., Britain can devise its own policies within its independent customs territory. This will allow the British government to strike bilateral trade deals with the other countries, deciding upon various issues like tariff, customs rules etc.
Northern Ireland (NI) will leave the EU alongside Great Britain, however it will continue to be a part of the EU customs union, while being a part of the UK’s customs territory. This unique development has taken place to comply with the Good Friday agreement, which has maintained peace on the island of Ireland. This unique model will create a de-jure customs border between the two Irish States, however the de-facto customs check will be alongside the Irish Sea. This means that trading with NI, as far as customs regulations are concerned, will be similar to trading with any other EU country, however any trade with Great Britain, through NI, will be subjected to the customs regulations of the UK. In practice, any British goods crossing the Irish Sea will be taxed as per the British Regulations. However if this particular product continues to stay in NI, and is not “at-risk” of being exported to the Republic of Ireland, an EU member, the tax amount will be refunded by the British authorities. A joint EU-UK committee will decide which goods are “at-risk” of entering the EU single market and the UK will collect EU tariffs on them on behalf of the EU. However, the procedure to identify such goods is still ambiguous. This arrangement is inapplicable on individual travellers.
Under the new Brexit deal the regulations applied in NI were different from those applied in the rest of the UK, thereby leading to seclusion of NI. To make the process more “democratic”, the new deal provides the NI assembly with the opportunity to decide for themselves whether to continue with the new arrangement or not.
As soon as the transition period ends, a period of 4 years has been provided, allowing the Irish people to adjust with the new arrangement, following which a vote will be taken in the NI Assembly. If a simple majority of the elected MLAs present, decide in favour of the arrangement, the period for another vote will be extended to 4 more years. If there is a 2/3rd majority in favour then the period will be extended for 8 more years, implying the consent of both the Irish Nationalists and Unionists. However if the Assembly votes against the arrangement, then a cooling off period of 2 years will begin, during which an EU-UK committee will decide upon new arrangements for the region.
The Brexit deal has no impact on the rights of citizens of the EU and the UK ensuring their social security rights and freedom of movement during the transition period. After the transition period, one would have to prove one’s ‘settled status’ or ‘pre-settled status’.
If a person has lived in the UK for less than 5 years and has entered the UK prior to 31st December 2020, he/she can apply for ‘pre-settled status’, allowing him/her to stay in the UK for the next 5 years. If a person has lived in the UK for 5 or more years, he/she could apply for ‘settled status’ which would mean that the person can live and work in the UK as long as he/she wishes to.
The Office of Budget Responsibility of the EU estimated a financial obligation of £30 billion in the UK towards the EU. This constitutes the net of the annual contribution of the UK, membership fee and the rebate, calculated until January 2020. 3/4th of this is expected to be paid by 2022; the rest shall be paid in small installments till 2060s.
Despite the difference in opinion between the states of NI-Scotland and England-Wales, the Westminster Parliament decided to terminate its EU membership. This led to widespread discontent among the people of Scotland and NI.
In the case of NI, the assembly expressed their dissent by passing a motion on 20th January 2020, to withhold the consent to the Brexit bill, for they believe it shifts an unfair burden on the people of NI to reform, while they are pushed towards an economic crisis post-brexit. To alleviate the situation, a provision was added to the Brexit deal which calls for Irish consent.
A report commissioned by Scottish government was published in January 2020. It highlights how Brexit would impact the vulnerable sections of Scottish population and would lead to a lack of access to basic amenities such as food, medicines etc. The discontentment is also expressed in the demand raised by the Scottish government calling for a referendum to decide on Scottish independence from the UK.
It is estimated that Brexit will lead to a Domino Effect. Terms like ‘Frexit’, ‘Auxit’, ‘Italeave’, have started gaining prominence in countries like Hungary, the Czech Republic, Austria, France, Poland, after people from all sides of the political spectrum have started coming together owing to their belief that irrespective of the party in power, decisions for their country are made by their so perceived “undemocratic” European Parliament. Demand for leaving the EU has gained voice in these countries. Such demands are heading towards the failure of the “European Project.”
Trade in Britain is likely to be hardest hit if a deal ensuring free trade is not agreed upon. Imposition of tariffs would mean that the cost of British goods in EU markets would rise affecting the UK exports. Further, the tariffs would also increase the cost of imports and this could further lead to inflation.
Further, UK companies would not be able to participate in bids which are only meant for EU countries. Loss of passporting rights would also mean that London would lose its status as the economic hub and shifting of locus to other cities such as Paris, Frankfurt and Dublin.
As the UK leaves the EU single-market, job opportunities for a huge populous will be lost. As MNCs might start to shift their European Headquarters out of London to the EU, people in the UK might lose their jobs.
Also, Germany is likely to face a labour crunch of 3 million skilled workers by 2030, which could have been balanced out by the labour in the UK, but post-brexit this would not be possible.
Investors are more likely to invest into currencies which are stable and progressing. Political and economical instability across the UK is likely to not only make investors sceptical and discourage them from further investing but also to draw out their current investments and shift them to more stable currencies. This applies to the EU as well, thereby leading to devaluation of the Euro and the Pound vis-à-vis the U.S. Dollar. This strengthening of the Dollar will also negatively affect any other country which keeps its currency reserves in US Dollars, for example India.
Britain is the second largest contributor to the EU budget after Germany, with an estimate of £7 bn - £10 bn net contribution. Brexit will create a vacuum in the budget, which will shift the burden on countries like Germany and the Netherlands. However, these countries are in favour of a smaller budget, representing smaller EU post-brexit.
Britain will be free to strike up new relationships with India, without the fear of violating any EU regulations. A new trade deal will have to be agreed upon between India and the UK, which can take years. Although this will pave the way for greater integration of the two economies, it can hinder the trade between India and the UK, until a new deal is struck. However, the trade between the EU and India, which was done with Britain as a gateway will be blocked, and India will have to find a new gateway.
Brexit is also likely to benefit those availing British services as Britain will no longer be obliged to benefit the EU citizens, for example, in the form of special counters for EU citizens on airport and subsidies for EU citizens in British Universities. Such benefits will be spread across the citizens of other countries like India.
It is desirable that a final deal be struck before the transition period ends, as leaving various stakeholders unaddressed can lead to disastrous, unpredictable consequences.
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