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Brexit – An analysis

What is the European Union?

The EU is an economic and political union involving 28 European countries (now 27 after the exit
of UK). It allows free trade and free movement of people to live and work in whichever country
they choose.

The UK joined in 1973 (when it was known as the European Economic Community). The UK is
the first member state to withdraw from the EU.

Why UK wanted to leave? – The background history.

A public vote - or referendum - was held on Thursday 23 June 2016, to decide whether the UK
should leave or remain.

Leave won by 52% to 48%. The referendum turnout was very high at 72%, with more than 30
million people voting - 17.4 million people voted for Brexit.
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Brexit was due to happen on 29 March 2019. That was two years after then Prime Minister Theresa
May triggered Article 50 - the formal process to leave - and kicked off negotiations. But the Brexit
date has been delayed twice. The UK and the EU agreed a deal in November 2018 but MPs rejected
it three times. Finally it was during the tenure of PM Borris Jhonson that Brexit took place on 31st
January 2020.

What is the Brexit deal?

The deal consisted of a binding withdrawal agreement - which set out the terms for the "divorce"
process - and a non-binding political declaration on the nature of the future relationship between
the UK and EU.

The withdrawal agreement covered a range of things including:

 the rights of EU citizens in the UK and British citizens in the EU

 how much money the UK was to pay the EU (widely thought to be £39bn)

 the backstop for the Irish border

Why did Parliament reject the Brexit deal?

The main sticking point for many Conservative and DUP MPs was the backstop.

Currently, there are no border posts, physical barriers or checks on people or goods crossing the
border between Northern Ireland and the Republic of Ireland. The backstop is designed to ensure
that continues after the UK leaves the EU.

It comes into effect only if a comprehensive free trade deal is not quickly agreed between the UK
and EU. It would keep the UK effectively inside the EU's customs union but with Northern Ireland
also conforming to some rules of the single market.

Critics say a different status for Northern Ireland could threaten the existence of the United
Kingdom and fear that the backstop could become permanent. But supporters say it is necessary
to maintain peace in Northern Ireland.

Prime Minister Boris Johnson wanted the EU to remove the backstop from the deal. He wants
"alternative arrangements" and technological solutions instead. But the EU has so far refused to
change the backstop.

What are the customs union and the single market?

The customs union ensures that all EU countries charge the same taxes on goods coming in from
outside. They do not charge taxes on each other's goods. But members cannot strike their own
trade deals.
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The single market enables goods, services, people and money to move between all 28 EU
member states, as well as Iceland, Norway, Liechtenstein, and Switzerland, who are members of
the European Economic Area. Countries in the single market apply many common rules and
standards.

A UK company can sell its product (goods) in Portugal as easily as it can in Portsmouth, bring
back the cash (capital), offer maintenance (services) and dispatch a repair team (people).

With Brexit the customs union and single market then the EU will start carrying out checks on
British goods. This could lead to delays at ports, such as Dover. Some fear that this could lead to
traffic bottlenecks, disrupting supply routes and damaging the economy. However, Mr. Johnson
tried to calm such fears by announcing an extra £2.1bn of funding to prepare for a possible no-deal
outcome.

Mr. Johnson after winning the December 2019 elections was able to get his Brexit deal through
parliament as already announced by him to leave EU on 31st January 2020. However, the exit will
have a secessionist impact on Scotland, because the Scottish National party has won 48 seats out
of the 49 in the December 2019 elections.

The underlying causes of Brexit:

Economic recession and the meltdown of 2007-8 had a great impact on the UK. Loss of jobs
in the UK, and the influx of European immigrants mainly from East European countries, being
poorer economies played a vital role in the Brexit phenomenon. However, Scotland and Northern
Ireland already not so happy with England and Wales cast their vote against Brexit. Brexit would
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not have been a reality had the jobs, and the economy of the UK could be like that of pre-world
war two and pre 1980 period. As a matter of fact, depletion of jobs not only in UK but all over the
Europe with the exception of Germany happened on account of shifting of Trans National
Corporations (TNCs) mostly to China, India, and other emerging economies of East and Southeast
Asia where labor and other expenses were far less than the home country.

Going a little bit in detail of Brexit phenomenon we see that during the June 2016
referendum 52% of voters voted for the exit of Britain from EU against 48% to remain. The vote
split was mainly on the fault lines of age and geography. The young voted for ‘remain’ while aged
voted for ‘leave.’ As per geography, Scotland 62% and Ireland 56% voted for ‘remain,’ and
England and Wales voted for the exit. Historically Scots have never been entirely satisfied with
England domination. During 2014 the pro-independence referendum 44% Scottish voted for
independence of Scotland from Britain. It seems to have a very adverse effect on the unity of
United Kingdom, as Northern Ireland may ask for a vote on Irish unity to remain part of EU, and
likewise Scotland for independence in the years to come.

Briefly speaking the referendum was between people favoring globalization and those
fearing globalization. Analysts believed that the main reason behind Brexit was the entry of
European immigrants into Britain mainly from Poland and Lithuania, and other East European
countries after the inclusion of East European countries into the EU in 2004. During the economic
meltdown of 2008 and period of austerity that followed, although there was a role of the imprudent
strategy adopted by the bankers in the meltdown, most of the people blamed it was all due to the
massive influx of immigrants. Subsequent immigration of people from Syria and Iraq added fuel
to the fire.

This inflow of immigrants taxed the British housing market, its public services, and jobs.
Whereas, joblessness was not only the issue of Britain but most of the EU countries except
Germany which alone acted as the land of opportunity for many EU members. Germany’s fast
resilience to the economic shock during the recession period owed its better financial management
and its high Teck including Daimler-Benz, Volkswagen, BMW, Siemens and Bosch products for
which there was little competition in the world. During the economic meltdown many immigrants
from the worst-hit countries like Italy around 45,000, Spain, 37,000, and Greek, 35,000 moved to
Germany for jobs. This financial meltdown also affected Ireland forcing its approximately 87,000
people to leave for Australia and New Zealand. So much, so tens of thousands Portuguese have to
seek work in the former colonies of Angola and Mozambique in Africa. This all was a
manifestation that EU as regional block failed to address the economic woes of the region.

As regards Britain it had to give away the control of immigration within the EU to the EU,
and retaining the power to control only the migration from the non EU countries that meant mostly
from the Commonwealth countries, which the British government managed to a great extent. The
most damaging effect to the EU was its principle of free movement of people within the EU
countries. Every citizen of EU country has the right to live and work in any state of the EU. The
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result was net movement from economically developing countries to the financially sound
countries. Concerning Britain, around 1.2 million left to other EU countries while about 3 million
came to live in Britain.

This all resulted in anti-immigrant sentiment almost in all European countries but more
pronouncedly in Britain. Anti-immigrant sentiment as observed in Italy during March 2018
elections for its economic woes was another manifestation of the Brexit phenomenon, as there was
a surge of anti-European Union parties.

The real problem:

When we look into the real problem of the whole European economic downturn except
Germany, and to some extent France it surfaces that the economic ailments of Europe including
Japan in the East started with the industrialization of China, ASEAN, and India. They created such
an investment-friendly environment that all European companies with their technology and
finances moved towards the Asian regions creating a lot of jobs there and depleting the same in
their own countries. There is no blinking the fact that investors move to countries where labor,
land and other utilities are cheap, and unions are weak. If Germany and France survived better
during this episode that was on account of their competitive edge in specific high tech products.

The era of protectionism has breathed its last. We cannot block the Free trade, the movement
of capital and investors across borders now. If President Trump plans now, that would be a short-
lived luxury. The best option under the circumstances for the survival of the Western nations will
be to invest and capitalize upon their core competent areas, i.e., high tech and research-based
industries and services. It is not only valid for the Western nations but for all the countries of the
world to remain and develop their respective core competent areas in which they have a
competitive edge over others, and not trying to become someone else. “Take back control,” is just
a hollow slogan and promise. Under the circumstances, only ‘exit’ or ‘entry’ into EU does not
seem to bring any significant change in the lives of the people of the UK.
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