On Dec. 31, 2020, the transition period for the United Kingdom (U.K.) to withdraw from the European Union (EU), otherwise known as “Brexit,” officially came to an end. This marked the end of a years-long process that was overseen by two different Prime Ministers, included
several delays and extensions, and left the U.K. divided.
What Was Brexit?
Brexit was the nickname for “British exit” from the EU (28 countries now), the economic and policy union that the U.K. had been a member of since 1973.
That changed on June 23, 2016, when the U.K. voted to leave the EU.
The residents decided that the benefits of free trade weren’t enough to offset the costs of free movement of immigration.
The vote was 17.4 million in favor of leaving versus 16.1 million who voted to remain.
What Caused Brexit?
In 2015, the Conservative Party called for the referendum.
Most of the pro-Brexit voters were older, working-class residents of England’s countryside. They were afraid of the free movement of immigrants and refugees, claiming in the process that citizens of poorer countries were taking jobs and benefits.(EU countries allow free movement of immigrants among each other)
Small businesses were also frustrated by EU fees. (They charged some commission under the Free Trade Agreement).
Those who voted to stay in the EU primarily lived in London, Scotland, and Northern Ireland. They liked free trade with the EU, and claimed most EU immigrants were young and eager to work. Most felt that leaving the EU would damage the U.K.’s global status.
Classic liberal vs conservative debate this.(Our people our jobs vs we must open our jobs for the most skilled people(to obtain the best productivity), nationality doesn’t matter)
Brexit Process
Leaving the EU was a complicated process. Former U.K. Prime Minister Theresa May, following the voters’ will, submitted the Article 50 withdrawal notification to the EU on March 29, 2017. She negotiated a withdrawal agreement with the EU that outlined their new relationship but
couldn’t get approval from a divided Parliament.
In July 2019, Boris Johnson succeeded May as the U.K.’s Prime Minister.Johnson’s Conservative party subsequently attained a majority during a royally mandated general election on Dec. 12, 2019. That allowed him to get Parliament’s approval of the Withdrawal Agreement he negotiated with the EU.
On Jan. 23, 2020, the Agreement Act received the necessary legislative Royal Assent, which is when the Queen formally agrees to make the bill into law. The U.K. formally left the EU on Jan. 31, 2020, but entered a transition process that ended on Dec. 31, 2020. The EU-UK Trade and Cooperation Agreement was agreed to on Dec. 24, 2020 (and signed on Dec. 30
(basically he won the election, got enough numbers to pass the bill in parliament)
Brexit Trade and Cooperation Agreement Summary(b/w EU and UK)
The Trade and Cooperation Agreement has three main pillars: trade, cooperation, and governance that took effect on Jan. 1, 2021. Notably, the agreement does not cover foreign policy and defense
Trade
The U.K. is no longer part of the customs union and single market with the EU. Instead, it has a trade agreement that allows zero tariffs and zero quotas on goods traded that
comply with the appropriate rules of origin.
(so lemme explain this shittt)
With the earlier EU arrangement, goods could be freely traded between EU member states, like say they’re traded from one state to another in India. So, that ensured that a fair competition and the end user ultimately benefited, because, since there was so much competition, manufacturers constantly strived to keep the best quality at the lowest price.
But now, the UK has incentivised people to use only UK made products, by removing tariffs from them(rendering them cheaper), while the tariffs from the products of other countries still continue(rendering them costlier).
(this is called protectionism)(i’ll be using this word a lottttt)
Not good in the long run, as UK companies face less competition and hence do not feel the need to continuously improve.
That is why Free Trade Agreements(FTAs) are important and breaking away from them signals a narrow minded, inward looking approach to politics and economics, in an increasingly globalised world, where the focus should rather be on collaborative action, and a free market competition than a few domestic players not being
exposed to competition(personal opinion :p)
Free movement between the U.K. and EU has ended. European nationals already living in the U.K. must make sure they have documents from the U.K. government specifically allowing them to remain.
Travelers between the EU and the U.K. must have passports ready to show at the border. Business travelers have additional requirements. If they do business regularly in an EU country, they may need to set up a local subsidiary. Many services, such as telecommunications, broadcasting, and electronic services, may be taxed.
The U.K. must pay a “divorce bill” of 25 billion pounds by 2057. This is to fulfill any remaining financial commitments made while a member of the EU.
Security
While EU law no longer applies to the U.K., the latter will cooperate with the EU on law enforcement and criminal justice matters.
Governance
The agreement established a Joint Partnership Council to make sure the agreement is properly applied and interpreted. This includes dispute settlement, legal enforcement, and rules for retaliation if needed
How Did Brexit Impact the UK?
The U.K. has already suffered from Brexit. The economy has slowed, and many businesses have moved their headquarters to the EU(that’s because big businesses don’t like protectionism/rigid rules set by govts, they want free trade)
Growth
Brexit’s biggest disadvantage is its damage to the U.K.’s economic growth. Most of this has been due to the uncertainty surrounding the final outcome.
Uncertainty over Brexit slowed the U.K.’s growth from 2.4% in 2015 to 1.0% in 2019.23 The U.K. government estimated that Brexit would lower the U.K.’s growth by up to 6.7% over 15 years. It assumed the current terms of free trade but restricted immigration.24
The British pound fell from $1.48 on the day of the referendum to $1.36 the next day. That helps exports but increases the prices of imports. It has not regained its pre-Brexit high.
Jobs(vvvvvv important)
Brexit hurts Britain’s younger workers. Germany is projected to have a labor shortage of 3 million skilled workers by 2030. Those jobs won’t be as readily available to the U.K.’s workers after Brexit.
Employers are having a harder time finding applicants. One reason is that EU-born workers left the U.K., their numbers falling by 95% in 2017. This has hit the low-skilled and medium-skilled occupations the most
Ireland(important)
Northern Ireland remains with the U.K. The Republic of Ireland, with which it shares a border, stays a part of the EU. The agreement avoids a customs border between the two Irish countries.
A customs border could have reignited The Troubles, which was a 30-year conflict in Northern Ireland between mainly Catholic Irish nationalists and pro-British Protestants. In 1998, it ended with the promise of no border between Northern Ireland and Ireland. A customs border would have forced about 9,300 commuters to go through customs on their way to and from work and school.
London
Brexit has already depressed growth in the U.K.’s financial center of London, which saw only 1.4% in 2018 and was close to zero in 2019. Brexit also diminished business investment by 11% between 2016 and 2019.(no outsider would invest in a protectionist society, high tariffs hai unke liye, so…..)
International companies are less likely to use London as an English-speaking entry into the EU economy. Barclay’s moved 5,000 clients to its Irish subsidiary, while Goldman Sachs, JP Morgan, and Morgan Stanley switched 10% of their clients. Bank of America has also transferred 100 bankers to its Dublin office and 400 to a broker dealer unit in Paris.
How Did Brexit Impact the EU?
Brexit will weaken the EU economically and politically. The U.K. was the EU’s second-biggest economy (after Germany) a major net budget contributor, key military
force and one of the bloc’s two nuclear powers (another one is France) and permanent
UN security council members.
Brexit is a vote against globalization. As a result, it has weakened forces in the EU that favor integration.
Members of right-wing, anti-immigration parties are particularly anti-EU in France and Germany. If they gained enough ground, they could force an anti-EU vote.
If either of those countries left, the EU would lose its most robust economies and would dissolve. (this would suck, if everyone is left to their own, just in the name of nationalism….)(less competition, higher prices, reduced incentive for good quality)(that’s why the progressives of the world view this as a regressive inward looking, narrow minded step)
On the other hand, the majority of EU citizens still strongly support the union. In a Pew Research Center survey across 10 European nations, almost 75% say the EU promotes peace, and 55% believe it supports prosperity. In addition, more than a third see the role of the U.K. as diminishing.
IMPACT ON INDIA
- India has had strong historical ties with the U.K. and currently, it is one of
India’s most important trading partners. In the last four years alone, the
number of Indian companies investing in the U.K. has quadrupled.
● Similarly, the U.K. is one of the largest investors in India, among the G20
countries. Hence, it is important to see how India and the U.K. can
maneuver through Brexit and enter into new trade agreements that are
mutually beneficial to both economies. - Brexit will directly impact not only the Indian stock market but the global
market in totality, including the emerging markets in the world. This is
because of the high volatility in the pound. - Both the U.K. and EU account for 23.7% of Rupee’s effective exchange rate.
With Brexit, foreign portfolio investments will outflow and will lead to the
weakening of the rupee. - From India’s point of view, Brexit is important because besides sharing trade relations, EU is India’s largest single export market. With a population of around half a billion, the European economy is worth $16 trillion, which is equivalent to one-fourth of global GDP.
- India’s businesses based in the U.K. will be hampered as till now they had
border-free access to the rest of Europe.
○ The investors are concerned as India invests more in the United
Kingdom than the rest of Europe combined.(and now because
of the protectionist policies of the UK govt, Indian investors will
be at a disadvantage, much like any other foreign investor in the
UK)
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