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An Update On Brexit in 2020

Oct 1, 2020 4:37 AM 7 min read
Editorial

In this article, we study how the events from June 23rd 2016 (the Brexit referendum date) onwards have shaped the course of a prolonged and uncertain convulsion in British politics, economy, administration and media. Where do we go from here? What is the ultimate possibility of Brexit negotiations? More importantly, how tenable is it to exercise Brexit, in the current scheme of things still?

What is the European Union?

The European Union (EU) is a political and economic union among various countries of Europe. This agreement allows for free flow of goods and human resources across all member states. It is sometimes also known as the EU single market.

 

What is Brexit and what will happen after it?

Brexit refers to “British Exit”, which signifies the UK's decision to leave the EU.

After several extensions and delays, Brexit finally took place on January 31st 2020. The UK has entered a transition period up till December 31st 2020 and during this time, even though it has no say in the EU policy, the UK will need to abide by its laws. This period is essential for Britain to negotiate a new relationship with the EU. These negotiations include trade arrangements and rights of people living under the previous EU norms, among other aspects

An Update On Brexit in 2020

So let’s take a look at the probable EU-UK trade arrangements after Brexit :

  • European Economic Area (EEA) Agreement

Under this agreement, UK will have access to most of the EU single market and as the EEA is outside the customs union, Britain will be able to enter into trade deals with non-EU countries. The UK would still be bound by some of the EU laws, but would lose its power to influence them.

  • Comprehensive Economic and Trade Agreement (CETA)

CETA is a Free Trade Agreement finalised between the EU and Canada. Under this agreement, nearly 98% of the pre-existing trade tariffs between the two parties have been eliminated. It is a custom-tailored deal and would require a lot of deliberation between UK-EU.

  • World Trade Organisation - “No Deal” approach

At the end of the transition period, if the EU and UK are not able to come up with an alternative arrangement, Britain will have to follow the general WTO norms. This means that tariffs will be imposed on the trade of all goods and services with the UK. Moreover, this is the worst-case scenario for Britain.

Whatever deal is negotiated between the EU and the UK, it will be a variation or a combination of the above-mentioned arrangements. In any case, Britain will also lose the trade relations with more than 70 countries that it enjoyed when it was a part of the EU.  

 

What effect do tariffs and customs regulations have on foreign trade and the citizens of the UK?

Imports will become costlier and when clubbed with the depreciation of the UK's currency, the prices of goods and services will increase and lead to unhealthy inflation. To put it briefly, such a scenario reduces the purchasing power of citizens and cuts down the profits made by businesses.

Corporations are no longer willing to risk investment in the UK and this has led to reduction in GDP growth from 1.9% in 2017 to about 1.4% in 2018. Economists forecast that this growth rate will stagnate around 1% or lower in the future. This has made the UK economy 3% smaller than it may have been if the country hadn’t opted out of the EU. The British pound has also tumbled down from $1.48 on the day of the Brexit referendum to about $1.30 in December 2019 and January 2020. It is estimated that the annual impact on the UK, 15 years after leaving the EU, would be around 3.8% to 7.5% loss in GDP (central).

An Update On Brexit in 2020

In this bag of losses, undoubtedly, the common man has to suffer the most. Cost of necessities like electricity, gas prices, education and food supplies may increase. Brexit would create uncertainty over certifications and standards of products. Adding to that, food supplies would be at risk to the point where rationing might need to be introduced. The supply of medicines and medical devices could also come to a halt. Even though the employment rate has remained stable, the future is still uncertain. 

Another issue that has come across is the Northern Ireland situation. Northern Ireland shares land borders with The Republic of Ireland, which is still a part of the EU. This calls for border and customs control measures between the two parties, to keep a check on the trade across the border. So infrastructural investments or even a proper “hard” border may be required to implement the control measures. But the last time when border checks and fences were built on this border, it led to large-scale violence in a 30-year conflict known as “The Troubles”, which claimed the lives of more than 3,600 people. Naturally, the governments are not very supportive of that option.   

One has to keep in mind that these events are just a small part of the actual consequence of Brexit. 

 

How has COVID-19 changed the situation?

The economic health of the UK, which was already suffering, has been hit hard by the COVID-19 crisis. Britain’s economy could shrink by 13% and unemployment could doubleed by the end of 2020, due to the combined effect of coronavirus and Brexit.

Moreover, the pandemic has made the possibility of meaningful negotiations regarding Brexit very unrealistic. There is a provision to extend the transition period for upto 2 years, provided that both the parties agree to it. The choice of whether to opt for the extension or not, is the UK's to make. 

 

What would the two options mean for Britain? 

Let's take a look…

First let's talk about the scenario where the UK doesn’t choose to opt for the extension. In this case, the UK will completely leave the EU after December 31st 2020 and given the current circumstances, the chances of a no-deal or “unsatisfactory” Brexit are very high. Combined with the COVID-19 economic slowdown, this could mean a double impact on the country and its citizens. Expensive trade and inflation in a country that is already undergoing recession could possibly cause an economic crisis, worse than anything that the country has seen in the past.

Another thing to worry about is shortages. Interruptions in trade can lead to shortages of commodities. Keeping aside other products, shortages of medical supplies is a matter of grave concern, especially during a global health crisis. Every month the UK imports more than 37 million packs of medicines from the EU and EEA countries. Ever since the Brexit referendum, shortages of medicines has been a relatively common issue in the UK and leaving the EU under a health emergency will not help the situation.

The case where the UK decides to extend the transition period has its own set of problems that need to be dealt with. But before that you should know about the Divorce Bill”. As part of the withdrawal agreement with the European Union, the UK has agreed to make a series of payments to the EU known as the financial settlement (also known as the divorce bill).This divorce bill is estimated to cost the UK around £30bn.

A relatively large portion of this bill is the UK's contribution to the EU budget and membership payments during the transition period. Apart from this, the bill also includes the outstanding financial commitments that the UK had agreed upon, when it still was still a member of the EU and thuse incurs financing liabilities upto the end of 2020.

In general, Brexit facts show that the cost of the United Kingdom’s decision to withdraw from the European Union has reached to about £130bn, with another £70bn expected to be added by the end of 2020. This cost will only increase with the extension of transition period.

Even now, during the transition period, the UK is bound by EU policies and regulations and if the UK opts for an extension, it would still be bound by these policies. These require the UK to pay the membership contributions while it is in the transition phase. The exact cost depends upon the duration of extension that Britain opts for.  Hence the UK will need to make additional payments to the EU during extension, which means that Britain will continue to make contributions to an enterprise from which it may no longer benefit in the future.

One more important aspect that needs to be looked upon is public opinion. Any parliamentary democracy like the UK cannot function in a healthy manner without taking into consideration the public viewpoint. But the public opinion on this matter has continuously kept changing. In a survey held in 2016, about 6% of the voters voted to remain in the EU. This figure changed to around 67% in 2019 and has been growing ever since the COVID-19 crisis. It is also a popular public opinion to extend the transition period for Brexit. 

The final decision-making power lies in the hands of the UK government but try and think about it - Which scenario promises greater good for the people?

 

Written by Mitansh Khurana.

FIN.

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