Brexit: Decoding the Facts and Implications

EMN February 16, 2020

Introduction and timeline
Brexit is an abbreviation for British exiting the European Union. It all started on 23 June, 2016 when a referendum over whether UK should leave the EU took place. 51.8% votes were in favour of exiting the union. A day after, David Cameron resigned as he didn’t want the UK to leave the EU and the voting extrapolated the people of the country who wanted an exit.
The next prime minister, Theresa May also got eaten alive by Brexit when she failed to get support of the MPs thrice with her then designed Brexit strategy and finally had no other option than to resign.
The third prime minister since 23 June, 2016, Boris Johnson, with 365 seats out of 650 in House of Commons came with the idea of ‘no deal-Brexit’ which eventually failed as it couldn’t gain the support of other MPs. However, by October 2019, Johnson was able to negotiate a deal with the EU (which highly resembled the one made by Theresa May). Removing the ‘backstop’ from the deal and keeping Northern Ireland aligned with the EU helped him. He was able to execute Brexit and the UK finally separated from the EU on 31st January, 2020. Now, the UK is in a transition period of 11 months ending 31st December 2020 in which it has to decide on trade negotiations with the EU, otherwise it will have to go ahead without any deal with the EU. 
Let’s understand why the UK wanted to leave the EU, what are the pros and cons of being a member and what implications will the Brexit have on India’s economy.  

Pros and Cons of being a member of the EU
The European Union is a social and economic union of 28 members (now 27). The European Union was formed in 1992 under the Maastricht treaty as a result of war between the European countries. Its headquarters is located in Brussels, Belgium. 

Advantages
  • Allows free movement of goods, capital and people among its members.
  • Being in a herd protects the young and weak ones from the predators similarly, the EU provides security to smaller and developing countries.
  • Schengen Visa: An enhanced form of driving license using which one can visit any country in the EU without going through a long and formal process of acquiring visa.
  • Because 28 countries are in it together, it forms a single market and hence countries can get more leverage while negotiating Intl. trade deals.
  • Resolves the problem of war between the intra union countries and leads to harmony.

Disadvantages
  • The countries of the EU have to pay to play in the EU.
  • Open borders have led to an increase in terrorism and crimes.
  • Migration becomes easier. Stats say that the foreign-born population in the UK doubled from 1993 to 2014.

Why did the UK want to leave the European Union?

  • Even though the EU’s trade structure has propelled it to become the world’s second largest economy after China still UK faced many problems during its stay in the union.
  • Immigration: Since the basic idea behind the EU is the free movement of people and goods, Britain’s foreign-born population skyrocketed and it almost doubled from 1993 to 2014.  
  • UK being one of the wealthiest country in the EU is also a major contributor in levelling the union’s poorer countries. And the bill’s rising as the UK’s economy improves.
Why was Theresa May’s deal rejected?

  • A deal approved by 27 other EU governments, got voted down by its own MPs three times leading to a deadlock situation and ultimately cost her the resignation from the post of Prime Minister.
  • “BACKSTOP”: The major setback for May’s deal was the Irish backstop which meant no borders between Northern Ireland (UK) and The Republic of Ireland after Brexit. Both the Irelands share a dark past, full of violence, between the Republicans (now The Republic of Ireland) and the Unionists (The Northern Ireland) which was solved under The Good Friday treaty. Many people think that history can be repeated with the establishment of hard borders and customs check.
  • Trade deals between the UK and other EU states will be affected if tariffs are banished for The Republic of Ireland.
  • Northern Ireland would be bound to follow at least some rules of the EU if open borders were allowed.
How would India be affected by Brexit?

India is one of the top investors in the UK and the Brexit will have a long and lasting impact on it, both positively and negatively. Just to put it on a scale, there are about 800 Indian-owned companies in the country employing about 110,000 people. Let’s look at the effects of Brexit on India in detail. 
  • Rupee may depreciate because of the effect of foreign fund outflow and dollar rise. To counter this, India might take actions to turn into a country having a trade deficit with England instead of a trade surplus.
  • Petrol and diesel prices may increase to an extent and the government might reduce additional excise duty imposed on fuel.
  • India might negotiate a bilateral trade pact with India.
  • Education fees might fall in Britain thus making education more affordable for Indian students in the UK. 
Post-Brexit Scenario
The Britain left the EU on 31st Jan, 2020 and now is under a transition/implementation period which is an 11-month period and is due to end on 31st Dec,2020. During this period, the UK and The EU will try to reach a common ground about the future with the main focus on the Irish backstop. The consequences of Brexit are still uncertain, following which the UK based MNCs are thinking about relocation to other EU states. There is also a chance of Brexit leading to a Domino effect where the other EU states might want to leave the EU. 
Conclusion
Brexit so far has been a really topsy-turvy ride filled with unexpected events. The latest update had contained in it a statement by Boris Johnson who opposed an extension in deadline for finalizing negotiations with the EU. Therefore, it will be really interesting to see what unfolds next and how does it change the political and economic scenario of the world. 

- Written By: Rohit Upadhyay
- Edited By: Purav Nayak
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