Introduction
Britain has officially left the European Union (EU) on 01 February 2020. This day marks a historic end to its 47-year-long membership of the world’s largest trading bloc.
The EU Withdrawal Agreement, the so-called divorce bill, costing the UK around 30 billion Pounds, was formally passed by the European Parliament on 29 January 2020 evening with 621 votes to 49.
Creation of European Union
The Maastricht Treaty was signed on 07 February 1992, with the aim to integrate Europe by the European Community and came into effect from 01 November 1993.
The Maastricht Treaty, once it came into force in 1993, renamed the erstwhile European Economic Community as the European Community (EC) to indicate that it covered a wider range of aspects, rather than just economic policy.
The EC existed in this form until it was abolished by the 2009 Treaty of Lisbon, which incorporated the EC’s institutions into the European Union’s wider framework and provided that the EU would “replace and succeed the European Community”.
A total of 28 countries out of the total 51 countries in Europe signed the treaty to become a part of the European Union. The EU treaty provided for a European Parliament and European Council which consisted of representatives of the member states.
EU members account for 16 per cent of world imports and exports, which accounts for the largest trading bloc in the world surpassing the United States of America. A total of 19 countries out of the 28 EU countries use similar currency, i.e. Euro.
The European Union was created as a single market, which allows the free movement of goods, services, money and people within the European Union, as if it was a single country. It is possible to set up a business or take a job anywhere within it.
The idea was to boost trade, create jobs and lower prices. The members are restricted to abide by common law, so as to ensure that the products are made to the same technical standards and similar rules are applicable to all in order to ensure a “level playing field”.
On the flip side, the creation of EU resulted in many petty restraining regulations and robbed the members of control over their own affairs. Free movement within EU also resulted in mass migration from poorer to richer countries which burdened their infrastructure and resources.
Article 50 of Treaty of Lisbon
The Treaty of Lisbon was signed by the EU member states on 13 December 2007, and entered into force on 01 December 2009.
The Treaty of Lisbon amended the Treaty of Maastricht and greatly formalised the functioning of the European Union, to include:
- Created a more powerful European Parliament, with a bicameral legislature alongside the Council of Ministers.
- Consolidated legal personality for the EU, with the creation of a long-term President of the European Council, representatives for Foreign Affairs and Security Policy.
- The Treaty also made the Union’s bill of rights and the Charter of Fundamental Rights, legally binding.
- The Treaty for the first time gave member states the explicit legal right to leave the EU and a procedure to do so.
The provisions to leave the EU have been cited in Article 50 of the Treaty of Lisbon. Once the proceedings of Article 50 have been initiated, there is a two-year time period to negotiate the arrangements for exit.
Reasons for Britain to Leave EU
Britain felt that it was losing a great deal by staying in the European Union. Most significantly, it had to pay millions of pounds each week as a contribution to the European budget and the same was creating an imbalance in the welfare schemes of the UK government.
Besides, the extremely bureaucratic nature of the European parliament was hurting British exporters.
Process of Brexit
Prime Minister David Cameron (Conservative Party) had promised to hold a referendum for Brexit if he won the 2015 general election.
Eventually, a referendum was held on June 23, 2016, to decide whether Britain should exit or remain in the European Union. 51.9% of voters favoured exit of Britain from the EU.
Article 50 was triggered on 29 March 2017, which put into motion a two years process for UK to negotiate its withdrawal from the EU.
In order to accomplish the same, UK was required to put up a draft deal for withdrawal from the EU to the European Council.
The draft deal was required to be approved by at least 20 countries out of the total 27 members of EU, with minimum 65% of their population.
However, during this period of negotiations, UK had to continue to abide by EU treaties and laws, but was not allowed to take part in any decision-making processes of the EU.
Negotiations with the EU officially started in June 2017, aiming to complete the withdrawal agreement by October 2018. However, having failed to get her agreement approved, Theresa May resigned as Prime Minister in July 2019 and was succeeded by Boris Johnson.
Boris Johnson sought to replace parts of the agreement and vowed to leave the EU by the new deadline. An early general election was then held on 12 December 2019. The Conservatives won a large majority in that election; with Johnson declaring that the UK would leave the EU in early 2020.
The Withdrawal Agreement was ratified by the UK Parliament on 23 January 2020, and by the European Parliament on 29 January, ensuring the UK leaves the EU on 31 January.
Now, there will be a transition period until 31 December 2020, where the future trade relationship will be negotiated.
Implications of Brexit for Britain
The International Monetary Fund (IMF) has predicted that exiting from the European Union could leave Britain’s economy more than 5 per cent smaller than the present.
The Pound is expected to fall by around 20 per cent. In other words, exports to the UK will suffer and imports from the UK will gain. Also, as the currency value will fall, more foreign student and also tourists are likely to visit Britain.
An adverse impact of Briexit on UK could be that its constituent elements, i.e. the Wales, Scotland, or Northern Ireland who were not keen to leave the EU may feel encouraged to appeal for quitting the United Kingdom.
However, on the positive side the restraining regulations that had prevented Britain control over their own affairs will go and the burden on its economy of supporting will reduce.
In order to send a message across that Britain is now free to do its own new trade deals with countries around the world as a non-member of EU, on 01 February 2020, the new “GREAT Ready to Trade” campaign has been launched in 18 cities across 13 countries outside the EU, as UK seeks to deepen our relationships with future global partners.
It is heartening to see that Mumbai is one of these cities where this campaign has been launched.
Global Implications of Brexit
It is widely believed that the withdrawal of UK from EU “has the potential to fundamentally change the EU and European integration.
On the one hand, the withdrawal could tip the EU towards protectionism, worsen existing divisions, or unleash centrifugal forces leading to the EU’s unraveling. Alternatively, the EU could free itself of its most awkward member, making the EU easier to lead and be more effective.
Britain will have to secure bilateral Free Trade Agreements (FTA) with the existing trading partners of the EU after Brexit. The United States had earlier indicated that it would not be keen on pursuing a separate FTA with Britain.
Also, some of the firms who had made investments in UK with the wider aim of obtaining access to the European market will get affected.
The reduction in red tape associated with EU regulations would create more jobs and that small to medium-sized companies who trade domestically would be the biggest beneficiaries.
The UK universities rely on the EU for around 16% of their total research funding. Similarly, the EU pays British farmers up to £3 billion a year, of which £600 million (20 per cent) for environmental protection. There are questions being raised about how such funding would be affected after Brexit.
The supply of workforce will get adversely affected as the movement of migrant labour from the other European nations will get restricted due to control on free movement within Euro zone.
Consequently, taxes which were being collected from the immigrant workers that provided a boost to public funding will naturally diminish.
However, reduced immigration would ease pressure on public services such as schools and hospitals, as well as provide British workers with more jobs and higher wages.
Similarly, for the Brits living abroad in the EU could lose their residency rights and access to free emergency health care. Besides, if UK opts to impose work permit restrictions on EU nationals, then other countries could reciprocate, meaning Britons would have to apply for visas to work.
The immediate implications of falling Pound will be that the Britons travelling to Europe will find that their purchasing power has declined and the cost of imported stuff in UK will sharply surge.
Implications of Brexit for India
It is believed that Brexit, may have some positive implications for India. Existing from EU will compel UK to develop closer bilateral economic ties and Free Trade Agreements with emerging economies of Asia, like India and China.
United Kingdom is believed to be relatively more flexible and commercially open when compared with the highly regulated EU. Thus, bilateral trade will have greater scope and lesser encumbrances.
India is one of the top investors in the UK, with about 800 odd Indian-owned companies in the country, e.g. Jaguar Land Rover is owned by the Tata group. These companies employ roughly 110,000 people. Hence, Britain will look at India as a major post-Brexit trading partner.
The UK is the third largest source of foreign direct investment in India and India’s largest G20 investor. UK and Europe together account for over-a-quarter of the country’s IT exports, worth around $30bn.
Conversely, India is the third largest source of FDI to the UK in terms of numbers of projects. India invests more in the UK than in the rest of Europe combined, emerging as the UK’s third largest FDI investor.
Some of the key sectors attracting Indian investment include healthcare, agro-tech, food, and drink.
It is interesting to note that the UK is also among just seven in 25 top countries with which India enjoys a trade surplus.
Conclusion
India will stand to gain from the Brexit, because with a lower Pound value, Indian companies may be able to acquire many hi-tech assets.
Moreover, as investors look around the world for safe havens in these turbulent times, India still stands out both in terms of stability and of growth.
Britain will now be free to discuss a bilateral trade pact with India, which is bound to boost to trade ties between India and the UK.
Lastly, Brexit is good news for India students seeking higher education in Britain, who will not only find the fees and stay more affordable, but also will have higher probability of finding jobs. Britain will now need a steady inflow of talented workforce and English speaking population of India, who have been suitably skilled by the industry in-situ will be able to meet the requirements of the employers.