Brexit Trade Implications

Brexit refers to the United Kingdom’s (UK) planned exit from the European Union (EU). Brexit means “British Exit”. Britain has sought to leave the EU for a variety of reasons, including an increase in the number of migrants entering Europe, increased security risks, less authority over regulations and laws, financial difficulties, and so on. Arguments favouring Brexit were made in the British parliament, as well as by the British individuals.

The Brexit deal has affected almost all sectors – business and financial services, defence and security, foreign policy, provision of legal services, public procurement, mobile roaming, digital trade, even the fishing quotas among the EU and the UK. The only sector which became an exception to this deal is the service sector. 

Reasons behind Brexit

• Overriding Regulations: Some rules, such as restrictions on the usage of vacuum cleaners, and so on, have frequently been viewed as a hindrance by some British conservatives. These limitations and rules have operated against their interests and have had a negative influence on the British economy, contributing to a surge in the number of people calling for Brexit.

• Immigration: The United Kingdom is not a member of the Schengen Border Free Zone. Throughout the last decade, there has been considerable resistance to migration into the UK from inside the EU and its consequences on incomes and public utilities, particularly in the aftermath of the 2008 financial crisis, when people from Poland, Lithuania, Romania, and Italy relocated to Britain.

• Security concerns: The growing terrorism threat in Europe, exacerbated by the EU’s inadequacy to safeguard the region, has prompted Britain to leave the EU. The European refugee crisis has heightened security worries.

• Sovereignty: Even though the UK government has a certain power in the selection of European Commission members, the representatives are not subject to the authority of the British Parliament and are not answerable to it as well. Several policy decisions, including those concerning competition policy, copyright, agriculture, and patent legislation, are detrimental to Britain’s interests. The inability to make judgments in Britain’s best interests has contributed to the backing of Brexit.

• Failure of European currency: Despite the fact that the Euro is the EU’s shared currency, the pound sterling is still used in the United Kingdom. The issue with the Euro as a shared currency has been highlighted as well, especially with nations such as Spain and Greece suffering massive unemployment and high debt, while other nations like Germany are seeing stronger growth. As a result, it has pretty much done nothing to advance the interests of the United Kingdom.

• Financial burden: Although the EU lacks the authority to collect taxes directly from citizens, it does require member countries to do so. In the context of the United Kingdom, it amounts to around 19 billion each year. Even though the revenues are being used anyway on Britain, Brexit advocates argue that if Britain leaves the EU, the cash may be utilised more efficiently.

Implications of Brexit on UK and EU

The Brexit trade implications on UK and EU are as follows:

• Both the UK and EU will enjoy quota-free and tariff-free accessibility to one another’s economies, but UK citizens will no longer have unhindered flexibility to operate, start a business, study, or reside in the EU and likewise in the case of the UK as well.

• The European Union intends to connect consumer trade to protect the status quo on accessibility to British seas, which is seen as a source of stress in the United Kingdom, perhaps leading to confrontations.

• When the United Kingdom exits the EU, it instantly, mechanically, and legally withdraws from thousands of international treaties made by the EU. This benefits its member countries on a variety of issues, including commerce, aviation, fishing, and civil nuclear collaboration.

• Even non-trade issues will be fraught with political difficulties since Member countries will be required to alter their policies in accordance with the new agreements and laws.

• The unwillingness of the EU to include services in the trade agreement may lead to disputes.

Effect of Brexit deal on India

The repercussions and effects of Brexit for India are both good and bad. Because India is a net importer rather than a net exporter, the combined effect might be beneficial to the country.

The positive effects of Brexit on India:

• With a reduced pound valuation, Indian firms will be able to buy a large number of high-tech properties. 
• Brexit would strengthen India-UK commercial relations. 
• Britain has now become free to negotiate a bilateral trade treaty with India.
• Those that import from the United Kingdom would benefit because of the devaluation of the Pound sterling. Indian exporters with a presence in the United Kingdom may benefit as well. 
• Because the costs appear to be lower, more students from India may choose to study in the United Kingdom. 
• Britain will require a continual infusion of skilled labour, with India benefiting the most owing to its English-speaking majority.

The negative effects of Brexit on India:

• Foreign cash outflows and an increase in the value of the rupee may make Indian imports more expensive. 
• The rupee might fall in value as a result of the combined impact of foreign money outflows and an increase in the value of the dollar.
• This has the potential to raise gasoline and diesel costs. Gold and technological goods prices, for example, might rise. 
• Because of the weakening of the pound, numerous current contracts may be rendered unprofitable.

Conclusion

Brexit has been influenced by several reasons. The Brexit trade implications on the world economy, combined with depreciating currency in multiple nations, would then make recovery even more difficult. As for India, the consequences of Brexit can be mitigated owing to a certain degree of stability in the domestic economy’s foundations and a large forex reserve, but the impact will be noticed for a minimal period.