Continual immigration, coupled with xenophobia and the fear of jihadist terrorism, unemployment fuelled by economic downturn has been claimed to be the major reasons for Britain’s exit from the European Union. June 23, 2016 saw United Kingdom take the momentous step of breaking its 43-year historical association with the European Union. In the shock vote that the electorate delivered, 52 per cent voted to leave the E.U. and 48 per cent to remain. The results also opened up a vista of uncertainties for the country. This was a referendum announced by Prime Minister David Cameron on the smug assumption that the vote would uphold the status quo.
In voting in favour of Brexit, the United Kingdom’s people have delivered the biggest shock to the international system since the global financial crisis of 2008. To some degree, there is a continuum. The world, especially Europe and the West, has still not recovered from the economic meltdown that followed 2008. It has cost many countries, including the UK, jobs, hopes and GDP growth. The political consequences of this are still playing out, and the Brexit vote was one example.
A lurch towards protectionism and a rise in nativist identity and sentiment has been apparent in many European countries, in the UK and in the United States as well. As the US election campaign has shown us, the appetite for free trade is at a low. The persistent mess in the Middle East, with the resultant inflow of refugees to Europe, has only exacerbated matters.
The Brexit vote came at the intersection of all of these forces and at just the right or wrong, depending on how one sees it — time. When Prime Minister David Cameron decided to go ahead with the referendum, he may have thought that with his victory in the 2015 general election and with Britain’s economy actually recovering a little faster than much of Europe, he was safe, and the “remain” camp would win. Yet in the end, raw sentiment trumped rational economics.
Opposition to Britain’s membership of the EU has fluctuated over the years, but has remained substantial ever since the UK joined in the mid 1970s; somewhere between 30 and 60 per cent of the British public has always been opposed to the EU membership. Of course, the Eurosceptic fraction of the population almost certainly increased as a consequence of the rapid rise in EU immigration, which began in the late 1990s, and the Eurozone debt crises, which precipitated mass unemployment across Southern Europe. Nevertheless, the most important phenomenon to be explained vis-à-vis the referendum result in our view is that a sizable Eurosceptic faction has remained extant in Britain over the last four decades, in contrast to the other countries of Europe.
Britons’ comparatively less European self-identity and lower trust in the EU may have come about for the following reasons. First, Britain is the only allied European power not to have been occupied during the Second World War. Second, Britain has its own common law legal system, which contrasts with the civil law system of continental Europe. Third, because Britain has an established church, most British Christians have historically owed their allegiance to a national institution headed by the monarch, rather than to an international institution headed by the Pope. Fourth, Britain is an island whose surrounding waters have partially isolated it from cultural developments on the continent.
Besides, Britain’ does relatively more of its trade and investment outside of the EU, which is due at least partly to the size and economic development of its former empire, the status of English as the global business language, and its particularly close ties with the United States.
One important question in the debate is with regard to Britain’s sovereignty and laws. And it centres on how far the UK has the ability to make its own laws and decide how it is governed. The ‘Leave’ campaign opined that most UK laws are made in Brussels and that other member states can indeed force through decisions against the UK’s wishes. Its advocates cite instances when the British government was repeatedly defeated in cases brought before the European Court of Justice (ECJ). For them, Britain leaving the EU is the only way to regain full sovereignty. However critics argued that only a minority of the UK laws derive from the EU and that Britain still retains a veto in important areas.
Secondly, the issue of immigration has fanned animosity amidst the UK citizens, who view the migrants from Europe and Middle East as encroachers on their resources. Total net migration to the UK is running at over 300,000 a year despite the government’s target of cutting it to fewer than 100,000. The most recent official figures put net migration from EU countries at 184,000 a year and from non-EU countries at 188,000. The leave campaign has argued that the highly unregulated flow of migrants into Britain has caused a severe strain on public services like the National Health Service, Schooling, etc. But the ones, who wish to stay in EU, are of the belief that immigrants, especially those from the EU, pay more in taxes than they take out.
Supporters of the Remain campaign have argued that, since three million jobs are tied to the EU, there could be a jobs crisis if the UK leaves the EU, while the leave campaign firmly believes that there will be a jobs boom in the absence of the fetters that EU regulations impose.
Policing and security and countering terrorism also remains a major concern for the UK as it has left the Union. The UK could have benefitted from the continued sharing of intelligence through membership in European Union. But the leave side claims that Britain would continue to co-operate with other European countries to fight terrorism even after Brexit.
Earlier ex-Prime Minister Cameron had cautioned that Brexit, according to Cameron, would cause an economic shock and slower the growth rate. Yet, most have argued that that the UK companies would be freed from tougher, rigid, EU regulations. Further, the UK would also have the opportunity of negotiating trade agreements on its own terms with other countries.
One such analysis worth undertaking is regarding the effects of Brexit on India, as the countries share both a deep historical relationship, as well as an evolving and enriched modern partnership. Indians in the UK are the country’s largest overseas born population, and contribute deeply to British culture, commerce, and society. Furthermore, the relationship between India and the UK has seen considerable positive growth in recent decades, due in large to efforts by both sides to foster symbiotic dependencies. Soumya Ghosh, chief economist, SBI said, “Brexit is good for India and rupee in the long run. India’s trade with EU and Britain both will rise. England is perhaps the only country that has a dedicated minister to look only after India-Britain trade, this indicates that the UK was anticipating Brexit and made preparations for increasing trade with India.”
India currently enjoys a positive trade surplus of around US$ 3.64 billion with the UK. The depreciation of the British Pound will differently affect exporters and importers. However, that will be very short-term phenomenon. In the immediate future, there will not be any impact on India’s trade with the UK. In the medium to long-term, India’s export to the UK is expected to increase as there may be trade diversion in favour of India from other (remaining) EU countries. Similarly, India’s import from the UK is expected to increase as there may be more incentive to British exporters to further explore the Indian market. Overall, there will be trade creation for India.
India will need to negotiate agreements with the EU and Britain separately. At present, India’s trade with Britain stands at around US$ 14 billion, which is more than the rest of Europe put together. Britain’s exit could also mean Britain and the EU could compete for trading with India and enter into long term relationships, by resolving pending issues. It is expected that the EU will take a more favourable look to complete its negotiations with India to conclude the EU India Bilateral Trade and Investment Agreement. However, India would like to first initiate and conclude a trade and investment agreement with the UK and then will consider concluding its BTIA with the EU. Furthermore, India may be more willing to extend lucrative incentives and discounts to strengthen this exclusive relationship, as the UK will increasingly seek to mimic the lack of trade barriers it once enjoyed with EU membership. The UK will no longer be required to tie-up its Overseas Development Assistance (ODA) to the EU’s rules, regulations and directives. It is expected that the UK will divert its ODA to Commonwealth countries as a strategic measure. Overall, it is expected that there will be more direct assistance to Indian organisations for their research and development work in India and other Commonwealth countries.
Additionally, Indian entities with significant monetary interests in the UK, ranging from private companies such as Tata, to entire industries such as the Indian IT services market, will be forced to cope with the changing tides. While previously India could manage to negotiate unilaterally with the EU, the UK will no longer be a gateway to the rest of Europe, and Indian companies will have to find ways to tailor-make their services for both parties. As described by Nasscom, “the true nature of these changes and their impact will be “clear only after the dust settles on the referendum.”
Indian Foreign Minister Sushma Swaraj has noted that the UK was India’s gateway to the EU as around 800 Indian firms operate from Britain, for easy access to the EU. EU leaders have already suggested that with Brexit, India will be treated as a third party and will need to engage with EU to gain access. This could adversely affect Indian companies as local office in London might no more mean being present in/having access to EU. Consequently, they will have to revisit their business strategies and consider relocation.
On the other hand, with Brexit and expected depreciation of the British Pound, in future, Indian investors in the UK may get a more favourable treatment. Similarly, British investors may like to divert their investment to India and other such countries where they expect to get better returns. The UK may look at India’s investment regime more favourably than the EU. Overall, there will be investment creation for India and strengthening of the capital markets between India and the UK. Since the UK will no longer be obliged to offer quota-based jobs to the citizens of the EU countries. This will open up the market for skilled and semi-skilled labour. Overall, there will be employment creation for Indian and Commonwealth country migrants, including temporary workers, in the UK.
Finally, Britain is home to the largest Indian diasporic community, whose lives are indeed likely to be affected by the result of the referendum. The UK’s employment minister, Priti Patel, who is of Indian origin, has come out in favour of Brexit. She has claimed that: “Many members of the Indian diaspora find it deeply unfair that other EU nationals effectively get special treatment. This can and will change if Britain leaves the EU. A vote to leave the EU is a vote to bring back control over immigration policy to the UK.” The FICCI and Indian origin members of the House of Commons and House of Lords have, however, contested Patel’s claims on Brexit. Keith Vaz, Labour MP for Leicester East and chairman of the home affairs select committee, has put the issue succinctly thus: “Britain’s place is in a reformed Europe. We cannot be isolated. We must be at the heart of the EU, leading, not following.”
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