In 2016, the United Kingdom (UK) voted to leave the European Union (EU) after being a member for more than 4 decades. Popularly known as Brexit, it has been delayed twice, with a delayed deadline of 31 October 2019. It must be remembered that the EU started out as an economic integration project with the objective to create a single market. However, according to the 2016 EU membership referendum, there lies complex political and socio-economic factors leading to the Brexit ultimatum (winning Britain’s votes by a slim 3.8% margin). The primary question would be on why happenings within the EU are perceived to be a matter of significance to certain communities. While this paper will not point out a definite answer between what is right or wrong, it seeks to introduce and explain how this gigantic economic integration project works. It is hoped that with the explanations clearly mapped out below, Brexit can be better understood.
The Integration of Markets in the EU
The EU’s single market is built upon four crucial freedoms of movement i.e. the free movements of goods, capital, persons and services. For the purposes of this discussion, attention will be drawn towards the free movements of goods and persons.
The free movement of goods is facilitated primarily through the European Union Customs Union (EUCU), a customs union which consists of all the member states of the European Union (EU), Monaco, and some dependencies of the United Kingdom which are not part of the EU. With the entire EU being a single market, goods will only be imported from outside the EU and into the EU on standardised custom duties. There is a two-fold point to note: firstly, there is no border within the EU market. Goods move freely within the EU without being charged any custom duties. Secondly, goods entering the EU be it through any member country will be charged custom duties according to the EU standard. Aside from that, the EU also has the power to review national measures by member states or impose EU measures to facilitate the free movement of goods within its territory. A good example to illustrate this is the limitations on product requirements that can be imposed by every member state. The general legal principle on this is that there must be no dual burden on manufacturers: they must not be burdened to alter the products just to accommodate to the rules and regulations of a member state when the products can be lawfully marketed in other member states. In that sense, non-tax barriers are well kept under control of the EU.
The next crucial point involves the free movement of persons. Since 2004, EU citizenship has been granted in addition to one’s national citizenship. EU citizens afford rights, freedom and legal protections to free movement, settlement and employment across the EU. The citizenship is offered only to member state nationals and not to residents who migrated from non-EU nations. EU citizens can therefore move, say, from Greece which suffers poor economic development to London which holds the title of global financial centre for jobs. As work seekers, there are still certain rights granted which must be protected. For instance, a Greek national seeking for job in London is entitled to UK state-given financial benefits intended to facilitate his access to employment. Putting it simply, they are able to migrate within the EU and seek employment with less difficulty, also having certain protection rights and benefits granted to them.
Impacts of free movements
EU membership undoubtedly provides an invaluable edge – a massive internal common market for all member states. For instance, automobile manufacturers in the UK can sell their cars not only within the UK but also to other member states within the EU without the need of any trade agreement.
Aside from that, it is possible for external parties to enter the EU market through a member city. External investments into the EU not only benefits the common market, but also more so for the gateway city. This is well illustrated by the role of the City of London as a global financial centre. Being London-based is a passport for third party manufacturers and providers (i.e., notable US banks like Goldman Sachs) to gain access into the EU market. From the perspective of the UK, its EU membership has placed its capital in such a well-established position. Investments have come not only from the financial sector but also the manufacturing industry.
What have been following these investments are tax revenues for the UK which would be significantly affected if these companies moved their European headquarters out of London following Brexit. While it can be argued that these investments create job opportunities from which the UK has benefited from, Brexit proponents believe that upon Brexit, there will be less competition between UK nationals and non-UK nationals for the jobs within the UK market.
With the pros exemplified, an EU member state, however, loses to a significant extent a say on its border control, whether against goods or persons. This is evident from the relevant EU law and policies which allow goods and person to enter and leave any member state. While there are certain requirements to be met, these conditions are practically insignificant; at most times, they are met. For example, imposing visa requirements amongst EU citizens is prohibited. The United Kingdom is not allowed to impose visa requirements on nationals of another member state. Accordingly, as long as a person holds an EU passport, he can lawfully enter any EU member state.
Aside from that, as EU works as an economic bloc, the member states have limited competence to trade freely as they wish with countries outside the EU, for example, Australia and China. Any trade agreement with these countries will involve EU as a whole and not any individual member state.
As shown above, it is clear that the EU model has both its strengths and weaknesses. Indeed, economically, the EU has created what it intended: an economic union with a single market, no internal barrier and standardised custom duties. However, as the members have never been on par so far as economic developments are concerned, economic sustainability has become an issue for the stronger economies like the UK.
Following the Brexit referendum, how the UK will deal with upcoming economic challenges post-Brexit is probably the contemporary highlight. Departing from the EU, the UK will need to have plans to deal with the EU itself and also the rest of the world on its own. What is certain at this stage is the uncertainty put forward by the long overdue Brexit process. Primarily, this is a result of no agreement reached on the part of UK in its Parliament regarding the future relationship between the UK and EU. Unsurprisingly, a trade deal is, amongst many other things, in the disagreement. Considerations have been given to the way the EU trades with countries such as Norway and Switzerland who are not in the EU despite being European nations. Nonetheless, this is still up for lively debate not just between the EU and the UK but within the UK as well.
Writers: Max Kong
Reviewers: Lee Yang Ler, Vikky Beh