Allison Courtney

Capstone Outline

Bracing for Brexit: The Detrimental Economic Impacts of GB Leaving the EU

Purpose: ​To educate others about the long lasting and detrimental impacts ongoing Brexit
negotiations will impose, as well as provide a source of comprehensive and organized
information in order to eliminate a sense of confusion and unclarity
Thesis Statement: ​Although riddled with delays, uncertainty, and unpredictability, ongoing
Brexit negotiations pose a severe detriment to the economic stability in all sectors of the United
Kingdom, such as trade, employment, and economic prosperity, both in the short and long term.

I. Introduction/Background Information​: ​informs the reader of necessary background

information so that they are able to follow and understand the research presented;
additionally, it provides detailed information about what the European Union is, as
well as how the withdrawal plan was originated
A. On June 23rd, 2016, a referendum was held in Great Britain to decide whether the
country would remain a member of the European Union. The final results of the
vote were 51.9% (17,410,742) of people chose to leave the European Union,
while only 48.1% (16,141,241) of people voted to remain a member (“EU
Referendum Results”).
B. The referendum, also known as a British Exit or ‘Brexit,’ is defined as “the
residents decided that the benefits of belonging to the unified monetary body no
longer outweighed the costs of free movement of immigration” (Amadeo, 2019)
C. On the 29th of May, 2017, the United Kingdom Prime Minister, Theresa May,
submitted the Article 50 withdrawal notification to the European union. Article 50
of the Treaty of Lisbon gives any European Union member the right to quit
unilaterally, and outlines the procedure for doing so. It gives the leaving country
two years to negotiate an exit deal, and once it is set in motion, it cannot be
stopped except for unanimous consent of all member states (“Key points from the
Article 50 letter”)
D. The exit deal between the United Kingdom and the European Union includes: The
UK does not want to continue allowing unlimited EU immigration, the two sides
must guarantee the status of European Union members living in the United
Kingdom, and vice versa, the same applies to work visas, which are not currently
required, the United Kingdom wants to withdraw from the European Court of
Judgement, the United Kingdom wants a “customs union” with the European
Union (which means they will not imposed tariffs on each others’ imports and
impose common tariffs on imports from other countries), both sides want to
continue trade, and the European Union will require a cash settlement from the
 United Kingdom to meet existing financial commitments (“Key points from the
Article 50 letter”)
E. The withdrawal plan must be approved by the European Council, the 20 European
Union countries with 65% of the population, and the European Parliament. As it
currently stands, Prime Minister Theresa May and the EU Council have been
granted an extension until October 31st, 2019, in order to ensure that there is not a
possibility of Great Britain leaving the EU with no deal (“Key points from Article
50 letter”).
II. Differences in Exit Deals/Negotiations​: ​explains how different exit deals will impact
the economic stability in different severities
A. Soft Brexit: ​If they negotiation a deal based on soft Brexit, it will mean less
severe economic ramifications; it is important to make this distinction to
account for variations in data & statistics presented later in the paper
1. A Soft Brexit means a relatively slow negotiation designed to ‘retain as
close a possible relationship with the rest of the EU.’ This entails access to
the EU’s market, with as few tariffs as possible (Wintour, 2016).
2. The objective of a soft Brexit is to “minimize the disruption to trade, to
supply chains and to business in general that would be created by
diverging from the EU’s regulations and standards” (J.P., 2018)
3. Those who support a soft Brexit are typically “willing to be bound by EU
rules and tariffs even though Britain's will lose any say in making them.”
Additionally, they also accept “the inevitable consequence that it will be
hard, even impossible, for Britain to do any trade with third countries”
(J.P., 2018)
B. Hard Brexit: ​If they negotiation a deal based on soft Brexit, it will mean more
severe economic ramifications, ultimately severely altering the economic
stability of Great Britain
1. A hard Brexit would likely “see the UK give up full access to the single
market and full access of the customs union along with the EU.”
Additionally, this exit strategy would “prioritize giving Britain full control
over its borders, making new trade deals and applying laws within its own
territory.” (Sims, 2016)
2. In the initial stages, it means the UK would “likely fall back on World
Trade Organization rules for trade with its former EU partners” (Sims,
2016)
3. A hard Brexit is predominantly supported by those who voted to leave the
European Union in the initial referendum, and the opposite is true for
those who support a soft Brexit
III. Irish Backstop Issues​: ​The backstop will control the flow of goods both in and out of
the United Kingdom, vastly impacting their already declining trade rates and
relationships; this extended trade route could prove detrimental to an already
declining economy
A. The backstop is “a position of last resort, to maintain an open border on the island
of Ireland in the event that the UK leaves the EU without securing an
all-encompassing deal” (Campbell, 2019)
B. Presently, goods and services are traded between the two jurisdictions on the
island of Ireland with few restrictions. The United Kingdom and Ireland are
currently “part of the EU single market and customs union, so products do not
need to be inspected for customs and standards” (Campbell, 2019)
C. These checkpoints could drastically delay deliveries, exports, imports, and trade
deals, which would inevitably decrease the economic stability and prosperity of
Great Britain. The UK government does not want this occurring, and neither does
the EU; however, the UK’s “current red lines, which include leaving the customs
union and the single market, make that very difficult” (Campbell, 2019)
D. The backstop is a safety net - “an arrangement that will apply to the Irish border
after Brexit, if a wider deal or technological solution cannot keep it as frictionless
as it is today” (Campbell, 2019)
IV. Employment & Business in the U.K. & U.S.​:
A. Employment & Business in the United States: ​It is important to recognize that
Brexit does not only impact Great Britain, but also its strongest allies
1. Britain’s departure from the European Union could “send shock waves
across the global economy and threaten more than a trillion dollars in
investments and trade with the United States” (Mui, 2016)
2. The decision to leave the European Union carries detrimental
consequences for American businesses, as they employ “more than a
million people in Britain.” If Brexit officially happens, these people are at
a severe risk of losing their jobs and stable sources of income (Mui, 2016)
B. Employment & Business in the United Kingdom: ​Employment and businesses
stimulate the economy; if Brexit has the potential to jeopardize either of
these things, it will send their economy into disarray
1. Demand from other EU countries constitutes around 12% of final demand
for UK goods and services, which translates into around 3.3 million jobs
(Begg & Mushovel)
2. Emanuel Adam, head of policy and trade for BritishAmerican Business,
which represents companies in New York and London expressed, “nobody
knows at this point how the world would look like with the U.K. out of the
E.U. This alone creates an uncertainty that businesses don’t wish to see”
 3. “We find that Brexit has been an important source of uncertainty for many
UK businesses. We estimate that this led to a 6% reduction in investment
in the first two years after the referendum, with employment around 1.5%
lower.” (Harvard Business Review)
V. Decrease in Economic Productivity & Prosperity​: ​Brexit could actually end up going
backwards by a number of years in economic growth and productivity, ultimately
endangering the economic stability of the United Kingdom
A. “The International Monetary Fund issued a forecast calling the impact of Britain’s
departure from the European Union ‘negative and substantial.” The fund
predicted that a Brexit could reduce economic growth by up to 5.6 percent over
the next three years in its worst-case scenario. The gloomy outlook is driven by an
expected sharp decline in the pound and severe disruptions in trade as the nation
is forced to renegotiate deals with countries across the continent, potentially on
worse terms (Mui, 2016)
B. The challenges are coming at an already weak moment for Europe’s economy -
and the world’s. Europe is still recovering from the series of financial crises that
have been roiling countries such as Greece and Italy along with others across the
continent. Waves of refugees from the Middle East are spurring political and
cultural unrest. And there are worries about the strength of the economies of
Europe’s major trading partners, including China and the United States (Mui,
2016)
C. Brexit is likely to reduce future UK productivity by around half a percentage
point via a batting average effect of output being reallocated away from higher
productivity firms toward lower productivity ones. The majority of businesses
anticipate that Brexit will eventually reduce sales and increase costs (Harvard
Business Review)
D. Expected Impact of Brexit on UK Businesses: -3.6% impact on sales, -2.8%
impact on exports, 5.2% impact on unit costs, 3.3% impact on labor costs, 0.3%
impact on financing costs (Harvard Business Review)
VI. Trade Regulations & Impact​: ​Trade is one of the biggest sources of revenue and
resources into the United Kingdom; if trade partnerships and accessibility are
jeopardized and/or harmed as a result of Brexit, it will have long term, detrimental
impacts
A. The EU is the main trading partner for the British economy - it is the destination
for around 45 percent of all British exports & goods, and around 38 percent of
total exported UK services. Depending on the institutional arrangement between
the UK and the EU, a Brexit would imply higher EU trade barriers. Trade
transaction costs would rise and customs clearance requirements would lead to
delays for British firms exporting to the EU. Moreover, the UK would partially
 lose access to the EU Internal Market which would particularly affect the freedom
to provide services and the right of establishment in the EU (meta-analysis)
B. Since trade with the EU accounts for around half of UK imports and exports, any
increase in barriers to trade with the EU would have a more significant negative
impact on UK growth in the short-and medium-term than any positive impact
from reducing barriers to trade with China, for example (Understanding the
economic impact of Brexit)
C. The Centre for European Reform warns trade costs would rise after a Brexit and
the United Kingdom would have less bargaining power for trade agreements than
it does as a part of a bigger entity, the European Union
D. The Business for New Europe, a coalition of business leaders pushing for the
United Kingdom to stay in a reformed European Union, says, “There are a
number of free trade agreements currently being negotiated by the European
Union, including with the United States and Japan. The United Kingdom with 65
million consumers would not have anywhere near the negotiating power that the
European Union, with its 500 million consumers, would have.”
E. The CBI foresees tricky negotiations if the United Kingdom wants to keep its
current trading conditions after an EU exit. The business group’s deputy director
general, Katja Hall, said: “While we could negotiate trade deals with the rest of
the world, we would have to agree deals with over 50 countries from scratch just
to get back to where we are now, and to do so with the clout of a market of 60
million, not 500 million.”