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The United Kingdom's Escape from EU; From ‘Brexit’ to ‘No-deal Brexit’.

Britain's exit from the EU, referred to as Brexit, has been an unresolved issue since 2016. But the situation has worsened in the 2019 stage of Brexit negotiations, leading to the "No-deal Brexit" stage and it has become a global issue again. Let's find out about Brexit and think about how to respond to it.

<What is Brexit?>

Brexit is a word that combines Britain and Exit, meaning Britain's withdrawal from the European Union (EU). Brexit was decided on June 23, 2016, when 1742 million people, namely 51.9 percent of the 3355 million British citizens who took part in the referendum about Brexit, voted in favor of Brexit. The citizen voted in favor of Brexit because of Britain's economic problems, crimes caused by refugee problems and unemployment problems. If Britain leaves the EU, it would be the first nation to leave the EU since the EU was officially launched in 1993, 25 years ago. Brexit was started in 2016 with the Brexit claim by Theresa Mary May, the former prime minister of Britain. The current British Prime Minister, Boris Johnson, who was elected in July 2019, is also strongly in favor of Brexit. But now Britain has failed to achieve consensus about Brexit with the EU. Therefore this failure leads to the "No-deal Brexit" that mean Britain leaving the EU without any agreement.

The United Kingdom pays 182 billion pounds (about 31trillion 6000 million won) to the European Union each year. This payment is the second-largest country in the European Union after Germany, but it is said that the UK isn’t getting any substantive benefit. On the EU Commission which has the voting right to resolve the many issues, Britain's share of voting rights fell from 17 percent in 1973 to 8 percent in 2016. Although the UK has had 72 dissenting opinions about bills of directorate, they have never been passed. As the economic situation in Europe has worsened since 2012, the U.K. has complained about public opinions that claims there is an increase the share of the expenses for each country. In addition, the Brexit referendum was held in 2016 due to a steady increase of the opinion that if the U.K left the EU, the government could invest in economic growth and education with the 30 trillion won not sent to the EU. The EU's Dublin treaty also says that European countries should take responsibility for refugees in the case of war and large numbers of refugees. The treaty was revised for the second time in 2016, with 28 EU members and four non-EU nations including Norway and Switzerland. With the Dublin treaty, Syrian refugees poured into Britain, bringing 1 million European refugees in 2015 and increasing the refugee's crime rate and job problems. In August 2016, British police arrested more than 600 Syrian immigrants for crimes such as rape, child abuse. and sexual violence, which led to the public's pushing for denial of refugee status. So, the refugees problem influences the public opinion to leave the EU.

<Extensions about No deal Brexit>

‘No-deal Brexit’ means Britain leaving the EU as of March 29, 2020 without an agreement with the EU. If Brexit is carried out under an agreement, Britain and the EU will have a transition period until the end of 2020 for the smooth implementation of Brexit in the withdrawal agreement. During the transition period, the UK can continue to enjoy the benefits of non-taxation on the EU single market and the residual customs union, and the residents of both sides can also move freely. However, if the No-deal Brexit is carried out, the transition period will not apply and the tariff benefits will be immediately cut as the regulation are applied by the WTO, not the EU. As a result, the four major commodities movements of people, goods, capital, and services, will be blocked overnight due to the tariff problem of commodity movement. The British government said they will prepare emergency plans for major sectors such as finance, aviation and military, and speed up individual agreements with the member of the EU and other countries, but confusion will be inevitable during the hiatus period.

In a new survey of 25,000 voters conducted by U.K. opinion poll company ‘YouGov’ on Jan 6, 2019, forty-six percent of respondents said that they were against Brexit, 39 percent said that they were in favor, and the rest said that they were undecided or would not vote. In the survey about the question of a second referendum that could reverse the Brexit decision, 53 percent of the respondents said they were in favor of a second referendum, while 47 percent opposed it. Because Britain failed to reach an agreement with the EU and continues to be at a disadvantage, the public, who first positively responded to Brexit, has expressed distrust of the British government and supports the opposition of Brexit. On March 23, 2019, a million British citizens filled the city center in London and voiced their opposition to Brexit. Citizens called for a second referendum, complaining that the British parliament has repeatedly failed to pass the Brexit agreement. Demonstrators marched through the city with EU flags and hand signs that said "Stop Brexit," and "Prime Minister Theresa May step down." The citizens expressed distrust of the government,  shouting "Prime Minister Theresa May is no longer on the people's side" and showing a large ‘Theresa May’ doll that look like Pinocchio with long nose that pierced the body of British people. Although the late prime minister May left and now Prime Minister Boris Johnson have power in U.K, he is also distrusted by citizens.

<Problems of No deal Brexit>

Britain's Treasury Department predicts that Britain, which currently has a GDP of $2.622.43 trillion, will see that GDP drop by up to 10.7 percent during the 15 years after the No deal Brexit. According to BBC and the FT (Financial Times) on Nov. 28, 2018, the Bank Of England (BOE) said that "if Brexit is carried out in a disorderly manner without a period of transition, it could lead to the steepest recession of the economy since World War II" in a report released on that day. Operationally, they predict that the UK GDP will fall by 8% in 2019 as compared with the 6.25% reduction at the financial crisis in 2008 and housing prices will plunge by 30%, and that the UK pound will fall by 25% against the dollar and unemployment rate will soar by 7.5%. It is expected that the economy will slow down in connection with the decline of the job market because of Britain's tariff problem will make it impossible to move freely within Europe. And the BOE expects that the "Recovery of the Britain economy will not be possible until 2023."

Now, 99.6 percent of exports between the UK and the EU are exchanged with tax exemptions, but the price of imported necessities will inevitably rise if the UK has up to 38 percent tariffs under the World Trade Organization (WTO) after the No deal Brexit. The UK also relies on the EU for about one-third of its food, which could make the smooth supply of food difficult while implementing new entry procedures after the No-deal Brexit. Recently, hoarding of rice, pasta and water has appeared. It is known that the 'Brexit preppers' is stockpiling daily necessities in preparation for ‘No-deal Brexit.’

Furthermore, Brexit could accelerate movement of companies to leaving the UK. The biggest damage is expected from manufacturing firm that had production factory in European countries. For example, at BMW, a typical European automobile company, the crankshaft for its cars must travel to four countries through four stages: France (chassis), the U.K. (with engines) and the U.K. (with finished vehicles). At this time, it is necessary for the parts to cross the English Channel three times, and the cost of tariffs would be applied each time. This would be a significant burden on companies. So that is why many companies in the UK might leave the UK. Also, not only foreign companies with factories in the UK but also domestic companies of U.K are reducing corporate investment because of prediction about recession of U.K. According to a survey conducted by the British Chamber of Commerce (BCC) on June 16, 2019, the Reuters News agency reported that investment reduction of companies in the U.K. will be the largest during the next 10 years.

Britain and the EU are likely to apply short-term visa exemptions during the 90 days even after the No deal Brexit, but the problem is that many British citizens stay overseas for a long time and citizens of other European countries live in the UK for a long time. As of January 2019, there were about 1.3 million U.K. citizens living outside the UK and about 3.7 million EU citizens living in the UK, making their future uncertain. They enjoy benefits such as ‘EU health care’, which is provided to people that need medical assistance while traveling or living abroad and have EU citizenship, but it is unclear whether this will be guaranteed in the future.

 

<The impact of Brexit on other countries>

It is expected that there will be a lot of impact inside the UK due to the UK's No deal Brexit. So what is the impact of Brexit on other countries?

The trade scale between Japan and the U.K. was measured to 40 trillion won in 2018, and Japanese companies have more than 150,000 employees in the U.K. In particular, automobile companies such as Nissan and Honda had produced automobile parts in the U.K., so they are particularly sensitive to the prediction about future results of the No deal Brexit. Because this may cause a setback in car sales if the U.K. leaves the EU without any consultation, tariff benefits in the U.K. will disappear. The Japanese Automobile Manufacturers Association, led by Akio Toyota, the Toyota CEO, warned that “No-deal Brexit must be avoided, no matter what happens" in October 2018.

Among the EU countries, Germany, which has close ties with Britain in the auto business, is expected to suffer greatly. On February 10, 2019, Germany's Belt Am Zontak reported that a study by the ‘Halle Economic Research Institute’ and ‘Martin Luther University’ found that if a No-deal Brexit occurred, it would have an adverse effect on the German economy and cut 100,000 jobs. The research team explained that because the U.K. is among Germany's top five exporters and the level of exports was 85 billion euros (about 108 trillion won) in 2017, British tariffs imposition on German in No deal Brexit could lead to sluggish exports, leading to a decrease of jobs. Research indicates that if 'No deal Brexit' becomes a reality, car and high technology sectors will suffer the most. Among the affected places, Wolfsburg, where the automaker Volkswagen has it home and Dean Golping, where BMW has its largest production facilities, are expected to suffer intensively.

 

 

<The impact of Brexit on the Korea>

Korea is expected to be affected by Brexit as well as other countries. Korea currently exports cars to the U.K. without tariff because the U.K. belongs to the EU, and the amount of exports to the UK was recorded at about $1.5 billion in 2018. However, if the No deal Brexit is executed, there will be a 10 percent tariff on cars. So a separate FTA with the U.K. will need to be signed and there will need to be debates to resolve the problem of increasing tariffs. In addition, about 100 Korean companies such as Daewoo Motor Research Institute of Daewoo Group, LG Electronics' local production plant and Hyundai Group's semiconductor plant are currently operating in U.K, and are likely to increase their administrative costs and logistics costs. In order to prevent such corporate damage, the Ministry of Foreign Affairs of Korea and the United Kingdom held a meeting on April 21, 2019. In this meeting, the representatives of the two countries discussed, "As the UK is Korea's second-largest export market among European countries and Korea is Britain's second-largest export market among Asian countries, let's build up the institutional foundation to prevent negative effects on bilateral trade based on the successful results of the Korea-EU FTA." Through the Korea-EU FTA, Korea concluded a free trade agreement with the European Union and its member states. Through this agreement, Korea receives tariff benefits in the areas of trade and telecommunications.

If the No-deal Brexit is implemented, there is a possibility that it will be difficult for Koreans to watch Son Heung-min, Tottenham Hotspur player, in the English Premier League. This could give a heavy blow to the Korea citizens, who can now watch the games for free via the EU broadcasting rights. Since EPL broadcasting is included in the Korea-EU FTA, it is possible to directly send EPL broadcasting images to Korea without special approval. However, if Brexit happens, British broadcasting service operators will have to send content via base stations of domestic satellite broadcasting service operators, which could cause the interruption of broadcasting services or increase the viewer's fee. So a Foreign Ministry official met reporters on March 19, 2019 and said, "It is true that there will be a setback during the Brexit, but if the contract is signed again and approved by the Korea Communications Commission and other government agencies, we can watch the EPL." The official said, "The benefits of the Korea-EU FTA also include the satellite communication sector. Because Brexit has created an approval process that's never been in the UK before, if we get the administrative work done quickly, there is no problem at all with administrative processes. We'll be able to solve this problem in half a month.”

The growing controversy between Britain and the EU has even led to the possibility of a No-deal Brexit. No-deal Brexit will have a huge impact around the world, not just a problem for Britain. In order to avoid major damage, positive negotiations between the EU and the UK are best, but we also need to have a posture of readiness in case the negotiations are not successful.

박아리엘  parkariel2@gmail.com

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