The Economic Impact on the UK of Leaving the European Union - Case Study Example

The Economic Impact on the UK of Leaving the European Union Name Institution Name Course Name and Code Date Table of Contents Executive Summary 3 Introduction 4 Trade 4 Regulation 5 Investment 6 Labor Movement 6 Financial Services and Car Industry 7 The EU Budget and the Common Agriculture Policy 8 Conclusion 8 References 10 Executive Summary Unions are important in advancing economic development, and UK is in the EU, but the region is deciding to move out of EU. Leaving the EU creates numerous economic challenges. The challenges or complications exist in trade, regulation, investment, the labour movement, financial services and car industry, the EU budget and Common Agriculture Policy. The trade would be affected, but the UK can negotiate new free trade agreements and also cement the current trade relationships. In addition, reducing the number of regulations and legislations after leaving the EU enables the UK region to continue operating effectively. Nevertheless, UK will have to adhere to the EU regulations if UK wants to continue trading with EU. The debates and discussion on the topic will continue because of lack of enough data and information regarding the economic impact of leaving the European Union. Introduction European Union (EU) is a political-economic union that brings together 28 members located in Europe. United Kingdom (UK) is among the regions making up the EU. EU has numerous benefits towards advancing the socioeconomic and political requirements of the member states. The large market that is made of the population of the member states and the capacity to enter into an agreement with different entities make EU be an important union. However, the EU has been associated with numerous challenges because of the structures and frameworks in place. The main complaint from the UK on EU is the budgetary allocations and the numerous regulations inhibiting effective trade. Debate and counterarguments exist on whether UK should leave EU or not. The paper presents economic impact on the UK leaving the European Union. Trade The most important component of UK in EU is trade. The large population translates to a large market and the extensive infrastructure also improves the position of the UK in EU (Booth and Howarth, 2012, p. 16). However, EU has numerous rules and regulations that affect business and UK leaving the EU reduces the complications associated with these business rules and regulations (Allen et al. 2015). UK main economic partners are China, German, Netherlands, Ireland, and France, and based on the number of transactions; leaving EU and negotiating free trade agreements would leave the UK in the middle. UK will benefit from lessened rules and regulations while still pursuing business with these countries (De Witte et al., 2013, p. 341). In addition, UK may decide to negotiate with the developing countries and use its power in service industry especially in accountancy and information technology to do business with the developing economies. Most countries in EU are developed meaning view opportunities exist compared with the developing economies and cementing their positions in G8, G20, and OECD (Allen et al. 2015). Based on the available information, UK can continue operating effective provided it achieves favorable understanding when it comes to free trade agreements (De Witte et al., 2013, p. 340). Examples are Switzerland and Norway are countries that are doing well and are not in the EU (Booth and Howarth 2012). Regulation In any Union, regulations play an important role in ensuring the businesses and entities coexist accordingly (De Witte et al., 2013, p. 339). EU has numerous regulations targeting different sectors of the economy and even non-members such as Norway and Switzerland have to adhere to these regulations. In fact, any country aiming to work with EU has to follow and operate the regulations and rules (Allen et al. 2015). The Single Market strategy aims to create a large market while preventing individual Member States from preserving trade reducing practices and non-tariff barriers (Booth and Howarth 2012). Implementation of the Direct Services and the need to observe agreements furthers the regulations need (Dunlop et al. 2012, p. 34. These numerous legislations and regulation would have a major impact in the manner business is done in the UK (Lynch and Whitaker, 2013, p. 291). After leaving EU, for example, UK will have to develop its regulation and observe the regulations of EU if UK wants to trade with EU (De Witte et al. 2013). It is like double regulations or legislations because different regulations will be developed for different markets and associations (Booth and Howarth 2012, p. 47). The original theory that leaving EU would reduce regulations, the opposite suffices (Dawson and Witte, 2013, p. 830). More regulations will be required to advance the requirements of UK and the general business environment and requirements (Laski and Podkaminer, 2012, p. 260). Investment Every country seeks investments, and the source of most investments is a foreign direct investment (FDI). The current situation is the UK relying on the Single Market to accomplish it business requirements, and any decision of leaving EU would affect investment (Booth and Howarth 2012). Moreover, the numerous debates and discussions on leaving EU create business uncertainty (Allen et al. 2015). International investments operate based on certainty and uncertainty reduces chances of foreign direct investments. The investors would propose that it will wait until the decisions made on whether UK would leave EU or remain in EU (Collins and Mendelevitch, 2015, p. 16). The proposed referendum on UK-UE also reduces the possibility of investment because of the debates surrounding the entire discussion. Therefore, the economic development of UK would be affect because of economic uncertainty (De Witte et al. 2013, p. 338). Labor Movement According to Allen et al. (2015), labor movement would be affected and would likely cost more than three million jobs if the UK leaves the European Union. The UK politicians have continued to argue leaving of UK would reduce the consumer market, which is currently targeted at 500 million people (population of EU) (Allen et al. 2015). The industries creating most job opportunities and likely to move out of UK to other EU countries are the financial sector and the car industry. Moreover, there is the overlooked sector, service, in which it creates more job opportunities (Booth and Howarth 2012). The debate continues to exist on the accuracy of such statements because employment relies on trade and not presence of UK in EU (McIlwaine, 2012, p. 293). The counter argument of the labor movement is that the industries will not move at once, if, in real sense, the industries move to other EU countries (De Witte et al., 2013, p. 337). Even though some businesses such as the Gold Sachs and Nestle propose it will move out of UK, the decision is still challenging. Will these companies leave the infrastructure in place and start a new? The movement will be in phase or at once? Are there industries that are willing to work in the UK? These questions redefine the labor movement debate. The reason of labor movement is because fewer jobs will remain since some companies will relocate to other countries within the European Union. The relocation of companies reduces employment opportunities meaning that individuals will move so that they would get employment. In addition, the multiplier effect will be affected. For example, companies rely on each for economic development and if one sector is affected, it is likely other sectors will be affect. Therefore, the companies will follow each other out of UK resulting in reduction of job opportunities. Financial Services and Car Industry More than 250 international financial service organizations have offices or headquarters in the UK (Tonkiss, 2013, p. 37). These companies operate from the UK to target the entire European Union. In the car industry, companies, such as Ford and Hyundai have its manufacturing plants and regional headquarters in UK (Allen et al. 2015). The decision to move out of the European Union would affect these companies because of additional costs, which are associated with economic restrictions. The service industry would also be affected based on the suggestions and views of leaders of these companies. The companies present that it will move out of UK and stationed in a country that has business relationship and a member of EU (Allen et al. 2015). These decisions and approaches reduce the number of businesses in the UK and may also affect negatively foreign direct investment (FDI). The EU Budget and the Common Agriculture Policy UK is funding the EU budget to a tune of 0.5% of the UK GDP. Even though UK will need to make some financial contribution after leaving, the difference will be huge, and a portion of the 0.5% will be savings. The Common Agricultural Policy that is directly associated with EU budgetary spending will have to be adjusted because of complaints on its distortion (Allen et al. 2015). Liberalization of agriculture would result in regime with fewer price controls and lower subsides (Booth and Howarth, 2012, p. 76). The liberalization of agriculture would provide potential economic gains to the UK consumers and to the exchequer, which could be significantly important to the larger economic disposition of UK. Based on the liberalization of agriculture and reduction in funding the EU budget, UK will have numerous economic benefits. Conclusion UK has the tools and mechanisms to leave the EU, and economic consequences exist. Trade will be affected because the main trading partner is the countries in the EU. Whoever, UK can negotiate newer free trade agreements and cement the current agreements with other unions and association to cover challenges associated with leaving EU. The numerous debates affect the market confidence, and economic development is based on certainty. Therefore, investors may not be ready to invest in the region because of future uncertainty. Regulation and labor movement would also create additional economic challenges. The regulation will become more, and UK will need to follow the regulations of EU after leaving the EU. EU is made of numerous countries, and UK will have to follow the legislations so that UK can enter the market. Without following regulations, the labor movement and employment opportunities will be affected because companies will move to countries associated with the EU. Companies seek business environments that have favorable policies and regulations. UK has numerous industries including financial and car and leaving the EU reduces the market and may force the companies to relocate. However, leaving the EU, UK will benefit from budget cuts and complications associated with Common Agriculture Policy. References Allen, K., Oltermann, P., Borger, J. and Nelsen, A. (2015) ‘Brexit – what would happen if Britain left the EU? The Guardian, 14 May [Online]. 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