The exit of Britain from the European Union (EU) has solicited a lot of mixed reaction from the world. The mode of exit was especially crucial to all shareholders as it would determine the future success or failure of their economy. This is as seen in the article on The Wall street Journal, The Hidden Cost of a ‘Soft’ Brexit by Shanker A. Singham. He looks at the implications of a soft exit of Britain; how being under the EU would affect its ability to hold trade negotiations afterwards and deny them the authority to make moves such as lowering of tariffs for trade with other EU non-members (Singham n.p.). If Britain also exits the EU but still maintains its ties with the European Economic Are, it would still have to follow regulations of the EU, as the European Economic area does, and this would be a trade barrier for it. he concludes with the opinion that, to get the most out of the exit, Britain requires to follow through with the hard exit, allowing it freedom of international trade without the barriers.
Britain is under the common law, where the laws and policies are guided by precedents. The free market economy of the UK allows for globalization where private owners of production are able to participate in international trade (Singham n.p.). This is especially beneficial for investors and firms in need of investors as there is no barrier of investment. It is easy to invest and it ensures that more and more people are involved in business; entrepreneurs rise from such situations, unlike the command economy where the government has monopoly over trade in a state.
Singham’s article explains how best to form trade policies for the UK. A hard exit from the EU would allow the country to form its own new set of policies governing the trade. They would be able to lower trade tariffs from the already set tariffs of the customs union, which would be impossible while still under it (Singham n.p.). Potential trade partners are more likely to trade with the UK on such incentives such as lowering of taxes. The UK will be able to cut better deals for themselves as compared to the deals made before which though of much benefit to all members, were less of a benefit to individual members (Hill 32). The policies may also target the local business market through subsidies where the cost of production is reduced thus making it more readily available as compared to importing which is usually generally expensive.
With the exit of Britain from the EU, it would be now expected to follow the rules of World Trade Organization, a global institution that was brought about out of necessity after the globalization of trade. Singham explains that, a hard exit from the EU where they completely cut ties with the group, and become independent would put them under the rules of WTO (Singham n.p.). However, a soft exit would mean that they are only under some of the rules of the EU. This would complicate the process of forming other connections after the exit. They would be unable to partner with other nations as they would still be under the authority of the EU. As Hill (34) notes this causes potential harm to trade, as investors are unlikely to take part in such situations.
Members of the European Economic Area generally have almost similar products. Such similarity would mean that though able to freely trade with each other, there lacks variety. It would be much more profitable for the members to have such access to all types of products which are only found in other parts of the world (International Trade theory). Thus, as according to the Absolute advantage theory, Britain would be able to facilitate the trade of products and services are insufficient, while producing those that it is efficient in (Hill 32). They would also be able to specialize when importing goods, by importing goods only where factors of production are scarce, and locally producing the goods that they are well equipped to The (Political Economy of International Trade). This is explained in the Heckscheser Ohlin theory of international trade.
Other Limitations of Trade
Singham speaks of non-tariff barriers to international trade, giving the example of licensing restrictions that deny law firms from the UK to set up branches in India. Such can’t be remedied by lowering tariffs (Singham n.p.). The exit of Britain from the EUwould give them the ability to make better deals with the countries, for instance, by reducing investment regulations in exchange for the reduction or abolition of licensing restrictions. This would mean the taking down of one of the trade barriers put in place through regulations of the European Union.
Globalization has brought people together, making the business scene to be one large field. It is imperative that each nation takes full advantage of the opportunities at hand, and work together for their own benefit and also for the benefit of the other nations, to ensure development in all areas.
Globalization. Chapter one Student PowerPoint
Hill, C.W. International Business: Competing in the global market place. Boston: McGraw-Hill/Irwin, 1990.
International Trade theory. Chapter 6 Student PowerPoint
Singham, A.S. The Hidden Costs of a ‘Soft’ Brexit.Web. 3 Jan 2017.
The Political Economy of International Trade. Chapter 7. PowerPoint