Brexit and Its Economic Consequences

Abstract

As the formal process of Brexit has already started, there is much uncertainty about Brexit's impacts on Britain's social, political, and economic future. This paper examines the economic impact. After briefly discussing some significant EU treaties that serve as the background materials, it presents the key arguments advocated by the leave and remain camps. The economic impact depends critically on the negotiation outcomes. Aside from the debate on the divorce costs, there are numerous issues that must be negotiated, such as immigration, trade in goods, services, agriculture, fisheries, and financial regulations. We discuss various scenarios of possible new trade regimes, resulting in different impacts on the UK economy. With each side having its bargaining chips to play, the trade-offs between "give and take" in the negotiation game are analyzed. Considering various strategic options, this paper urges rationality and cooperation, especially weighing both sides' entwined economic interests, in addition to their mutual security, defense, environmental, and world concerns. The potential gains and losses in the event where the UK contemplates new trade arrangements with the non-EU countries are analyzed in the Appendix.

Keywords: Brexit, Treaty of Rome, Maastricht Treaty, Treaty of Lisbon, customs union, free trade agreement, EFTA, CAP, CFP, passporting, and quota-hopping

JEL Classification: F13, F15, F51, F53