Essay Sample on Brexit: UK's Exit from European Union (EU)

Introduction

As a portmanteau representing "British and Exit," Brexit is the leaving of the United Kingdom from the European Union (EU). The UK held a referendum on June 23, 2016, where around 17.4 million people voted, in which 48% voted to remain, and 52% voted to leave the European Union (BBC.com, 2020). The Brexit process did not begin until March 2017 when the British government made a formal announcement of the British exit. The withdrawal encountered various challenges from the British Parliament. Originally, Brexit was meant to take place on March 29, 2019; however, the members of Parliament delayed the exit twice after rejecting the deal negotiated by Theresa May. After dismissing Theresa May's deal for the third time, she resigned, which saw the election of Boris Johnson as the Prime Minister (BBC.com, 2020). The significant changes made to the Brexit deal by Boris Johnson involve the creation of a customs border between Great Britain and Northern Ireland for border checks and payment of EU import taxes. After the election in December 2019, Parliament ratified the exit deal, and UK exited the EU on January 31, 2020. In the period from January 31, 2020, to December 31, 2020, there will be negotiations on the new customs and laws between the UK and EU (BBC.com, 2020).

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Moreover, with the end of economic practices such as free trade between the UK and EU, the Brexit will deliver numerous impacts on trade, particularly with the involved nations. Also, Brexit has resulted in uncertainties, particularly in the EU, UK, and the US as well. One of the significant uncertainties is its impact on the United Kingdom's economic growth (Amadeo, 2020). Since the outcome of Brexit has not yet been realized, most people are uncertain of the negatives and positives (Amadeo, 2020). For example, there is uncertainty over Brexit slowing the United Kingdom's economic growth from 2.4% in 2015 to around 1.5% in 2018 (Amadeo, 2020). Further, in terms of trade, Brexit is likely to cause significant effects with the elimination of tariff-free trade with the EU nations. In one way or the other, the Tariffs developed by Boris Johnson's Brexit deal are likely to increase the cost of exports and the imports as well. In either instance or both, the Pound will be significantly affected (Amadeo, 2020).

Looking at Brexit's impact on trade and foreign direct investment (FDI), there will be a significant impact on investments. The FDI delivers various benefits such as diversification of investor portfolio, promotion of stable lending, financial provision, and technology as well. Under Brexit, the FDI might encounter multiple shortcomings. With the absence of a single-market interaction, it means that rules of origin will become essentials for United Kingdom companies. After the Brexit, production in the UK might become less attractive with uncertainties of a negative FDI inflow effect and increased FDI outflow. According to a survey on the impact of Brexit on FDI, numerous companies from the EU and Asia are considering divestment in the United Kingdom post-Brexit in the coming three years. Given the sectoral differences, there are anticipations that around 16% of financial services, 16% of pharmaceutical firms, and 14% of business service firms might move facilities in three years. Overall, almost 50% of the FDI investors in the UK are considering moving a section of their assets globally.

In this case, involving Morocco, the UK has maintained pacts with Morocco to guarantee continued trade regardless of Brexit; however, this is marked from January 1, 2021. With the different business-friendly regulations in Morocco, UK companies have considered opportunities in the country. In 2018, the trade between Morocco and UK was worth PS2.5 billion, with the UK securing a deal with the state with the signing of a political and trade continuity pact with Morocco on October 26, 2019 (GOV.UK, 2019). However, different implications can be noted in Morocco and the UK as a result of Brexit.

Effects of Brexit on The United Kingdom and Morocco

With the UK and Morocco being amongst the various nations suffering from Brexit, the UK has already suffered. For example, the United Kingdom's economy has slowed with various businesses having to move their workshops and headquarters to the EU. With the uncertainty surrounding Brexit, the economy might stall, which in different ways might implicate business and consumers in the UK. According to the UK government, Brexit is likely to lower the United Kingdom's growth rate by around 6.7% within the coming 15 years if there is a restriction on immigration and trade agreements (Amadeo, 2020). Besides the increased tariffs in trade, the UK firms might lose their capacity to bid for countries in the EU nations. London would be the most significant loss in terms of services.

As for Morocco, as given by the Casablanca Stock Exchange, Morocco's economy will be affected both in the businesses and consumer activities as a result of uncertainty. For instance, Morocco businesses might have to develop new trade negotiations with London since custom duties are to reinstated. Within Morocco's business setup, trade between Morocco and other EU nations will be affected along with the GDP. According to Morocco's Exchange Office, Morocco held a trade deficit of around $200 million, with the UK and exports totaling about $600 million in 2015 (Amadeo, 2020). However, different from the massive effect of Brexit to the UK, Morocco might only encounter a change by 0.1 of the GDP. In the impact to consumers, some factors such as the EU funding of Morocco. When looking at the fiscal policies that might be affected by Brexit, significant shifts will be seen on the exchange rates with the falling and rising of the British Pound. In the case the British Pound falls as seen since the day of the referendum, this will significantly impact trade. For instance, the export prices will reduce; however, import prices will increase.

Trade Agreement Terms and Benefits to Each Economy

In consideration of the trade terms between the UK and Morocco, they both signed a continuity agreement in 2019 to address any issues connected to Brexit. Within the details of this trade agreement with Morocco and the UK, it will remain subject to the parliament procedures in both nations (Amadeo, 2020). The deal is meant to function when the contract between the EU and Morocco ceases to work in the UK. The purpose of this trade agreement is based on the continuity of trade and political engagement between both nations. From this trade deal, both Morocco and the UK benefit from bilateral trade activities between the countries. However, Morocco could be helping the most as the UK is serving their consumer needs and other business needs. For example, the UK will continue to enjoy lower prices on the imports from Morocco, while Morocco will benefit from lower tariffs on their exports to the UK and imports as well (Amadeo, 2020). With their previous trade, Morocco bought more from the UK, which has equally had a positive impact on morocco since there has been increased growth in various industries (Amadeo, 2020).

However, some of the drawbacks in the deal revolve around the possibilities of conflict as Morocco might have challenges trading with EU nations. The period between Brexit and commencement of the new Trade Continuity Agreement might impose different effects on the trade between both countries (Walkenhorst & Malouche, 2006). For the United Kingdom, one of the significant issues revolves around its association with other nations in terms of trade. The Brexit leaders hoped that they would enjoy the EU internal market for business but restrict human entry to the UK. The German and French leaders have ruled out this option citing that it cannot work like that. Either way, both the Moroccan and the UK economy are likely to grow after the different implementation of Brexit agreements (Lotfi & Karim, 2017).

Role of Morocco and the UK in the World Economy

Today, the UK and Morocco have exhibited a significant economic position and growth with most of the activities involving trade. With the previously associated in the EU, this has developed significant trade deals that may continue even after Brexit. The GDP per capita for Morocco will likely grow in double to around $222 billion in the coming 10 to 15 years, and the growth rate exceeding 4% and the annual GDP expected to grow at an average of 4.3% annually (Nordeatrade.com, 2019). The principal exports to Morocco from the UK include vehicles, electrical machinery, beverages, spirits, and vinegar, mineral fuels, iron and steel, and other products (GOV.UK, 2015).

On the other hand, some of the imports from Morocco include fruits, vegetables, dairy products, among others (GOV.UK, 2015). In the events a nation has a high foreign investment, the GNP is more elevated than GDP because GDP looks at the internal production of goods and services. At the same time, GNP considers internal and external production value (Ietto-Gillies, 2012). Morocco is likely to have a higher GNP than GDP. Currently, as the Brexit agreements continue, Morocco could be experiencing a trade deficit that might negatively affect the economy's growth rate.

Foreign Direct Investment (FDI) Trends and Foreign Value

As the FDI includes both international portfolio and direct investment, they are equally affected by various events of trade (Ietto-Gillies, 2012). In 2018, Morocco developed recovery from a decline due to recessions and rose to around $3.64 billion, ranking the country second highest in Northern Africa (Nordeatrade.com, 2019). The investors in Morocco are significantly boosting its economy. In 2018, Morocco had an FDI inflow of $3,640 million, 71 Greenfield investments, and an FDI stock of $64,227 million (Nordeatrade.com, 2019). Morocco is ranked top in Northern Africa. On the other hand, the UK has an inward FDI of $1.3 trillion that had fallen with 13% from 2017 (Ward, 2019). The total FDI inward stocks were $32.3 trillion. The UK is ranked sixth worldwide in terms of inwards investment and fifth in terms of outwards FDI stocks (Ward, 2019).

Furthermore, Morocco and UK strengths for FDI include a proper legal framework that is favorable for external trade, strategic positions, political stability, and relatively low production costs. As for the weaknesses, they include social disparities, reduced productivity, administrative burdens, and some natural disasters (Bouoiyour, 2007). The bilateral trade between the UK and Morocco is an exception will be increased trade deals (Great.gov.uk, 2020). Other economies that could be included in the trade deals include nations like Ireland. In the application of the OLI framework, it guarantees ownership, location, and internalization to support multinational operations (Neary, 2009).

Comparative Advantage Application

In international and economic trade theories, the comparative advantage is essential since it helps secure proper trade prospects (Freund & Moran, 2017). Morocco's comparative advantage is based on the country's geographic location and other internal practices. Majorly, its comparative advantage revolves around agricultural production and exports around 160 products (Lotfi & Karim, 2017). In comparison between the EU and Morocco's custom duties, it shows that Morocco applies low average rates in agriculture compared to other products and nations. The UK has had comparative advantage involving service trade, which is on an upwards rive that deals in goods. Some of the factors that affect the comparative advantage include exchange rat...