Economic integration refers to economic unions between countries or groups of countries, which entail the elimination of tariffs and non-tariff barriers in international trade to reduce prices for the distributors as well as consumers in the member countries (Jovanovic 1). The nature of the modern economy awards great importance to international economic integration (Jovanovic 1). This is primarily due to the emergence of globalization, which has transformed the contemporary economy into one global market. Numerous countries in the world have sought to integrate to facilitate regional trade but the most remarkable success has been registered among the developed countries of the world, such as the European Union (Jovanovic 1). Based on the success achieved by the EU, policymakers across nations have widely adopted economic integration mechanisms as a means of securing access to wider markets and promotion of economic development to attain higher levels of national welfare.
In the European Union, member countries benefited from the elimination of tariffs and quotas and the integration addressed issues of competition, public procurement, and services, and governed the subsequent multilateral negotiations and agreements. However, various criticisms have been raised regarding the effectiveness of the European Union. Euroscepticism has become widespread among the member countries with countries, such as Britain contemplating on leaving the union. To analyze the costs associated with such a move, we have to understand the achievements of the EU and the benefits that the member countries accrue from the membership. Finally, we will analyze the costs and benefits of Britain’s withdrawal from the union to reach an informed conclusion.
The Cost of Leaving the European Union
The European Union was established in the aftermath of World War 2; the countries in the region decided to integrate themselves to counter the effects of the war that had torn the region apart and also avoid further conflict. The initial focus of the European Union was on the unification of the countries by the establishment of closer industrial and economic ties as well as economic cooperation. The European Economic Community was founded in 1957-58 to promote economic integration among the nations of Western Europe (ILO Par 2). In 1967, the EEC merged with European Coal and Steel Community and the European Atomic Energy Community, which evolved into the European Community (ILO par 2). In their attempt to achieve higher levels of economic and political integration, the member countries established the European Union in 1991 through the enactment of the Maastricht treaty. The European Union sought to unify its member countries’ economies through the establishment of a single frontier less market characterized by a unified monetary system (ILO par 4). The European Community consequently established the European Monetary System in 1978, which enabled consistent exchange rates and monetary stability in the region. This stability was achieved through the EMS’s ability to link the EC member countries’ currencies, which prevented constant fluctuations in currency rates as well and allowed for its periodic realignments (ILO par 4). 1987 saw the adoption of a single European Act through which the ultimate intention of the integration which was creating a unified free trade market in Europe was outlined. Consequently, the European Community implemented such measures as lifting the exchange controls and trade barriers that were prevalent in the Europe-wide financial institutions (ILO par 5). Further, in 1997, the member countries agreed on the Amsterdam treaty, which consolidated the three great pillars of the European communities, the common foreign and security policy as well as co-operations in justice and home affairs among the member countries which widened the scope of its functions.
Member countries have therefore benefited from numerous advantages that have resulted from European integration. Economically, the member countries enjoy free transfer of goods, services as well as capital which consequently eases international trade and foreign investment in the member countries (Jagoda par 2). The unification of economic laws has opened up the EU borders facilitating regional trade and as a result, an increasingly competitive market has emerged, which has led to an overall reduction in prices. In addition, the member countries benefit from a common currency, which guards the economy against hyperinflation and monetary instabilities (Jagoda par 2). This has the overall effect of increasing efficiency in production, attracting foreign investment, and also significantly reducing the operational costs of doing business among the member countries. A country choosing to leave the EU would therefore have to forego these economic benefits consequently incurring higher costs of business operations due to the presence of trade restrictions and limited market for its products. Member countries also reap political benefits from the EU. They enjoy unrestricted access to other member countries since the European Union dissolved the political boundaries for the member countries (Jagoda par 1). Visa requirements for citizens in the member countries to gain access to other member countries are not required and this has facilitated the mobility of labor in the region. In addition, the European Union members demonstrate a tightened cultural bond which makes it an attractive region for investment by the rest of the world (Jagoda par 1). Withdrawal from the union would therefore diminish the country’s ability to enjoy the benefits associated with EU membership.
The Case of Britain
Recently, the European Union has received substantial criticisms over its effectiveness in the member countries. In 2007, a financial times poll revealed that 44% of the Europeans in the member countries viewed the outcome of joining the EU as life worsening for their countries (BBC par 1). Other studies also revealed that only 22 % of Europeans questioned their countries’ decision to pull out of the EU (BBC par 2). The population of the UK was found to be more skeptical of the country’s membership in the bloc with 52% of those questioned citing that membership to the EU had resulted in decreased national welfare. However, these views differed in other countries, such as Spain where 53% of the population acknowledged that their country had improved after joining the European Union (BBC par 5).
Britain, one of the countries contemplating leaving the European Union should weigh the costs and benefits associated with such a move and should address the short and long-term implications of its retreat from full membership of the Union. The central economic argument for Britain’s withdrawal from the European Union is that the economic costs of EU membership exceed by far the benefits derived from the same (Abbott 29). The country has incurred high costs implicated by EU membership, such as EU imposition of barriers to free world trade, numerous business and market regulations, inappropriate monetary policies, and prevalence of regressive taxes and subsidy programs (Abbott 29). The economic costs of EU membership are incurred not only by multinational corporations but also by consumers and taxpayers in the entire region. For instance, the high-cost market and business regulations set by the EU impair the international competitiveness and profitability of British resulting in high prices for consumers and redirection of investment into less regulated countries.
However, we should not overlook the benefits that the country has enjoyed from EU membership. The country’s firms have benefited from free and easier export access to the member countries’ markets. This has increased the market for the local firms consequently increasing sales and profitability. In addition, a significant amount of Britain’s economic activities depend on supplying and buying from mainland bloc markets (Abbott 29). Extensive research has been conducted in an attempt to analyze the costs and benefits that Britain would incur on its departure from the EU. The former UK Chancellor of the Exchequer estimated that the overall benefits that the country derived from EU membership added 0.25% annually to the GDP while the common agricultural policy cost Britain at least 1% of its GDP each year (Abbott 30). In practice, the precise economic effects of EU withdrawal on Britain would depend on the timing and circumstances of the withdrawal, the nature of any formal and informal post-withdrawal trading arrangements between Britain and the EU as well as the extent to which natural business economic adjustments would compensate for any negative economic withdrawal effects (Abbott 30). The country is likely to incur higher operational costs resulting from higher tariff-induced EU export prices as well as a reduction in inward manufacturing and service investment. NIESR forecast report also indicates that Britain’s GDP would reduce by 1.5% from its withdrawal from the EU since such a move would considerably reduce the US and other foreign direct investment into the country which has previously positively impacted on technological progress in the country, labor productivity, employment, wages and other variables in the economy (Abbott 30).
The country is however not likely to incur substantial costs from its withdrawal from the EU since most of its economic achievements (both locally and internationally) are unconnected to the EU. Since regulatory costs of EU membership have continued to increase over time, the unique trading and related benefits accruing to Britain due to EU membership have consequently diminished. In addition, Britain does not have to be a member of the European Union to trade with the members in the EU Bloc and since the economic costs of remaining in the union are outweighed by the benefits of leaving, it justifies the country’s withdrawal from the bloc.
Economic integration has become an integral part of modern society due to its ability to facilitate regional trade and other regional associations. Countries need to engage in regional integrations since it promotes international trade, which facilitates efficiency and economic development. However, if the cost of membership to a union exceeds the benefits derived from the membership, the country may choose to withdraw from the union. In addition, the country in question should consider the cost associated with withdrawal from the union to avoid long-term irreversible costs.
Abbott F. Lewis. “British Withdrawal from the EU: A Guide to the Case for Manchester.” Industrial Systems Research, 2002. Web.
BBC. “Polls Show Strong Euroscepticism.” BBC News, 2007. Web.
ILO. “European Union (EU).” Geneva: International Labor Office, Web.
Jagoda Urban Klaehn. “Joining the European Union, List of Benefits (II).” Polishsite, 2002. Web.
Jovanovic N. Miroslav. “International Economic Integration; Limits and Prospects.” Routledge, 1998. Web.