Exam on Brexit and the Tradeoff between Economic Integration and Political Autonomy

Preface

This exam has 3 questions for a total of 50 marks, and is worth 25% of the course grade. Marks for each question are as indicated, and are evenly divided among the components of the question, except if indicated otherwise. Answers to the questions must be word-processed or hand-written and scanned, and be legible, orderly and concise; written explanations, where requested, should have no more than a brief paragraph of content. While students may work together on the exam, they must develop, write up and submit answers independently. Answers must be submitted as a PDF file via the assignments page of the course website.

On January 31, 2020, the United Kingdom (Britain) officially left the European Union (EU), finally implementing the result of a national referendum held on June 23, 2016 over two options: Remain in the EU (dubbed Bremain) or Leave the EU (dubbed Brexit). The result of the referendum was 52% in favour of Brexit and 48% opposed.As the textbook is pro-Bremain (see sections 12.7 to 12.9), a pro-Brexit lecture delivered by Daniel Hannan (former Member of European Parliament representing Britain) has been included in the course readings in an effort to balance students’ exposure to the Brexit issue. Note that the lecture was delivered October 7, 2019, before the British election (December 12, 2019) that reaffirmed the referendum’s pro-Brexit result and before Brexit actually took effect. The first two questions of this exam encourage students to think critically about the degree of compatibility, or lack thereof, between economic integration and political autonomy.

Van Marrewijk describes Brexit as “…a costly mistake…for more than 64 million inhabitants of Britain, and to a lesser extent, for people elsewhere in Europe and in the rest of the world.” According to Van Marrewijk, therefore, Brexit is predicted to cause welfare losses not only in Britain and the rest of Europe, but also throughout the rest of the world. By contrast, the prediction implicit in Daniel Hannan’s remarks is that Brexit will enable Britain to enhance trade liberalization with non-EU countries, and that the welfare gain from this will exceed the welfare loss associated with whatever trade barriers the EU applies to Britain post-Brexit. By extension, he further predicts that, if Britain and the EU are able to reach a suitable free trade agreement, then Brexit should generatewelfare gains for Britain, the EU and the rest of the world. The two predictions are thus diametrically opposed.

The Predictions of Van Marrewijk and Daniel Hannan on Brexit

One might infer that the reasoning underlying Van Marrewijk’s prediction underappreciates two key facts: (i) that Britain’s trade with the EU is less voluminous than it is with the rest of the world; and (ii) that the EU imposes trade restrictions, some quite severe, on non-EU countries. With those facts in mind, very briefly describe the broad international trading arrangements under which Brexit would be predicted to generate welfare gains in Britain, the EU and the rest of the world in the long run.

Britain has a history of favouring trade liberalization, a tendency which has evidently carried over into the post-Brexit era. Since committing to leave the EU,Britain has secured free trade agreements with dozens of countries and trading blocs, including Canada and the EU. And Britain is negotiating several more such agreements, including those with New Zealand and the United States. Very briefly explain whether Britain’s post-Brexit approach to trade is more consistent with Van Marrewijk’s or Hannan’s prediction.

A state’s welfare depends on not only international trade and other forms of economic integration, but also on domestic political outcomes. A maxim of public choice theory is the principle of subsidiarity, which holds that political decision-making ought to be conducted as domestically as is practicably possible in order to maximize welfare derived from political outcomes. This points to the advantages of relatively small, decentralized and homogenous political societies and the role of state sovereignty in safeguarding their political autonomy. As political integration is the act of enlarging political associations and centralizing political power, it follows that it undermines political autonomy and state sovereignty insofar as it alienates populations from political decisionsby which they must live. With that as starting point, this question explores the tradeoff between economic integration and political autonomy.

Working from top to bottom (i.e. from least to most integrative) in the regional trade agreement (RTA) type column of Table 12.1 of the textbook, identify for each of the following policy areas the type of RTA most likely to first facilitate political integration:

1. General taxation
2. Product standards
3. Currency inflation
4. Immigration

According to Table 12.1 of the textbook, economic integration beyond trade liberalization is unachievable without political integration. That is, the benefits of deeper economic integration necessarily come at the cost of less political autonomy. Very briefly explain the application of that concept to labour and capital flowsin a common market (CM) composed of diverse countries, making sure to note the contrasting political ramifications of liberalizing labour and capital flows.

One of the central arguments advanced by Hannan and other proponents of Brexit is that, if the EU had simply remained a free trade area (FTA) instead of morphing into a CM, Brexit would not have even been considered much less pursued and implemented. Very briefly explain the basis of this argument within the context of the tradeoff between economic integration and political autonomy.