BREXIT and Free Movement on Islamic Finance Industries

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BoE, July, 2015

Short documentation: 

In general the British exit (Brexit) issue is more political rather than economy. It began with the opinion of most British senior citizens who feel that the UK is bigger than Europe (Great Britain is not supposed to be ruled by the much smaller Brussel) and this was harnessed by politicians to be turned into a political issue.

The historical background, in 1991 the Maastricht Treaty/Treaty on European Union (TEU) was signed with a vision of integrating its member countries further more, amongst it is the plan of using Euro as a single currency.  The UK Prime Minister at the time, Tony Blair, filed a clause to “opt out”. Then in 2002 the EUR currency was launched and several EU member countries were listed in the European Monetary Union (EMU). The UK Chancellor at the time Gordon Brown, carried out five tests to assess the possibilities for UK to use EUR, which included 1) Economic Harmonization, 2) Sufficient Flexibility, 3) Effect on Investment, 4) Effect on Financial Services, and 5) Effect on Growth and Jobs, and the results showed that it was better for the UK to not join the EMU.

In its trade system, European Union also applies Single Market that means the European Union region as a territory with no internal border/barrier that obstructs the movement of goods and services. Should the UK exited EU, the benefit of the single market mechanism in European countries would still be enjoyed by both sides through bilateral cooperation.

Up to today the pro-EU position is still slightly ahead of pro-Brexit (45:40), and there is still a chance for pro-Brexit to win the votes because of the size of the undecided vote (15%). Should pro-EU won in the EU referendum, it would strengthen the political position of Cameron and the Conservative Party. Yet on the other hand should pro-Brexit won, many analysts predicted that Cameron would be pressured to resign.

Should Brexit won, the impact is predicted toward the Service Trade, 1) whether or not carrying out Brexit, the UK will still lose influence toward EU member countries that are heading into a more strict monetary and fiscal integration, 2) the UK kept rejecting EU regulations that will harm the City of London (i.e. financial transaction tax), 3) exiting EU enables the UK to become a center of global finance, and 4) exiting EU will not have any harmful effect for the UK and will not change the fundamental attraction of London.

One of the main Three Pillars of The European Union is the European Communities that include the aspects of economic, social, and environmental policies. It is interesting to observe the issue of Labor Force Movement (free movement), on Q1 2015, the number of EU population with working status in UK reached 1.9 million people[1].  These EU immigrants have rights on benefits (that includes tax credit) equal to the UK citizens, and it is a pull factor that triggers immigration and creates distortions in the labor force market[2]. Should the UK stayed in EU it would raise immigration policies problems. In the UK, immigration grows faster than the infrastructure that the public services become scarce and immigration can reduce the UK citizen wages. The Brexit could help in selection professional labor force who can work in the UK. That includes the free movement of expertise, and law firm in the field of Islamic Finance will be limited access in UK/EU. In the future the UK government can focus the developments on policies, education and industries in the Islamic Finance to maintain the UK position as the center of Global Islamic Finance Development. Certainly it would be supported by a renegotiation of its bilateral cooperation scheme with EU countries. (RATIH R./165/June)

[1] http://www.migrationobservatory.ox.ac.uk/briefings/migration-flows-a8-and-other-eu-migrants-and-uk

[2] Phillip Hammond, UK Foreign Secretary (http://www.ft.com/cms/s/0/805c2250-771b-11e5-933d-efcdc3c11c89.html#axzz3rfRiFB1E)

 

 

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