With the date of the UK’s exit from the European Union now looming large – and with no negotiated leaving deal in sight – Asian businesses and UK-based commentators are growing increasingly concerned about their future.
“We are absolutely worried about the whole situation,” Taha Coburn Kutay, Chair of the UK-Asian Business Council, told Asia Times. “There’s no clarity, and when people ask me at conferences about Brexit, I find I don’t know how to come up with a single argument for
why it’s a good thing.”
Fears that the UK will find going-it-alone on future trade deals a lot more difficult than anticipated are coupled with concerns that a British rupture with Europe will sever key supply chains and disrupt businesses.
Meanwhile, the UK’s preoccupation with immigration is making the country less attractive to Asian students, residents and workers – as is the deterioration of services resulting from overseas citizens leaving.
Yet, working the other way around, the economic impact of Brexit on Asia seems likely to be far less dramatic.
“It’s not such a big issue for Asia,” Gareth Leather, Senior Asia Economist for Capital Economics, told Asia Times. “The current trade war between China and the US – and the Chinese economic slowdown – are much more pre-occupying.”
The UK’s trading relationship with Asia goes back centuries, with the region once the source of much of the British Empire’s wealth. India, Pakistan, Sri Lanka, Bangladesh, Myanmar, Singapore, Brunei, Malaysia and Hong Kong all have this historical connection, as well as Australia, New Zealand and Pacific states, such as Fiji and the Solomon Islands.
In more recent years, however, Britain’s presence in Asia has been far less imperial and more modestly commercial and financial.
In 2017, UK trade with India amounted to some £12 billion, according to the UK’s Office of National Statistics (ONS), while trade with China was about £61 billion, with Japan at £15.8 billion and South Korea £10.8 billion. Trade with Hong Kong totaled £15.6 billion, while Singapore was another major trading partner, recording about £8.5 billion in total trade in 2017.
The services sectors in these two cities are particularly strong, with service exports to the UK from Hong Kong worth 2.3% of Hong Kong’s GDP and 2.8% of Singapore’s in 2016.
“However, across the Asia region as a whole,” said Leather, that year “exports to the UK accounted for just 0.7% of GDP.”
Since then, when the UK voted by a narrow margin to leave the EU, advocates of the change have argued that post-Brexit, the UK would be able to boost these numbers with a string of trade deals. These would be free of the restrictions on London’s freedom of action that result from EU membership.
UK Trade Secretary Liam Fox is already discussing informal, post-Brexit arrangements with about a dozen countries, worldwide, while also suggesting the UK might seek membership of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
This suggestion was welcomed by Japanese Prime Minister Shinzo Abe in August last year. Meanwhile, in a speech in January this year in Singapore, Britain’s foreign secretary, Jeremy Hunt, also claimed that Brexit would “strengthen ties” between the UK and Asia.
Fox is also engaged in talks with the World Trade Organisation (WTO) over the UK’s post-Brexit status. In these, the UK is seeking to replicate the conditions it now has as an EU member of the WTO, with as little change as possible.
Likewise, the UK also hopes to ‘roll over’ existing EU trade agreements with other countries, allowing the UK to continue to enjoy the customs and tariffs arrangements it now has with third parties, via an EU trade deal.
Yet, while some countries – such as South Korea – have already said they would like to roll over arrangements, in order to provide continuity and clarity for businesses, “there is no reason to suppose that the UK will always get this,” James Putzel, Professor of Development Studies at the London School of Economics, told Asia Times.
“The EU as a block is in a much better position to negotiate future trade deals with the Asia-Pacific than the UK on its own. The UK will have very little leverage, by comparison,” he added.
Indeed, the EU is now engaged in negotiations for a free trade deal with ASEAN, while it also signed a deal with Singapore at the end of 2018 and with Japan a few months earlier.
“ASEAN is much more interested in dealing with big blocks like China, Japan, the US and the EU as a whole,” said Professor Tim Forsyth, from the Saw Swee Hock Southeast Asia Centre in London. “As the UK represents a much smaller amount of trade, it’s likely it will have to
make a lot more concessions than these bigger players to get a deal.”
Barriers to entry
Meanwhile, Asian companies operating in the UK often do so because it is also an entryway to the rest of the EU – allowing them not only to serve the UK market, but also the 27 other EU member states. Some Asian corporates have built supply chains that operate across Europe.
“Japanese and Korean car companies, for example,” said Leather, “operate just-in-time supply chains across the continent. Their UK plants would be very vulnerable if there were long delays at the ports, getting their components made in Europe into the UK.”
Such delays would certainly occur if the UK left the EU without a deal in place – something once thought unlikely, but now increasingly possible, as just over eight weeks remain to the date set for departure – March 29.
Movement of labor is also a concern. While EU citizens will no longer receive preferential immigration treatment, post-Brexit, plans unveiled by the UK last year suggest a salary limit of about £30,000 before would-be immigrants can be granted a visa.
“With this requirement to come here, plus other things, such as fluency in English, there are going to be serious labor shortages in the UK, which will affect all manner of businesses and professions,” Coburn-Kutay said. “If you want to see the impact already, just go to a [state] hospital in London. These places often rely on Asian and European doctors and nurses. Now, it’s chaos.”
While there is still no certainty on what form Brexit will take, or indeed, if it will happen at all, a devalued British currency and falling real estate prices may make the country more affordable. Some UK companies may also look more like bargains for Asian corporate investors.
New trade deals with the UK may also bring more benefits for Asian companies, if the UK has to negotiate them from a position of weakness, relative to its competitors.
“There may be some interesting picks in the UK for Asian companies,” said Putzel. “While this may bring some advantages for them, these might be overshadowed by the disruption Brexit will also cause.”
Indeed, with the British Chambers of Commerce warning on January 26 that many of its members were already activating emergency plans for a ‘no deal’ Brexit, there is undoubtedly an increasing sense of alarm amongst UK-based companies – both Asian and non-Asian alike.