When the UK struck its first major post-Brexit trade deal with Japan, the government celebrated this as an historic achievement and one that supported the viability of leaving the EU.
However, while the deal may have symbolic importance for the UK as we approach the end of the transition period, economists have confirmed that it will only boost the UK’s GDP by a paltry 0.07%.
Conversely, this deal is of huge benefit to Japan, as it will boost the volume of trade between the countries by an estimated £15 billion. But will Southeast Asia benefit from Brexit, and will the UK be able to capitalize fully on increased trade between these two regions?
The UK, Asia and Brexit – The Current State of Affairs
In some respects, Brexit could well be damaging to the Asian region, primarily because the UK’s decision to leave the EU will lead to reconfiguration of the existing trading arrangements between Asia and the single bloc.
The impact may be particularly felt amongst the Association of Southeast Asian Nations (ASEAN), which are currently in the process of negotiating its bilateral free-trade agreements (FTAs) with the EU.
Similarly, the ASEAN nations will be keen to follow Japan’s example by striking its own free-trade agreements with the UK, while the latter may be particularly keen to move quickly if it eventually leaves the EU without a formal withdrawal agreement.
Historically, both the UK and the EU have struggled to strike FTAs in the Southeast Asia region, although the former did make a concerted effort to make this a priority back in 2015.
Back then, Prime Minister David Cameron visited high-growth ASEAN nations including Malaysia, Indonesia, Vietnam and Singapore, after which he advocated for a comprehensive ASEAN-EU trade deal.
Vietnam will be of particular interest to the UK, with this poised to be the only ASEAN economy to grow this year in the wake of the coronavirus pandemic. Not only this, but the Hong Kong Shanghai Banking Corporation has forecast growth of 8.1% in Vietnam for 2021, creating a lucrative market for trade partners to immerse themselves in.
What Will Happen Post-Brexit?
As we’ve already touched on, the decisions taken by the UK and the urgency with which they pursue a free trade deal with ASEAN nations will depend on the outcome of the current negotiations with the EU.
The UK is also hindered by the fact that it cannot formalize trade deals until it has formally left the EU and exited the transition period, allowing the single bloc to steal a march and aggressively pursue its own FTAs in Asia.
For example, the EU entered into initial talks with Indonesia for a comprehensive FTA just weeks after the referendum vote was delivered in the UK, and there’s no doubt that this level of competition will increase in the near-term.
However, the potential for both parties to benefit remains unclear, and there are a couple of key reasons for this.
Firstly, the UK is likely to pursue higher value FTAs in the wake of its Japan deal, with countries such as Canada, the US and Australia at the top of this list. This will be of huge strategic importance, especially if the UK’s economy and financial markets are severely impacted by a no-deal Brexit.
Beyond this, the process of replacing the already existing arrangements between the EU, Singapore and Vietnam with bilateral deals will take a considerable amount of time.
Remember, these deals will be lost to the UK once the transition period draws to a close on December 31st, and there’s no doubt that they’ll be incredibly complex and difficult to negotiate once the trading parameters have shifted.
