To many in Southeast Asia, Britain’s decision to remove itself from the world’s largest economic bloc looked like a self-inflicted wound.
Whether illogical or inspired, nerves in ASEAN have calmed since the vote. Warnings of economic catastrophe failed to materialise – so far at least – and governments in the region such as Singapore have said Brexit’s economic impact on them is likely to be modest in the medium to long term. That seems like a fair assessment to us.
Yes, companies in ASEAN need to examine the implications of a potential loss of access to the single market via subsidiaries in the UK. However, they should also consider the potential upside of new trade deals between the UK and ASEAN states as a result of the UK’s newfound status.
UK hungry for trade deals
With its relations with Europe thrown into doubt, the UK will be keen to develop deeper relationships in the region. It can build on its historic ties with Singapore and Malaysia and also much of the groundwork laid by David Cameron. The former prime minister was the first European leader to visit Myanmar after the start of its return to civilian rule, and led a trade mission to ASEAN last year.
The UK has much to gain from closer relations. Right now, its businesses do more trade with Belgium – a country of 11 million people – than Indonesia, Malaysia, Vietnam, and Singapore combined. The opportunity cost will be even starker in 10 or 15 years’ time: by 2030, ASEAN is projected to be the fourth-biggest market in the world after the US, EU, and China, and should deliver more than $2 trillion in new consumption by 2020 according to the IMF. Already its middle-class is estimated to stand at 300 million.
The UK’s new Department for International Trade under Liam Fox will want to conclude free trade agreements (FTAs) quickly – once it is free to do so outside the European Union. That is likely to mean doing deals with individual ASEAN states, not the association itself based on the experience of the EU, whose own efforts were frustrated before it pursued individual bilateral agreements. Still, an EU-ASEAN FTA remains a long-term goal for the EU, and the FTAs it has signed with Singapore and Vietnam now set the benchmark for the rest of the region.
We would expect London to focus on fast-growing Vietnam, Indonesia – with its 256 million citizens – and the UK’s traditional partners, Singapore and Malaysia. Singapore is the UK’s largest trading partner in the region, and the agreement the EU has already struck there (that should come into force in 2018 or 2019) could provide a useful template to accelerate a trade deal with the UK too.
The feeling is mutual
Southeast Asian nations are also likely to be keen to engage with London. While FTAs with the EU will remain a higher priority in most ASEAN capitals, an agreement with the UK could serve them in a number of ways.
A Britain independent of the EU may do away with the non-tariff barriers and other regulations that Asian exporters currently contend with. The UK should also be a nimbler negotiating partner than the EU’s bloc of 28, which must get signoff from each member state in order to ratify. Malaysia’s prime minister has already said he sees Brexit as an opportunity to improve relations, especially in trade and investment.
At the same time, ASEAN states could look to gain from the UK’s weaker negotiating position without the heft of the EU’s internal market behind it. So too the fact that it lacks enough experienced negotiators. Lastly, they know that the UK may need them more than they need it: Asia took 16.3 per cent of British exports last year, while the UK did not rank as a top-10 trading partner for any major Asian nation.
At a political level, there is greater will for trade deals in the region where perhaps there was not two years ago. Talks to conclude the Trans-Pacific Partnership trade deal – to which ASEAN members Malaysia, Vietnam, Singapore, and Brunei are parties – have changed the conversation, adding to the sense in these countries that trade is core to their growth story.
Lastly, we should not completely discount the political and historic role Britain has played in the region, nor its status on the world stage. The UK is still the world’s fifth-largest economy, a member of the UN Security Council, and a military player in the region.
Privately, a trade deal with the UK would be seen as a feather in the cap in many parts of the region. And for the UK, it would send a useful signal that the country is re-emerging as an independent player on the world stage.
By Stephen Ball KPMG lead partner, UK-ASEAN Business
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