“Nodal Brexit” is a fatal blow

“Nodal Brexit” is a fatal blow to developing countries in Asia

A new study has been published showing that if Nodal Brexit is realized, poor Asian countries with high trade dependence could suffer particularly.

There is concern that developing countries in Southeast Asia could be fatal if Britain's no-deal Brexit, which leaves the EU without agreement on March 29, the Brexit deadline.

The think tank, the German Development Institute, predicts that Cambodia will suffer the most from 'Nodal Brexit' in a recent report, while up to 1.7 million people in developing countries are in 'extreme poverty'. I warned you that I could fall.

The UK is the 2nd to 3rd largest export market for many Southeast Asian countries and is a major investor in these rapidly growing export-driven developing countries. The UK is investing more than three times in the region than Germany, Europe's largest economy.

If British Prime Minister Theresa May's "Brexit Negotiation Plan" was rejected in parliament in early January, the confusion of British trading partners is inevitable. It was the first time since the 1920s that the British government's bill was rejected by overwhelming votes. The second round of voting is expected to take place later this month.

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But even if this is rejected, the UK can leave the EU without negotiation. If so, most of the trade agreements with the EU could be destroyed on the evening of March 29, and the UK would only be able to trade with European partners under the World Trade Organization (WTO) regulations.

The UK is also excluded from the preferential trade agreements the EU has with developing countries. The UK cannot provide EBA treaty benefits. EBA stands for Everything But Arms, which means `` everything except weapons, '' and is a treaty where 49 developing countries are exempt from tariffs on all products except weapons when exporting them to the EU. As a result, quarantine time for products in developing countries imported into the UK at Nodal Brexit may increase, or controversy over new taxpayers may increase.

In the report, the German Development Institute claims that Brexit could seriously damage some Asian developing countries if Nodal Brexit occurs, and if the British Parliament fails to reach and pass alternative legislation on non-tariff barriers with developing countries in a short time. did.

The institute analyzed based on figures from 2013 to 2015, which underestimated potential wavelengths, but estimated that the GDP of the countries covered by the EBA Treaty at Nodal Brexit could decrease from 0.01% to 1.08%.

According to the report, Cambodia is the country most likely to be hit hard. Cambodia is more dependent on exports to the United Kingdom than any other country under the EBA Treaty. As of 2016, the UK was the third-largest export market to Cambodia following Germany and the United States. That year, the United Kingdom imported $ 1.45 billion worth of clothing and footwear from Cambodia. This industry is creating the most jobs in Cambodia and is also making a significant contribution to GDP.

The report estimates that Cambodia's household consumption will decrease by 1.4% and household income by 0.8% at Nodal Brexit City. Cambodia's GDP is also expected to shrink by at least 1%. The report said, "It was conservatively estimating the negative impact of Brexit, but it did not take into account the additional effects of uncertainty, the depreciation of the pound, and the decline in aid spending, remittances and investment."

This guess is only a scenario. The possibility of passing the 585-page "Brexit Negotiation Plan" that Prime Minister May has been negotiating for more than two years before the deadline on March 29 cannot be ruled out. In that case, the UK will continue to negotiate future trade rules with the EU, applying most of the EU's trade principles, including the EBA Treaty, by the end of 2020.

Confusion can be even greater if the British Parliament decides to delay Brexit several months to give the government more time to negotiate. In that case, however, the UK could offer more EBA treaties and other preferential tariff benefits from the EU.

It is unlikely, but another scenario is to pass the EU withdrawal issue back to the British citizens, as Congress decides to hold a referendum again. However, most analysts believe that the likelihood of Nodal Brexit has increased significantly in recent weeks. If so, Southeast Asian exporters on March 29 may face very different import and export regulations than the UK and now.

According to a recently released report by the Center for Global Development (CGD), a think tank, the best scenario for developing countries is that the United Kingdom quickly revised its existing import and export legislation before March 29, developing products Is to impose preferential tariffs from the EU, such as the EBA Treaty.

The report says the revision of the legislation is not that difficult, but “because Brexit is seriously interfering with the schedule of parliamentary work, the time needed to make this change may be short.” "You will lose all of the privileges you enjoyed when approaching, and face a much higher tariff rate."

The obvious question, however, is whether trade with the world's poorest countries, including Cambodia, is currently the top priority of the British government, or whether the British government has made it a priority. As of 2016, the amount of bilateral trade between the United Kingdom and Southeast Asia was approximately $ 41.8 billion (KRW 47 trillion). Of these, 68% traded with three countries: Singapore (36.1%), Thailand (17.1%), and Vietnam (14.9%). Trade with the United Kingdom may be important to Cambodia, but it is negligible for the British.

If the UK is in a hurry to pursue a new trade agreement after Brexit, it will first be concerned with pursuing an agreement with major trading partners, the largest wealth in Southeast Asia. Thanks to the Brexit negotiations, countries such as Cambodia would be able to earn time if the UK's EBA Treaty was to be extended by the end of 2020, but under this best-case scenarios, trade agreements would have to be negotiated at that time.

After the British people decided to withdraw from the EU as a sign of intermittence in June 2016, the government led by the Conservative Party will build a new 'global UK' with a policy of 'All of Asia' that expands trade relations with Asian countries. Said repeatedly.

He even publicly announced plans to build a new military base in Southeast Asia, including Brunei, and to play a more active role in the security of the region, including the South China Sea. Ministers such as Foreign Minister Jeremy Hunt has been visiting Southeast Asia repeatedly in recent years to urge interest in the Free Trade Agreement (FTA) after Brexit.

During his visit to Singapore and Malaysia in January, Hunt said, “In Asia, the United Kingdom shares our values and invisible countries that connect our democracies around the world, supporting our belief in free trade and the rule of law and open society. I will play the role of a chain. ”

However, even if Brexit is orderly, it is necessary to solve various problems surrounding the proposed FTA. The British government expressed interest in joining the Comprehensive and Progressive Pacific Rim Economic Partnership Agreement (CPTPP), a free trade block in 11 countries that was officially launched this year. Brunei, Malaysia, Singapore, and Vietnam are partners.

Some analysts believe that the United Kingdom may negotiate with the EU but still follow the terms of the FTA with all of the 10 countries in Vietnam and ASEAN that have not yet ratified. That would make it easier for Britain to sign an FTA with them, despite the opinion that ASEAN countries would definitely want to renegotiate. They made far more concessions to the EU than to the UK on issues such as human rights and foreign ownership.

One fundamental problem is that as long as the UK remains in the EU, it cannot formally initiate mutual FTA negotiations with ASEAN countries. Even if you start negotiating, it may take months, not even years. In the meantime, trade between the United Kingdom and the region cannot avoid the new tariff effects.

Professor Jürgen Haacke and John Harley Breen of the University of Political Science in London said in a paper published last year, “The possibility of an FTA between the United Kingdom and ASEAN depends on whether or not the United Kingdom is recognized as an ASEAN dialogue partner. ”

In fact, once the UK leaves the EU, it will also leave the diplomatic channel that the EU has established with ASEAN. Norway and Switzerland, which do not belong to the EU, became 'partial conversation partners' in 2015 and Germany was selected as a 'development partner' in 2016, but in 1999 ASEAN stopped establishing new dialogue with other countries.

It is unclear whether ASEAN will allow dialogue partnerships with the UK, or whether the new “companion relations” discussion will pay off. However, it is clear that either of these will take considerable time to negotiate and implement.

Meanwhile, the UK can rush to sign an FTA with individual Southeast Asian countries, but it is unlikely that the FTA will be achieved overnight. Even the larger UK and ASEAN FTAs ​​may not make progress. The United Kingdom has long been a colony and is more likely to sign the first FTA with Singapore, the closest partner in Southeast Asia.

However, as Professor Hark and Breen pointed out, “Since ASEAN has never expressed an idea of ​​how to view relations with the United Kingdom in the future, we will have to go ahead and promote their relationship with them.” The pressure on British negotiators at Nodal Brexit is bound to increase. In the face of the UK's most troublesome constitutional crisis in centuries, their interests can be diversified in various directions.