Key Points: What is Brexit, Why Brexit Happened, The Economic Impact of Brexit on Asian Countries
1. Introduction
The
Economic Impact of Brexit can be felt across the world even in Asian countries.
Brexit is a word that reflects an exit of the UK from the EU. The combination
of words “exit” and “Britain” resulted in a term Brexit. It was believed that
the EU had taken too many powers from the government of the UK, and the
regulations of the EU proved costly to the British economy that made the UK think of leaving the EU. The supporters of
Brexit argue that the UK will be free to independently sign trade deals with growing
economies of the world after Brexit (Tahir et al., 2018).
The UK
has left the European Union on the 31st of January 2020 and entered
the transition period of 11 months. Brexit will dissolve the relationship of EU
with the UK that lasted for decades. Brexit will also overthrow the established
political order in Europe. The event of Brexit will have a substantial effect not only on
European integration but also on the world economy and politics. That is why
the world community including Asian countries were closely following the Brexit
negotiations. This study is aimed at discussing the economic impact of Brexit
on Asian economies.
2. Discussions
From an
Asian point of view, the countries in the region have great concerns regarding
the incident of Brexit. Countries including Sri Lanka, Hong Kong, Nepal,
Pakistan, India, Bangladesh, Maldives, Cambodia, Myanmar, Turkey, China, and
Lao PDR have disproportionate trade disruption threats. These countries have
significant concerns about their current preferential trade deals with the UK (Graham et al., 2017). The economic impact of
Brexit on some of the Asian countries is discussed below.
2.1 Singapore
Singapore
apparently seems to be unharmed from the Brexit because of its limited trade
and investment exposure in Britain. Trade of Singapore with Britain constituted
only 2.1% of its overall imports, and 1% of its overall imports in 2018. Singapore can either negotiate new trade deals
with the United Kingdom or may turn to markets in the EU in future (Ruiz Estrada et al., 2019).
2.2 Japan
Numerous
Japanese organizations functioning in Europe have generated nearly 44,000 job
opportunities. A significant number of these businesses are based in the UK.
About half of the direct investment of Japan intended for the European Union in
2015 moved to the United Kingdom. Moreover, the UK was among the major destinations
for investment stocks of Japan within the EU by the end of 2018.
As
Europe including the United Kingdom has been a major trading partner of Japan,
it is in Japan's common interest that it continues to have access to Europe's
free markets including the UK (Mofa, 2019). For example, Toyota exports about
90 per cent of the cars it produces in the United Kingdom. Three-quarters of
these exports go to the EU. After Brexit, Japanese companies operating in the
UK, in order to have access to European markets, will have to reassess their
access to Europe. For example, Japanese electronics company Hitachi is now
rethinking its operations in the UK after the event of Brexit.
2.3 China
After Brexit, potential restrictions might be imposed on real
property and foreign ownership that may affect politico-economic elites of
China who have investments and interests in the UK (Le Corre and Pollack, 2017). Brexit's impact on
the status of London as a financial hub may result in a reduction of the city's
international representation. This situation may materialize in the decrease of
business sales with consequences on the trading ties with China.
Experts
have been tracking the consequences of Brexit since this concept came into
being. China’s objectives of gaining MES (market
economy status) is impacted by Brexit, as the UK was one of the strongest
advocates of China in this matter. Complete market access to the EU is of
utmost importance to China in order to have sustained development as it can
help China manage its excessive industrial capacity. But, in case the UK leaves
the European Union, the plans of Chinese investors, to reach 500 million
consumers in Europe through the UK, will be lost (Morales
and Andreosso-O’Callaghan, 2018).
2.4 India
The first impact of Brexit
on Indian economy can be that it will weaken the Indian Rupee by causing the
Indian equity market to suffer. Commodity prices’ value has been disturbed from
the base value after the idea of Brexit originated. This situation has laid
down all the processes into deep certainty of pessimism. Indian Bond market may
not be affected much because of the strong monetary facility of India and RBI’s
quick actions regarding rate reductions. However, the IT sector of India is the
one that is expected to suffer more because of its higher levels of settlement
in the UK. Whereas, the pharmaceutical sector of India is not expected to
suffer much (Singh, 2019).
Many of the Indian
organizations are operating in Europe through the UK. Most of the firms have
offices in London or other places in the UK. Some of the prominent names
include Mahindra & Mahindra and Tata industries. These industries along
with many other software industries will have to reassess their reach to Europe
that might affect the overall trades of India (Kaur,
2018).
2.5 Bangladesh
The UK has been a major
partner in the export scenario of Bangladesh. Britain accounted for about 11%
of Bangladesh’s overall global exports, and 18.7% of the exports destined for
the market in the EU in the fiscal year 2017-2018. Exports of Bangladesh to EU
enjoyed duty-free quota-free (DF-QF) access to markets for all exports except
arms. The significant part of exports of Bangladesh to the UK is consumer
items. The demand for these items is often price-elastic. Thus duty-free access
of these items used to have considerable positive impacts on both competitive
strength and demand of these exports to the UK.
It is believed that UK importers would have to
pay 366.2 million USD as duties if there had not been any preferential access
to markets under the EBA. This means that UK imports will have to face MFN
tariffs in absence of EBA. Besides that, many importers in the EU prefer to
import through the United Kingdom for onward shipment towards other countries
in the EU. These importers take benefit of the EU-wide free trade zone (Duty-free
access market under the European Union Customs Union). These exports are expected
to be impacted at different levels depending on the final Brexit terms (Rahman et al., 2018).
2.6 Pakistan
The Brexit can have
immense implications for all Asian countries including Pakistan. Pakistani
community in the UK is of utmost importance for the economy of Pakistan. About
2.7 billion USD remittances are sent from the UK to Pakistan on an annual basis
that s 13% of the overall country remittances. These remittances are an
essential source of FDI as well. Brexit can reduce the remittances of workers
from Europe and the UK. Moreover, if the economy of the UK slows down, it can,
in turn, result in unemployment that may also reduce the inflow of annual
remittances to Pakistan. Brexit can also have an acute influence on the trade
of Pakistan with the UK. Economic growth loss will reduce consumer demand in
the UK.
Also, if the British
Pound’s exchange rate gets declined, Pakistani goods may become more expensive
that can further impact the demand for these goods in the UK. This scenario can
bring down Pakistani exports to the UK. Moreover, by negatively affecting Euro
and Sterling, Brexit can cause more expensive imports for the UK and EU that
can also impact the trade of Pakistan. Another effect will be on the Generalized
System Preference (GSP-Plus) status of Pakistan. The UK has been the strongest advocate
of Pakistan regarding GSP-Plus status in Brussels. Pakistan will have to do
robust lobbying in order to retain this status once the UK leaves EU (Tahir et al., 2018).
3. Conclusions
Brexit is a word that
reflects an exit of the UK from the EU. The event of Brexit is expected to have
a substantial effect not only on European integration but also on the world
economy, especially the economies of Asian countries. The countries like Japan,
China, Bangladesh, India, Pakistan, Nepal, and Siri Lanka have significant
concerns about their current preferential trade deals with the UK. On the other
hand, Asian countries like Singapore may not be impacted significantly because
of their limited trade and investment exposure in Britain.
Certainly, Asian
businesses are having a close eye on the process of how the United Kingdom
transitions out of the European Union. Asian countries are now planning to
develop ways that help them manage political risks and economic uncertainties
related to Brexit. They are thinking of reassessing their approaches in order
to have a sustainable reach to EU market once again.
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Le Corre, P. and Pollack, J.
(2017). China’s rise: what about a transatlantic dialogue?. Asia Europe
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