The potential effects of Brexit on the AEC

The June vote by the British public for the United Kingdom to leave the European Union (EU), the so-called Brexit, had almost immediate economic ramifications. Naturally, the question for those engaged in business in Southeast Asia was what kind of an impact would Brexit likely have on the newly-created Asean Economic Community (AEC)?

In some respects there would be little effect if British companies which are operating in Asean countries are doing so as independent entities and not under the umbrella of the EU.

The United Kingdom is going to have to renegotiate a swathe of trade and investment deals with the EU once the British government has ‘pulled the trigger’ and begun the practical process of leaving. That process could take up to two years to become a reality.

For Britain, it will have to begin negotiations on Free Trade Agreements (FTAs) with Singapore and Vietnam, both of which have signed FTAs with the EU. The EU is also in negotiations for FTAs with Indonesia, Malaysia and the Philippines and there is also talk of an all-encompassing EU-AEC FTA.

With Britain out of the EU, she will have to go it alone on concluding similar deals with these same countries and the AEC as a whole.

So, the EU as a grouping would automatically gain a trade advantage over a newly-exited Britain within the Asean setup, thereby ‘stealing a march’ as it were on the British.

An FTA provides preferential tariffs for EU goods and protections for EU investments, and the UK would be playing catch up once it officially exits the EU.

As well, the UK’s bilateral investment treaties (BITs) will no longer provide investment protections, with Asean member states, such as Indonesia, pulling back from these BITs.

Another factor is Scotland. After Brexit, the Scottish started making more strident noises about breaking up the United Kingdom by becoming an independent nation again, and remaining inside the EU.

Whether this happens only time will tell. Considering a vote for independence only narrowly failed prior to the Brexit referendum and considering the majority of voters in Scotland voted to remain in the EU, the push towards independence has probably gained in strength.

Scotland, by voting for independence and staying within the EU, would have its exports qualify for tariff privileges under the EU FTAs with Singapore, Vietnam and other ASEAN members and Scottish investment would be protected by these EU FTAs.

Of course, the UK, either as a complete entity as it is now, or even without Scotland, still ranks as one of the largest economies in the world, and this makes it an attractive place for the AEC to do business. So, it is entirely possible that trade negotiations would be made as easy as possible to keep the UK in line with whatever benefits are accrued to the EU.