SINGAPORE and PRAGUE – With the future of Britain-European Union (EU) trade on a precipice, simmering post-Brexit uncertainty hasn’t deterred the United Kingdom (UK) from projecting itself as a re-emerging force in global and particularly Asian trade.
Ahead of what some fear will be a chaotic end to the five-year Brexit process, with the UK set to break with the EU’s single market on December 31, London is already casting its gaze eastward, eyeing bilateral deals and membership in a regional trade bloc.
Last week, the UK announced new trade pacts with Singapore and Vietnam, which International Trade Secretary Liz Truss said would be “vital for the UK’s future as an independent trading nation,” and help make Britain a “global hub for services and technology trade.”
Touted as symbolically extending the UK’s foothold in Asia, both deals largely replicate existing trade agreements that Singapore and Hanoi have with the EU, and could pave the way for similar pacts with nations in the Association of Southeast Asian Nations (ASEAN) as Britain pledges to take a more active role in regional affairs in the Indo-Pacific.
After the Brexit referendum in 2016, the UK’s Conservative-led government stated that its foreign policy objective would be to create a “global Britain,” with Prime Minister Boris Johnson, then foreign secretary in December 2016, evoking poet Rudyard Kipling when he pledged to return Britain’s foreign-policy interests “back east of the Suez,” meaning to Asia.
Citing a line from Kipling’s poem “Mandalay”, a nostalgic paean written from the perspective of an imperial soldier longing to return to Myanmar, Johnson sought to frame this geopolitical shift in terms that some see as a mere evocation of Britain’s imperial past, an attempt to conjure up a grandeur of Britain in world politics that faded after the 1950s.
Others argue the emphasis on Asia is a rhetorical excuse to make light of Britain moving away from Europe post-Brexit and the flawed claim that leaving the EU makes economic sense because it will allow London to secure better trade terms with the emerging Asian states that are going to drive the world economy in the 21st century.
Although chiefly rhetorical at the time, the new bilateral trade pacts come amid increasing calls for the UK to institutionalize its vision for a more robust presence in Asia. “[The] time is ripe for Britain to shift the weight of its strategic policy towards the Indo-Pacific as it reviews its role in the world,” argued a recent report by Policy Exchange, a British think tank.
British trade negotiations in the region have often piggy-backed off EU talks, and its little coincidence that the UK has clinched agreements with the only two Southeast Asian states that the EU had already ratified their own trade deals with, allowing for the continuance of trade with Vietnam and Singapore in 2021 following Britain’s exit from the 27-nation bloc.
Signed and sealed on December 11, the UK’s trade deal with Vietnam ensures Britain’s continued access to one of the fastest-growing and most open economies in Asia on preferential terms that will eliminate 99% of tariffs on bilateral trade, worth around US$7.58 billion last year, seven years after it enters into force on January 1, 2021.
Britain is Vietnam’s second-largest export market in Europe, a key destination for its garments, seafood and wooden furniture. The deal, reached a day after a more strategically significant pact with Singapore, is one of dozens of continuity trade agreements that Brexit has forced the UK to negotiate before its current rights under EU arrangements are lost.
Britain’s deal with Singapore, a former British colony that gained independence in 1965, will cover more than 17 billion pounds (US$22 billion) of current bilateral trade in goods and services. Singapore’s Trade and Industry Minister Chan Chun Sing said the agreement would “provide continuity and certainty” for businesses in both countries.
As soon as it enters force, duties on 84% of Singapore exports entering Britain, which include Asian food products, electronics, pharmaceuticals and petrochemicals, will be eliminated, with virtually all remaining tariffs set to be rolled back by November 2024, the same timeline established under Singapore’s trade agreement with the EU.
Other benefits include increased access to services and government procurement markets. The two countries have also agreed to begin negotiations on a separate bilateral investment protection agreement within two years of the trade deal’s ratification, though neither country has announced a timeline for ratification.
“In and of itself, the new trade deal will have little impact on trade between the two nations which is largely tariff-free anyway,” said Andrew Staples, director of research and outreach at the Hinrich Foundation. “That said, this deal should certainly be valuable to UK firms looking to tap into the higher-growth Asian economies.”
The UK is Singapore’s top destination for direct investment in Europe and its third and second-largest trading partner for goods and services respectively. In turn, the wealthy city-state of 5.7 million people is Britain’s largest trade and investment partner in Southeast Asia, with total trade between the two countries valued at $13.5 billion in 2019.
But that figure is just a fraction of about $1 trillion in annual trade at stake in Britain’s negotiations with Brussels. With the specter of a tumultuous split looming, it isn’t clear whether the two sides will reach a deal, and analysts say a post-Brexit reversion to World Trade Organization (WTO) terms for trade would do major harm to the British economy.
Britain’s trade relations with Asia, in that context, look set to take on new significance, a fact noted by Singapore’s Chan. The city-state’s pact with the UK will “provide British businesses a platform to find and access new growth opportunities through Singapore,” said the trade minister as he signed the deal alongside his British counterpart on December 10.
“The greater significance of the Singapore-UK trade deal may not be found in the text of this agreement but rather how it sets-up the parties going forward,” said Steven Okun, a senior advisor at trade consultancy McLarty Associates. “British companies will look more so for Singapore as their headquarters and jumping-off point into the region.”
The city-state “could be of greater importance in a post-Brexit world,” he added. “This agreement could lead to one on digital trade and financial services, two sectors in which Singapore and the UK are further advanced than other countries in the region, thus setting the framework for a much-needed regional agreement in this regard.”
The two countries aim to begin negotiations on a digital economy agreement (DEA) in 2021, which will aim to establish modern rules on digital trade and financial services between Europe and Southeast Asia. In totality, the UK’s deals with Singapore are a template for trade arrangements that Britain could in the future pursue with other ASEAN countries.
“The bilateral trade agreement is critical in ensuring trading continuity between the UK and Singapore post-Brexit – and a significant portion of the UK’s exports to ASEAN go via Singapore, so the new deal does indeed have ramifications for British trade with the wider region,” said Peter Mumford, a Southeast Asia analyst with consultancy Eurasia Group.
“The UK is significantly increasing its focus on Southeast Asia and ramping up its resources in this increasingly important region. However, trade deals with countries in Southeast Asia that do not already have an EU trade agreement, such as Malaysia, Thailand, and Indonesia, will be more difficult for the UK to negotiate, though certainly not impossible,” he added.
London’s stated objectives of expanding its influence and links in the Indo-Pacific region chime with those of the EU, which this month upgraded its relationship with ASEAN to a “strategic partnership”. Brussels is currently negotiating a host of new measures with the rapidly growing 10-country bloc, which is home to some 650 million people.
Britain opened its new ASEAN headquarters in the Indonesian capital of Jakarta in January and has lobbied the bloc to become a “Dialogue Partner,” which 98% of Southeast Asian opinion-formers believe it should be granted, according to the State of Southeast Asia survey for 2020, produced by the ISEAS-Yusof Ishak Institute in Singapore.
English remains the lingua franca of the region and Britain flexes other soft power, not least the attraction of its universities for Southeast Asian youths. It also has the sort of hard power in the region other European states lack. A regiment of Gurkhas has remained in Brunei since independence, while the Royal Navy also has access to bases in Singapore.
The Royal Navy sent five warships to the Indo-Pacific region between 2018 and 2020, with one conducting a freedom of navigation operation in the South China Sea in August 2018. In 2019, there were reports that Britain would attempt to develop a new naval base in the region, which most analysts believe could be in either Japan or Australia.
London has said it will send a flotilla of vessels to waters off Japan next year, led by the Royal Navy’s largest ever warship, HMS Queen Elizabeth. Britain signed its first major post-Brexit trade deal with Japan in October, seen by analysts as a stepping stone to joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Tokyo led efforts to get the 11-member CPTPP across the finish line in late 2018 after its predecessor agreement, the Trans-Pacific Partnership (TPP), languished after the US withdrew from it in 2016. The UK has said it will apply to join the CPTPP, which includes Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam, in early 2021.
By acceding to the CPTPP, which presently accounts for 13.5% of combined global gross domestic product, Britain would gain preferential trade terms with some of its key non-European trading partners without having to bilaterally negotiate several new agreements, an expedient deal for the UK as it strikes out on its own to build a post-Brexit world.