Nikkei | 2 March 2018

UK vies for post-Brexit Asia trade as EU lines up FTAs

by SIMON ROUGHNEEN

Even as the terms of its exit from the European Union remain undecided, the U.K. looks set to take on Brussels over access to Asian markets, with Indonesia’s growing economy set to be the first, and potentially crucial, battleground.

While Britain tries to lay the groundwork for future trade agreements, the bloc it is leaving has already brokered a number of deals across the region.

Last week, the EU and Indonesia held the fourth round of negotiations over a proposed free trade deal known as the Indonesia-European Union Comprehensive Economic Partnership Agreement.

As those discussions were taking place in Indonesian President Joko Widodo’s hometown of Solo in central Java, the U.K.’s Foreign and Commonwealth Office announced the appointment of Richard Michael as Britain’s official export finance representative in Indonesia.

"Indonesia has become the first country in the world to have a U.K. Export Finance country head to be based in-country," the statement read.

"It is a deliberate choice to put that first person here in Indonesia," said Moazzam Malik, the British ambassador in Jakarta. "We should see Indonesia as in the same bracket as India and China."

Since taking office in the wake of the U.K.’s June 2016 vote to leave the EU, British Prime Minister Theresa May has visited China, India and Japan, hoping to push British business interests in Asia’s three biggest economies.

Arguably her biggest success was a pledge from Japanese Prime Minister Shinzo Abe that Tokyo would work with London on a free-trade agreement that will replicate the EU-Japan deal agreed last year.

The U.K. cannot sign any bilateral free trade deals — as is the case for all 28 EU member-states — until it formally leaves the bloc, but it seems to be upping its economic diplomacy across Asia as part of its "Global Britain" public relations drive. As well as the export finance appointment in Jakarta, the U.K. has named new trade representatives to China and India, all since the start of the year.

Since the Brexit vote U.K. trade minister Liam Fox has been to India, Singapore, Vietnam, Malaysia, the Philippines, Indonesia, New Zealand, and Australia, as well as making two visits to China and Japan.

In recent years, the EU has agreed trade deals with some major Asian economies, including South Korea, Japan, Singapore and Vietnam, though some of these are awaiting signature or full implementation. Talks with China, India, Myanmar, the Philippines and Thailand, on the other hand, have stalled.

The EU-Indonesia negotiations will resume in Brussels later this year, with both sides hoping to conclude a deal by the end of the year. A European Commission spokesperson said the latest round "made progress"in several areas and "were held in a constructive spirit."

But disputes over Indonesia’s palm oil exports could undermine talks. Siwarma Dharma Negara, an Indonesian economist at the ISEAS-Yusof Ishak Institute, said "this will potentially have an adverse effect on the prospect of EU-Indonesia FTA."

All the same, even as the EU struggles in some Asian countries with its trade diplomacy, it is doubtful if the U.K. can jump to the front of the line in the region.

The U.K. rivals France as the second biggest EU economy after Germany and its departure will cut around $2.5 trillion off the bloc’s combined GDP of $17.1 trillion. But, even without the British, the EU’s total GDP will be around three times the size of Japan’s and the EU will remain a much bigger export market for Asia than the U.K. alone.

"If we exclude exports absorbed within the ASEAN+3 region [Association of Southeast Asian Nations, China including Hong Kong, Japan and South Korea], the EU absorbs about a quarter of ASEAN+3 exports with the U.K. alone absorbing about 4%," said Hoe Ee Khor, chief economist of the ASEAN+3 Macroeconomic Research Office.

Asian governments such as Japan have sought reassurances about an "orderly" Brexit. Some of the region’s big companies have their European headquarters in London, though some have moved to relocate those bases elsewhere in the EU.

However, compared with the EU — a multilayered continentwide bureaucracy — the U.K. may be able to offer less complicated trade arrangements to partner countries seeking fast implementation. "The U.K. has more flexibility to start new trade and investment negotiation after Brexit," said Siwage Dharma Negara.

For now, the British can chase major contracts around Asia, deals that could lay the foundations for free trade talks after Brexit, with an investment review with China taking place since May’s visit in January and the U.K. saying it wants to collaborate on China’s ambitions "Belt and Road" infrastructure-building initiative.