ASEAN's European Trade Relations in the Wake of Brexit.

• Author: Allison-Reumann, Laura
• Position: ORIGINAL RESEARCH NOTES

The reaction within Southeast Asia from business and policy leaders to the United Kingdom's decision to exit the European Union has thus far been one of disappointment rather than panic. How Brexit will affect a possible EU-ASEAN free trade agreement, bilateral trade deals in the region, foreign direct investment flows between ASEAN and the U.K. and the EU, and the U.K.'s future trade arrangements remains uncertain. This article examines how the U.K.'s departure from the Union will affect ASEAN and its member states in terms of European trade, and its impact on the U.K.'s and the EU's trade relations with Southeast Asia. It is argued that ASEAN is far from being immune to the effects of Brexit on financial markets and trade configurations. However, given the diversity of trade and investment among the ASEAN member states, aggregated regional effects and member-state effects will differ. The findings also suggest that there will be political and security considerations for ASEAN and its member states whilst the U.K. tries to establish itself as an independent trade actor post Brexit.

Keywords: European Union, ASEAN, Brexit, trade, regionalism.

Article received: May 2018; revised: November 2018; accepted: November 2018

1. Introduction

   For the Association of Southeast Asian Nations (ASEAN), the impending exit of the United Kingdom (U.K.) from the European Union (EU) is one among many factors that will affect ASEAN trade in coming years. While it can be argued that a slowdown of growth in China, and the United States' withdrawal from free and open trade agreements will affect the region potentially more than the U.K.'s exit, ASEAN and its member states would be remiss not to consider the consequences of Brexit seriously.

   Leading up to the referendum held in the U.K. on 23 June 2016, Asian countries including China and India expressed the view that they would prefer the U.K. to remain in the EU. Likewise, Japan's Ministry of Foreign Affairs was quick to send the U.K. a statement outlining their concerns and requests due to the large amount of Japanese investment, especially from car manufacturers, in the U.K. (Japanese Ministry of Foreign Affairs 2016).

   In Southeast Asia, the overwhelming reaction to Brexit, after an initial shock, has been one of disappointment. ASEAN officials are rarely mentioning Brexit in meetings with the EU, and are preferring to pragmatically wait until U.K.-EU Brexit negotiations are completed before concerning themselves with U.K. trade decisions (Tempest 2016). Until then, ASEAN-EU trade relations are the priority. Before the referendum on U.K. membership, then British Prime Minister David Cameron warned "country after country have said to me that of course they could sign trade deals with Britain, but they also said that their priority would be trade deals with the EU ... and a deal with Britain would not be possible until we'd settled our position outside the EU" (Cameron 2016). The ASEAN-EU Ministerial Meeting in Bangkok in October 2016, the first held after the Brexit vote, did not pay a lot of attention to the Brexit result, with no mention of it in the Bangkok Declaration on Promoting an "ASEAN-EU Global Partnership for Shared Strategic Goals" released at the end of the meeting (Tempest 2016).

   There are also non-economic implications of the Brexit vote in ASEAN and Asia, which may ultimately influence trade and investment decisions. In Singapore, for example, the Brexit referendum has been described as a case of "bad democracy" where political leaders abandoned their responsibilities, damaging the U.K.'s reputation as a secure investment destination (Cook 2017). In China, there was talk of "democrazy", and bewilderment that such a decision was made via referendum (EU-Asia Centre 2017). More broadly, it put into doubt the future of regional integration in Europe, raising questions of whether other member states would follow the lead of the U.K. in the context of populist parties supporting an anti-EU position.

   In an interview in 2017, former Secretary-General of ASEAN, Surin Pitsuwan, expressed his feeling of being let down by Brexit as the EU is considered a source of inspiration for ASEAN (Friends of Europe 2017). There is little fear in ASEAN, however, that a similar event would occur in the Association. Commentators have opined that, for better or worse, ASEAN would not place such a decision in the hands of the people in the form of a referendum (Chalermpalanupap 2016) and an exit of an ASEAN member would be unlikely. Furthermore, ASEAN's institutional and cooperative norms continue to differ significantly from the EU. However, similar to EU member states, ASEAN members also grapple with tensions between national and regional interests and priorities and, as such, Brexit shows that regional organizations cannot be complacent in how they engage their citizenry (Hoang et al. 2016).

   This article analyses ASEAN's European trade and investment realities in the context of Brexit. It argues that the stakes are the highest for the U.K., as it must reengage not only Southeast Asia, but also the world, as an independent trade actor, and at the same time ensure that it maintains political and security clout in the region.

   The article is structured as follows. The next section includes a discussion of the U.K.'s trade relations and assesses the extent to which its economy is exposed to EU or non-EU trade relations. The third section then discusses the economic priorities of ASEAN and the U.K. The final section concludes by exploring how arguments for reliance on historical, traditional and value-oriented relationships interact with economic and financial imperatives and realities.

2. The U.K.'s Trade Relations: Is Brexit Positive or Negative for the U.K.?

   Arguments for positive trade effects of Brexit on U.K.-ASEAN trade relations, and U.K. trade relations more generally, have been offered. These have mainly followed the line of argument that, outside of the EU, the U.K. will be freed from EU regulations and conditions that will allow the U.K. to establish trade relationships on its own terms (Marks 2016). It is true that an EU-ASEAN Free Trade Agreement (FTA) has had a rocky path thus far, with negotiations beginning in 2007, only to be stalled in 2009. Britain was set to gain an estimated US$4 billion per year from the EU-ASEAN FTA and was a strong supporter of this interregional agreement (Basu Das 2016). The EU and ASEAN in 2016, however, agreed to reopen negotiations. In Asia, the EU has an FTA with South Korea, and an Economic Partnership Agreement with Japan. It has completed negotiations on an FTA with Singapore, and an agreement with Vietnam is yet to come into force. Talks with Thailand are stalled until there is a return to democracy, and negotiations are on hold with Malaysia. With Myanmar, the EU is negotiating an investment protection agreement. Dialogues are ongoing with Indonesia and the Philippines, which are far less trade dependent than Singapore and Vietnam (Indonesia and the Philippines have trade-to-GDP ratios of 42 per cent and 63 per cent respectively, compared to 326 per cent and 179 per cent for Singapore and Vietnam, respectively), making negotiations potentially much more drawn out (BDO 2017).

   Yet, the argument that the U.K. will find it easier to finalize trade deals in and with ASEAN once it leaves the EU may not be as easy as hoped. Firstly, the task facing the U.K. is by no means small. The U.K. is currently part of EU trade deals which cover more than fifty countries. In 2015, 13 per cent of U.K. trade was with countries that the EU has FTAs with. Combining this with the U.K.'s EU trade (see Figures 1 and 2) means that 60 per cent of the U.K.'s trade will be immethately and directly affected by Brexit (Fraser 2017).

   Figure 1 shows that the U.K.'s exports to non-EU countries have grown steadily, and currently account for 56 per cent of total U.K. trade (U.K. ONS 2016). Between 2009 and 2011, the value of exports to countries outside of the EU was marginally greater than the value of exports to EU countries. After 2011, the shares began to diverge more substantially.

   As Figure 2 shows, in 2015, 53 per cent of U.K. imports came from the EU. U.K. exports to the EU rose by 68 per cent between 1999 and 2015, while imports grew by 101 per cent (U.K. ONS 2016).

   For the U.K., there is no easy choice between trade priorities with the EU and the rest of the world --it arguably has no choice but to pursue and maintain both. However, as the U.K. cannot negotiate trade deals until it has finalized negotiations with the Union, the majority of its trade will be in a state of uncertainty for some time. U.K. exports...