Each week, Asia House Advisory’s COVID-19 monitoring service examines the impact of economic measures taken by individual governments across Asia and the Middle East, and the trends emerging across these regions. This week, we look at the UK’s engagement with Asia and how COVID-19 could shape it.
The UK’s ‘All of Asia’ strategy
Asia is a key market in the UK’s post-Brexit trade strategy – as highlighted by the country’s re-focusing towards the Asia Pacific region in the last two years. Foreign Secretary Dominic Raab made his first overseas trip in post in 2019 to Bangkok for an ASEAN Ministerial meeting. Asia already accounts for about a fifth of Britain’s annual trade – UK-ASEAN trade alone was worth £36.5 billion in 2017 – and thus will be a key part of the UK’s post-Brexit trade strategy.
However, the COVID-19 pandemic has led to concerns around supply chain resilience and reliance on particular markets, while the economic challenges presented by the crisis could make the UK’s pursuit of trade agreements in the region ever more pressing.
A pragmatic approach to trade – deal-based, bilateral, and multilateral
Post-Brexit, the UK will focus on strengthening ties with the Asia Pacific, both to support economic growth – Asia will account for 50 per cent of global GDP by 2040 and 40 per cent of global consumption – and to mitigate other risks, such as trade tensions with the US and EU. It is therefore taking a pragmatic approach to securing wins.
The UK has announced its intention to ascend to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It is also simultaneously pursuing bilateral agreements that may deliver swifter results – the UK has secured 19 ‘roll-over’ agreements from EU trade deals covering 40 countries and £100 billion in trade, though this only represents just over eight per cent of total UK trade.
The launching of trade negotiations with Japan, Australia, and New Zealand this year reflects the high level of interest in securing key trading relationships in the next few years, and COVID-19 has put additional emphasis on having access to diverse and flexible supply chains.
Although there is some political impetus behind the headline-grabbing trade negotiations, the UK will also be looking at market access, which can also produce deal-based ‘quick wins’. Examples of these include the £50 million deal negotiated between the UK and Taiwan last year on pork exports, and the lifting of a two-decade long ban in China on UK beef exports – the impacts of which are felt more swiftly and win quick public approval. Trade reviews have been launched with Thailand and Indonesia, with the Philippines, Malaysia, and Taiwan likely to follow.
COVID-19 could accelerate the UK’s engagement with Asia
There are indications that the COVID-19 crisis could see the UK accelerate these efforts, in part as an attempt to push back on protectionism arising from the pandemic. In April, UK Secretary of State for International Trade Liz Truss co-authored a comment piece with trade ministers from Australia, New Zealand and Singapore in which they resolved ‘to lead the world in restoring and deepening global trade.’
The China question
Economic relations between the UK and China have traditionally been fairly positive, especially during the ‘Golden Era’ of UK-China relations under David Cameron and George Osborne. However, the geopolitical environment has changed and tensions are increasing, especially with pressure from the US.
The UK has focused on continuing to build ties in key sectors such as financial services, through initiatives such as the London-Shanghai Stock Connect and a fintech bridge between the two countries. However, uptake has not been as strong as hoped – with the London-Shanghai Stock Connect used only twice since its launch last year.
Though trade ties with China will only become more important, a formal agreement would be highly challenging for the UK. The UK will likely be further down the list of priorities for China as well. China has historically signed free trade agreements with countries that have products – goods rather than services, such as minerals and specialist machinery – that it needs to import.
Challenges on the horizon
In re-focusing its approach to trade for a post-Brexit world, the UK will face two further challenges – a squeeze on trade negotiation capacity, and the need to balance political and economic goals.
The UK has not had to conduct and run its own trade negotiations for decades while it was part of the EU, hence the intensive capacity building seen since 2016 in the UK’s trade negotiation teams. The ‘import’ of New Zealander Crawford Falconer as the UK’s Chief Trade Negotiation Adviser is indicative of the lack of an existing large pool of capacity and experience in trade negotiation, and thus will take time to build up.
Furthermore, with Brexit, and now COVID-19, the UK is under pressure to gain some quick political wins and boost economic growth. It will have to balance the need to prove the UK can ‘go it alone’ with securing quality agreements that support trade and the economy in the longer term.
These insights are produced by Asia House Advisory’s COVID-19 monitoring service.
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