Brexit: How will it affect ASEAN?

Photo by threefishsleeping used under Creative Commons

By Dimitra Stefanidou

Over the past decade, the European Union (EU) and ASEAN have considerably boosted their cooperation on trade and investment. ASEAN is now the third largest trading partner of EU, after the United States and China. The EU is also the second largest trade partner of ASEAN, after China.

The value of bilateral goods and services traded between ASEAN and the EU reached the value of 238 billion euros (US$ 255 billion) in 2013. That same year EU’s investment into ASEAN reached 156 billion euros (US$ 173 billion).

ASEAN is an important market for Europe. ASEAN as a trading bloc has more than 600 million consumers. The ASEAN middle class is also growing.

In 2007, EU and ASEAN nations initiated FTA negotiations. Negotiations were suspended after two years as issue of human rights in Myanmar could not be resolved.

The EU later initiated bilateral FTA negotiations with Singapore and Malaysia in 2010, with Vietnam in June 2012, and with Thailand in March 2013. These FTAs were seen as threats to future regional framework. A common ASEAN market was the ultimate target. Bilateral negotiations risked the “spaghetti bowl effect” that could arise from overlapping FTA rules.

The EUSFTA (European Union-Singapore Free Trade Agreement) covers many important key area. Upon ratification, this would be the first FTA between EU and an ASEAN country, and the second between the EU and an Asian country, following that with South Korea.

The EUSFTA is expected to come into force around 2018 or 2019, pending the ratification procedures in the European Parliament.

Given this framework, the consequences of Brexit have been extensively discussed, ever since the possibility of the UK leaving the EU was brought to the foreground hen British Prime Minister David Cameron promised a referendum for British voters as part of his 2015 reelection bid. Now that 51.9% of Britons have voted for Leave, questions have now been raised about the future of trading relations between the UK and ASEAN.

Opinions on the impact of Brexit for ASEAN vary. Some believe Brexit will not have a significant impact on the ASEAN region. As Muhadi Sugiono, an expert on international relations at the Gadjah Mada University, said: “If Britons opt to leave the EU (Brexit), there will be significant changes within the supranational EU body, but the changes will not be immense enough to cast shadows over other regional entities like ASEAN”.

The reason is that the framework regulating the economic relationship between the EU and ASEAN already exists. Hence it cannot be influenced by the fact that UK is about to leave the EU. Additionally, the UK has acted autonomously in certain fields of trade, despite the fact that it has been one of the 28 members of the EU.

Additionally, and most importantly, the proponents of such a view suggest that the UK will be able to renegotiate, outside of the EU frame and rules, brand new agreements with ASEAN regarding trade and investments, that might be even more beneficial than the EU ones. This is because it would then be unhindered by the constraints and barriers, otherwise imposed by its erstwhile EU partners.

These new agreements could present both parties with more lucrative business deals. It is believed that it was one of the reasons why David Cameron visited Southeast Asia in August 2015, including Vietnam and the ASEAN Secretariat in Jakarta, in order to enhance the bonds between the two parties. He is one of the rare British prime ministers to do so.

On the other hand, it is without doubt that global economic markets will be vastly impacted by the UK’s impending departure from the EU. Already in the first eight hours after the UK referendum result of Brexit was announced, the UK businesses and assets were estimated to have lost $350 billion, a bigger amount than what they have contributed to the EU budget over the last 15 years – taking into account even the rebate given by the EU to Britain.

As most countries of ASEAN, and especially Indonesia, have the UK as one of their primary export destinations in Europe, any negative impact on the UK economy after Brexit will certainly influence the economy of ASEAN countries exporting to the UK as well.

The negative economic impact of Brexit on the UK will be in trade and investments, as global business and investors would be less eager to spend or park their money in the UK.

Consequently, it will spark a chain reaction, affecting investments in ASEAN region as well, due to the uncertainty about the economic situation in the UK. The UK has so far been a critical trading partner for ASEAN states, and a committed proponent of trade liberalization. Indicatively, in 2015 alone, trade with Indonesia alone reached $2.3 billion. This fact alone indicates the size of the interaction between the UK’s economic situation after Brexit, and its economic relationships with ASEAN.

Whatever the implications may be, it is still early day. The road ahead is still ambiguous at best for the UK and the world. According to Article 50 of the Lisbon Treaty, negotiations on the withdrawal of the UK from the EU can take up to two years, albeit with the possibility of an extension.

During this period of negotiation, any agreement must be approved by all of the remaining 27 EU member states, and may require ratification by their national parliaments.

The procedure to leave EU is complicated. This is also the first time since the formation of the EU that a member voted to leave the union. Some experts believe that it will take more than two years for the UK to officially leave the EU.

In the meantime, EU laws will continue to apply to the UK. How their EU counterparts decide to deal with them, in terms of their demeanour, is not something circumscribed in any EU law book.