Opportunities for Thailand in a post-Brexit world

After more than three and a half years of negotiation, the United Kingdom has finally left the European Union. The United Kingdom and the EU will now enter an 11-month transition period during which careful negotiations and transitional metaphors will be the order of the day.

For those in Asia, Brexit presents both problems and opportunities as the Johnson government seeks to reevaluate and eventually renegotiate its standing independently of Brussels.

Remaining Uncertainty

Tim Leelahaphan, an economist at Standard Chartered said that despite the official exit, there is still uncertainty surrounding the 11-month transition period.

It remains to be seen whether 11 months will be enough time for the multitude of negotiations and trade deals that both sides must get right to ensure a smooth transition.   

“What [both sides] want is a free trade agreement (FTA) between the UK and the EU and it has to be a deep one,” he told Thai Enquirer.

The International Monetary Fund (IMF) said in January that the global economy could expand by 3.3 per cent in 2020, compared to 2.9 per cent in 2019, if there were no further escalations in the US-China trade war and a no-deal Brexit was averted.

Tim said there is not much to worry about at home as relationships between Thailand and the UK remain minimal.

“Thailand has low exposure to the UK economy as the country is not one of Thailand’s major trading partners,” he said.

Thailand’s exports to the UK account for only 2 per cent of total trade in 2019 while the UK’s foreign divestment to Thailand only accounts for 1 per cent of all FDI.

Somchai Pakapaswiwat, an economist and independent analyst, told Thai Enquirer that a no-deal Brexit could have a spillover effect.

“The overall trade of the two economies could decrease from an increase in tariffs,” he said, but this scenario is “less likely” than the possibility of an FTA between the two parties.

More Opportunity

While trade with Thailand is not significant, a post-Brexit UK will likely be a much more dynamic trading partner and present an opportunity for investment from Thai companies.

PwC’s poll of 1,600 chief executives worldwide shows that the UK is the fourth most sought after target, after the US, China, and Germany, for companies looking for new markets. The UK should be more stable than other countries affected by the US-China trade war.  

According to the European Union’s statistics office Eurostat, the economic growth of the bloc expanded by only 1 per cent last year. Quarter to quarter growth has also expanded by only 0.1 per cent between October and December, down 0.3 per cent from the previous quarter. The EU’s economic performance in 2019 was its weakest since 2013.

Thailand should be able to capitalize on the situation as the Prayut government is looking for new markets following the slowdown in global demand and the US cancellation of its Generalised System of Preferences for Thailand.

Pimchanok Vonkorpon, Director-General of the Ministry of Commerce’s Office of Trade Policy and Strategy Office (TPSO), said Monday that the government will go on a roadshow to promote Thai products and services in the UK among other countries.

Free trade agreements looming

Boris Johnson said on Monday that there is “no need” for his country to follow the EU’s trade rules. Johnson was referring to continued discussions between the UK and the EU on a possible trade deal but his statement has wider implications.

Johnson has repeatedly said on the Brexit campaign trail that European Union rules stopped the UK from negotiating more favorable trade deals with nations around the world.

Thailand should be able to capitalize.

“The acceleration of FTA negotiations to reduce both tariff and non-tariff barriers in targeted markets is one of the important aspects that will propel our exports in the future, Pimchanok said.

The Foreign Trade Department reported on January 3 that the use of privileges under FTAs and GSP by Thai exporters totaled US$65.6 billion in the first 11 months of 2019.

Of that number, FTA privileges accounted for US$60.8 billion, down 5.5 per cent year-on-year from the same period in 2018. The top five export markets with the highest use of FTA privileges were ASEAN members, China, Australia, Japan, and India.

Somchai said that both ASEAN and Thailand could see a free trade agreement with the UK before long and FTA negotiations between the EU and Thailand are also in the pipeline. 

According to Somchai, negotiations with the European Union have restarted after it was paused due to a military coup.

Somchai said that the negotiations could take another two years as Thailand would have to consider all the EU standards that the country will have to adhere to should an agreement take place.

According to Tim, no one knows what is going to happen after the transition period as there are uncertainties along the way, but Thailand and other countries could benefit if the UK trade agreement with the EU is limited in scope. This is because the UK would be more inclined to reduce with other countries to bolster the trade it would lose from the EU.

“Some of the products that could benefit from a Thailand-UK FTA are sweet corn and chicken from Thailand to the UK or alcohol products such as Scotch whisky from the UK to Thailand,” he said.

Tim added that the Thai government should start considering the country’s advantages and identify which goods and services to offer to the EU and the UK if the country wants to be ahead of the pack on economic deals.  

Stanley Kang, Chairman of the Joint Foreign Chambers of Commerce in Thailand told Thai Enquirer he is still hopeful for the FTA deal between Thailand and the EU. The UK-Thailand FTA could also be another option for the Thai economy, he added.

“Free trade between Thailand-EU and Thailand-UK will both benefit Thailand, and aviation will be one of the industries to focus on and we hope to see a dialogue between Thailand and the EU soon,” he said. “At the same time, once the UK is out of the EU, with the long history of Thailand and the UK, they should prepare…dialogue and discussion.” 

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