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Finalising Brexit

After nine tumultuous months of debates and discussions following Britons’ votes to leave the European Union (EU), the official Brexit process is finally under way. On 29th March, Prime Minister Theresa May dispatched a letter to the EU to invoke Article 50 of the EU treaty, marking the point at which Britain’s withdrawal from the union became all but inevitable.

Article 50 comes with a two-year deadline however, but the EU has no incentive to make the separation easy or painless for Britain. With negotiating a full free-trade deal likely to take more than two years, the industry must make the necessary arrangements to meet upcoming challenges by the end of March 2019. Should we expect Brexit to cause a challenging time for Asia as well?

What it means for the region

Britain’s move to formally begin divorce proceedings with the EU is unlikely to have much of an impact on Singapore or the wider Asian region. Analysts believe the separation will unlikely cause a stir in stock markets, and the industry can only expect further slides in the British pound.

However, with Asia benefitting from the last thirty years of expanding trade flows, Brexit will provide few upsides for the region. The industry can expect the following changes:

Rise of protectionist voices Exporters and investors frequently call for greater free trade between the EU and the rest of the world. With more protectionist voices in and outside of EU however, that influence has diminished.

One less optimal trading option for Asia The UK’s attraction as a regional platform for many investors was based on its openness to non-EU investment, its physical and financial infrastructure, as well as unrestricted access to the wider EU market. Without the EU, the UK will face an uphill battle as it increasingly competes with European neighbours to lure Asian investment.

Uncertainty in trades Economies, such as Vietnam, that manufacture components for UK goods exported predominantly into the EU are exposed. Fortunately, the UK’s individual influence in Asia is marginal and Brexit is unlikely to have significant diplomatic ramifications in the region.

Future trade between UK and China is affected China is EU’s largest single trading partner. After Brexit, China will have huge leverage in any future trade talks with the UK itself. Views in China are split on the geopolitical impact of Brexit, but it is not a major concern.

Over 1,000 Japanese companies doing business in the UK will take a wait-and-see approach That uncertainty is likely to slow Japanese direct investment into the UK, at least, for the next few months. Automakers, like Nissan and Toyota, which are estimated to employ as many as 140,000 people directly or indirectly in the UK, are likely to be particularly affected. However, even if companies decide to divest from the UK, this would be a gradual process in most industries, certainly in manufacturing and heavy industry, and would also depend on new incentives from the government. The impact of Brexit uncertainty on global markets could harm Japan’s already shaky growth prospects in the next two years, for instance, by discouraging consumption.

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