On May 23, Britons will go to the polls, together with the citizens of the other 27 member states of the European Union (EU), to elect their new representatives to the European Parliament. That this is happening at all is due to the extraordinary domestic politics that have surrounded the entire Brexit debate in the United Kingdom (UK) since the referendum in June 2016, in which the electorate voted by a narrow majority in favor of leaving the EU. After Prime Minister Theresa May duly invoked Article 50 of the Lisbon Treaty in March 2017, the country was due to have withdrawn from the EU by the end of March of this year. Although Mrs. May’s officials agreed on the terms of a withdrawal agreement with the EU, this has now been rejected three times by the UK Parliament, including members of her own governing party. Until and unless the Parliament approves the agreement, the nature of the country’s future relationship with the EU—and by extension with the rest of the world—remains far from clear.
If policy was decided by rhetoric alone, then the UK would already have seen its relationship with its EU neighbors overshadowed by burgeoning ties with the rest of the world, East Asia included. In a speech to the World Economic Forum in Davos in January 2018, Mrs. May said that outside the EU, the UK would “continue to be a global advocate of free trade […] developing new bilateral deals with countries across the world,” while last November, the Minister of State in the Foreign Office Mark Field announced that “as the UK leaves the European Union, we are determined to […] forge a new, dynamic, and ambitious partnership with ASEAN.”
Taiwan’s hope that such statements might at least mean more favorable bilateral trading arrangements with the UK, if not stronger political links, took a knock in January this year, when its representative at the World Trade Organization (WTO) in Geneva raised objections to the UK’s proposed new services schedule within the WTO. At present, as a member of the EU, all UK’s trade negotiations are handled on its behalf by the European Commission. If it leaves the EU, the UK will have to negotiate its own new arrangements, or schedules, with other WTO members. The proposal was part of a plan to do just that, initially by simply replicating current EU schedules on a national basis: a purely “technical exercise” in the words of UK Trade Secretary Liam Fox. Taiwan disagreed, claiming that in the areas of financial services and aircraft leasing and rental, the new schedule would reduce Taiwan’s current levels of market access.
While the disagreement may appear trivial, it is nonetheless indicative of the wider issues surrounding Brexit, in which the British government appears consistently unable to distinguish between its own rhetoric and political reality as it seeks to negotiate a new future for the country outside the EU.
This is especially so in the case of countries in East Asia, whose governments for the most part appear to have reached altogether less rosy views about the impact of Brexit on bilateral relations than the almost hubristic optimism displayed by members of the British government. China, for example, has never hidden its views about the importance of the UK remaining in the EU for Beijing. Two days after the referendum in 2016, a scathing editorial in the Chinese Communist Party-owned Global Times, under the heading Britain steps backward as EU faces decline, described the outcome as a “lose-lose” situation for the UK and the EU. More recently, China’s ambassador to the EU warned in April last year that “If there is not a Brexit deal, there won’t be things to talk about after that [in UK-China relations].”
Despite this frustration, the negative impact of Brexit on China would be small and certainly less damaging than that of other countries in East Asia. Unlike Korea and Japan, China does not have a free trade agreement (FTA) with the EU, so its trade with the UK should not be directly affected by Brexit, whatever final deal may or may not be reached between the EU and UK. And while Chinese investment into the UK has been growing rapidly in recent years, with €23 billion (around $25 billion USD) of inward investment in 2016 alone, it has been primarily into infrastructures such as the Hinkley Point nuclear power station and Heathrow airport, or into real estate—areas which will be among those least affected by Brexit.
A better indicator for Taiwan of the likely impact of Brexit therefore might be in its impact on the UK’s relations with Japan which, by contrast with China, is likely to lose the most from Brexit within East Asia, especially if a favorable new trading arrangement between the UK and EU is not reached. Japanese companies have been major investors in the UK’s manufacturing sector, especially its auto and more recently its railway industries. They will face difficult choices about whether to remain in the UK, especially if their European supply chains are disrupted. Another remarkable aspect of the entire Brexit debate in the UK is that the importance of foreign investment into the UK, especially from Japan, which has created hundreds of thousands of jobs in the manufacturing sector, barely featured. Yet, it has been primarily a consequence of the UK’s membership in the EU single market. Outside the EU, UK-based companies would no longer have automatic unrestricted access to the single market: a seemingly obvious position, but one which Japanese prime minister Shinzo Abe felt compelled to point out in a letter to Mrs. May not long after the referendum.
Since then, Abe has arguably done more than any other head of government worldwide both to support the UK in its post-Brexit global trade vision and also to persuade London of the importance of an orderly Brexit. In August 2017, after Japan and the EU had reached an agreement in principle on a new FTA, Abe agreed with Mrs. May that this could be replicated in a bilateral “cut and paste” agreement with the UK after Brexit, an important boost for her policy. Abe has also publicly supported the unusual proposal advanced by the UK that the UK could seek to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade agreement.
Abe’s position is driven by his desire to try to maintain a stable business environment for Japanese companies based in the UK, something which should also be a priority for the British government. But the UK’s negotiations with the Japanese government appear to have demonstrated a remarkable lack of understanding and ability to ensure stability, leaving Japanese officials frustrated and irritated. While this might seem relatively trivial, it highlights the real problem the UK faces as it seeks to negotiate new agreements with the rest of the world after Brexit. The uncomfortable reality that the UK must face is that despite being one of the world’s largest economies, it is also one of the least experienced in trade negotiations. For the last forty years or more, all of UK’s trade negotiations have been handled on its behalf by the European Commission and the UK lacks not only its own skilled negotiators but also experience with the nuances and cultural factors that can be so important in such negotiations.
This is the reality that Taiwanese policymakers, like their Japanese counterparts, must consider. Although some Taiwanese hope that outside the EU, the UK might prove to be a strong ally, they appear to be basing their hopes largely on the willingness of British politicians to voice their support for the country, especially in the European Parliament. Their hopes may also be based on the previously mentioned strong negative reaction from China and the assumption that Taiwan therefore stands to gain if China were to lose. But with bigger trading partners than Taiwan to consider, the UK will have to prioritize ruthlessly in its post-Brexit trade negotiations. Its lack of progress to date in reaching any significant agreements suggests that it may struggle to do so.
This does not mean that Taiwan should ignore the UK after Brexit, since London will remain a major trading partner even outside the EU. But lacking both the experience and weight of the European Commission, not to mention the much smaller size of its market compared to that of the rest of the EU, the UK will lack the leverage the EU commands in negotiations. This will create opportunities for Taiwan, not in broad-ranging agreements to which the UK will be unwilling to devote the resources needed, but in specific areas. Taiwan should therefore identify the areas of most importance to it in its trade with the UK and use its own leverage to focus on negotiating sectoral agreements. These may be in financial services or aircraft leasing, for example, or perhaps in product labeling, agricultural standards, and other areas. Approaching this on a step by step basis, over time Taiwan may be able to build broader agreements to its own benefit.
The main point: The UK needs to determine its priorities and objectives in its post-Brexit trade with the rest of the world, and focus on them ruthlessly if it is to achieve them. This means that Brexit may offer only limited opportunities for Taiwan.