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China could see no-deal Brexit windfall

April 10, 2019

A no-deal Brexit would hit the EU and developing countries, but bring big gains for China and the US, a new report says. Unwinding economic integration is not only complex, but doing so is a bad idea, its author says.

https://p.dw.com/p/3GXSs
Chinese President Xi Jinping shakes hands with British Prime Minister Theresa May
Image: Reuters/W. Hong

New UNCTAD research shows that the UK and its future trading partners need to think fast about signing new bilateral deals if they are to avoid the costs of the UK exiting the EU without a deal.

The UK market accounts for about 3.5% of global trade. In 2018, the UK was the fifth-largest importer inside the EU, letting in almost $680 billion (€600 billion) worth of goods from the rest of the world, about $360 billion of which came from other EU countries.

Read moreEU's Tusk argues for longer Brexit extension

"Brexit is not only a regional affair. Once the UK has left its 27 EU partners behind, it will alter the ability of non-EU countries to export to the UK market," said UNCTAD's director of international trade and commodities, Pamela Coke-Hamilton. 

Winners

The biggest beneficiaries of a no-deal Brexit would be countries which now face higher tariffs, the report found.

China could gain an additional $10.2 billion in exports to the UK, with the second-ranked US adding $5.3 billion to its exports to the UK. Japan could expect to gain $4.9 billion, the report found.

A no-deal Brexit would also result in increased imports from Thailand, South Africa, India, Brazil, Russia, Vietnam and New Zealand, among others, it went on.

"The UK's intention to lower most-favored-nations tariffs would increase relative competitiveness of major exporting countries, such as China or the US, thereby eroding market share away from less competitive countries," Coke-Hamilton said.

Losers

The UNCTAD research estimated that the biggest losses would be for EU countries, as they were the most economically integrated with the UK.

The EU stood to lose out on $34.5 billion in exports to the UK, the research found. The second-biggest loser in the event of a no-deal departure would be Turkey, taking a $2.4 billion export hit.

The research also cites South Korea, Pakistan, Norway, Iceland, Cambodia and Switzerland as those at risk.

Smaller economies with a relatively higher level of exports to the UK market would also suffer, it said.

Infografik Brexit Exporte nach Großbritannien DE

Developing countries hit hard

"A no-deal Brexit would have immediate repercussions for many developing countries' exports," the UNCTAD research found.

"Raising the possibility of significant disruption and economic harm for developing countries whose exports are highly reliant on the UK market and/or are current beneficiaries of EU preferences."

"In these circumstances, the best response from developing countries is to accelerate negotiations to replace agreements, especially on hot issues that go beyond tariffs, including rules of origin, non-tariff measures or quotas," Coke-Hamilton said.

Garton Ash: Brexit worse for EU

Time's running out

The EU currently has about 70 trade agreements, but these are often not easy to replicate, and negotiations take time.

"In many cases UK-third countries agreements, or continuity agreements, have not been signed, and there is substantial uncertainty as to whether many of these agreements will be concluded any time soon," Coke-Hamilton said.

As of March 2019, only 26 continuity agreements had been sealed between the UK and trading partners.

Read more:  Should non-EU citizens be worried about a hard Brexit?

In a no-deal Brexit scenario, EU preferential trade agreements with third countries will just cease to apply, and imports to the UK could end up taking place on most-favored-nation (MFN) terms, a World Trade Organization (WTO) principle that the same tariffs must apply to any trading partner, unless there is an exception set out in an actual trade agreement.

Coke-Hamilton added this situation was a reminder to all that "unwinding economic integration is not only complex, but that doing so altogether is a bad idea."

Head shot of a man (Jo Harper) with grey hair and brown eyes
Jo Harper Journalist and author specializing in Poland