Britain and Asia Reviving Old Ties Amid Brexit Concerns

Germany has enthusiastically promoted trade ties between the European Union and Asian countries, but Britain is now trying to sign its own independent deals that will help it maintain international influence should it ever leave the E.U.
A throwback to colonial times: Raffles Hotel in Singapore.

Great Britain may have lost its empire, but it still has ties to Asia that other countries cannot replicate. Amid the current debate over Britain’s possible departure from the European Union, a so-called Brexit, it has been working at building on those ties in the region.

Last summer, just after he won the general election in part by promising to hold a referendum on Britain’s membership of the European Union, David Cameron flew into Southeast Asia, stopping in Singapore, Jakarta, Kuala Lumpur and Hanoi.

The British prime minister was in part building up support for E.U. free trade deals with countries in the area, but he was also very clearly in the business of signing bilateral agreements with the countries on a whole range of issues, from cyber security pacts with Singapore to commodities deals with Indonesia.

This approach runs the risk of leaving other European Union countries such as Germany out in the cold.

ASEAN, the Association of Southeast Asia Countries, the trading bloc that is meant to promote trade between 10 countries in the region including Singapore, Malaysia and Indonesia, is important to the European Union. The bloc is the E.U.'s third largest trading partner after the U.S. and China, with more than €235 billion ($262 billion) of trade in goods and services in 2013.

Germany in particular sees the region as an important market for chemical products, machinery and transport equipment.

But Chancellor Angela Merkel has made it clear she believes this partnership is best boosted through setting up a free trade agreement via the European Union.

Germany has seen its role in many ways as a broker between ASEAN and the E.U. It has focused on providing military training, promoting democracy, environmental issues and conflict resolution.

The U.K. does outwardly support ASEAN, but has already developed bilateral agreements with specific Asian countries through several forums including the U.K. Asian business council, and a Headstart program designed to support businesses seeking to export to Southeast Asia.

However, the United States has made it clear it prefers dealing with regional blocs, which is one of the reasons it wants to see Britain, a close ally, stay within the wider European Union.

And experts warn that going it alone is not always the best way forward.

Peter Mandelson, the British politician who was the European Union's Trade Commissioner from 2004 to 2008 told Handelsblatt Global Edition that the E.U. as a whole could negotiate "much better trade deals” for its members than countries could negotiate on their own, and during the time he was trade commissioner, it appeared that ASEAN countries felt the same. But after trying fruitlessly for years to strike a deal between the E.U. and ASEAN, talks were suspended in 2009. While the two sides agreed last April to explore resuming talks on the stalled Free Trade Agreement, little progress has been made so far.

Furthermore, ASEAN is a very different entity to the European Union: nowhere near as politically integrated. After the collapse of negotiations with the entire bloc, the E.U. has sought to strike free trade pacts with each country individually.

But this process is again slow, laborious and frustrating. The only substantial free trade pact the E.U. signed in Asia is with South Korea. But even that deal took three and a half years to conclude, a speed that Mr. Mandelson, who helped negotiate the deal for the E.U., described as “lightning speed” compared to many deals.

U.K. investors could jump out of euro assets for sterling. Continental investors might dump sterling assets for euros. Asian markets might sell both. Peter Mandelson, Former E.U. Trade Commissioner

In Southeast Asia, only one possible E.U. free trade pact, with Singapore, is anywhere near completion and even this has not yet been finalized.

In 2013, the existing stock of bilateral foreign direct investment between the E.U. and Singapore hit €140 billion ($156 billion), having expanded rapidly over the past years, but even this clear sign of demand for free trade pacts has not translated into a concrete deal.

Singaporeans have grown frustrated that the free trade pact it agreed with the European Union has been delayed in the quagmire of E.U. procedures.

 

Quelle: Getty Images
Peter Mandelson, former E.U. trade commissioner.

 

And elsewhere talks between the E.U. and Malaysia have been dragging on for six years, and talks with other countries have barely begun.

In this climate, countries that want to boost their ties with the West may well be tempted to look at countries that can operate bilaterally. And Britain is one of them.

“Britain has always been a very open country, with historic ties in the region so I don’t think anyone would have an objection to signing deals with it per se,” Fraser Howie, a Singapore-based investment banker and author of several books on Chinese finance, told Handelsblatt Global Edition.

Even on defense, Britain has ties with the region through loose agreements that are a throwback to its colonial days. The Five Power Defence Agreement, for example, in which Britain, Australia, New Zealand, Malaysia and Singapore promise to meet if either Malaysia or Singapore is attacked is still valid. The agreement, drawn up in 1971, as the British pulled troops out of Malaysia, could easily be dismissed as a historic quirk, but as recently as 2012, Britain reaffirmed its commitment to the network, and indeed uses it as a vehicle to promote anti-terror measures in the relevant countries.

But Britain should not assume that all will be plain sailing if it leaves the European Union.

“There would be no problem with Britain trying to do Free Trade Agreements with whoever it wants, but its biggest issue is going to be getting its new deals with Europe set up first,” said Mr. Howie.

The other big risk, for countries such as Singapore, is the potential market turbulence that could occur with a Brexit, mainly because no one knows what the consequences could be. And a possible Brexit would affect the current relationships that do exist between companies in Asia, who operate in Britain with the assumption that it gives them access to the rest of the E.U.

“U.K. investors could jump out of euro assets for sterling. Continental investors might dump sterling assets for euros. Asian markets might sell both,” said Mr. Mandelson, who was in Singapore to deliver a speech on the possible consequences of Brexit. “It would matter a lot for financial services businesses here in Singapore and elsewhere in Asia who depend on the passporting rights of London-based investment or insurance businesses to operate in the E.U., or who market into the U.K. on the basis of equivalence agreements with the E.U.”

 

Meera Selva is an editor for Handelsblatt Global Edition, based in Singapore. To contact her: [email protected]