8 months ago

Diplomatic World_nummer 56.


IS CHINA’S TRADE THE UK’S SOLUTION FOR BREXIT? 102 The UK gave its official notification to leave the European Union on March 29 2017, invoking article 50 of the TEU. When the UK first announced Brexit, it was stated that Britain would restore its self-determination and be free to establish its own trade agreements. However, for nearly a year, no measure was taken to that effect. Discussions for new agreements have started to take place only recently, when Theresa May made her first official visit to China after the Brexit referendum at the end of January 2018. 1 The new situation generated by Brexit creates the possibility of a hit to UK-EU trade, making it crucial for Britain to seek new overseas markets, and China offers a prospect of major business relations and opportunities. In the past few years, China has been actively expanding its economic horizons and has been investing in several infrastructure projects worldwide, revealing itself to be a very interesting trade partner for the UK. 2 UK-China’s trade is already significant and the British industry is based not only on the export of a myriad of different products to China, but also on Chinese imports, which account for the UK’s third largest source of imports. 3 The country with the largest population and a consumer market that is growing exponentially clearly represents an opening for Britain after the EU. In this perspective, the prime minister of the UK declared on her way to meet Xi Jinping that the UK is free to strike their own trade deals, revealing an attempt by the country to develop an Anglo-Chinese trade after Brexit. 4 May used her predecessor David Cameron’s words, stating that the trip would expand the “Golden Era” between the countries. 5 It was announced that in the three day visit a series of trade agreements were made, representing a total amount of over £9.3 billion that can potentially create more than 2.500 jobs in the UK. In addition, the Chinese government agreed to end in the coming six months its ban on UK beef, which has lasted for over 20 years. Consequently, UK dairy producers and firms will be able to penetrate the Chinese market. 6 The trade between China and the UK is currently worth over £59 billion per year. 7 As of yet, however, it is not clear how the new trading relationship between the governments will proceed. The IMF predicts that China’s import market will be higher than US$3.6 trillion by 2020, and China’s investors in 2017 increased their capital in Britain to a total amount of $20.8 million. 8 The advantages the UK could gain by getting closer to China are clear, but the advantages for China could be questioned. China’s interest in the UK can be associated with the opportunity to get closer to the EU, considering London has been one of the gateways to the EU market. 9 However, now that Britain would be separated from the EU’s 500 million consumers, it may not be the same promising trade-partner to China as it used to be. It is to be seen how the UK economy will react to Brexit, but the temporary political instability could be used to China’s advantage to reach a successful commercial agreement. 10 The UK can be interesting to China to support projects to which Brussels has shown reluctance, thus becoming the partner that China seeks in Europe. 11 The Belt and Road Initiative (BRI) could be seen as China’s most ambitious foreign project, being a major infrastructure strategy with the purpose of promoting connectivity and co-operation between Asia, the Middle-East and Europe, encouraging new trades and potentially accounting for 35% of world trade. Nevertheless, the EU has as yet no uninform view on BRI 12 ; while there are some countries, especially in southern Europe, such as Greece, Spain and Portugal, that support BRI, other countries, such as the Nordic states, have not shown much interest thus far. 13 The lack of a unitary position within the EU has created internal divisions which are already impacting policies and decisions in Brussels. 14

Since the EU has not yet achieved a resolution, the UK can use this opportunity to get closer to China and support the initiative. During Theresa May’s recent visit, president Xi Jinping presented the prime minister with a memorandum to allowing the UK to declare its support for BRI. However, May has not yet embraced the opportunity for Britain to become the first western country to formally encourage the initiative. 15 The UK’s resistance can be understood: the project is not yet detailed, with unclear standards that still have to be defined. 16 In addition, EU-UK negotiations to define their trade relationship following Brexit are ongoing. There are three possible scenarios that could shape China’s interest in the UK: (i) an EEA membership for the UK; (ii) a relation governed only by the WTO rules; or (iii) a tailor-made agreement. 17 The uncertainties in the UK’s future prejudice its position in any potential new trade until it comes to an agreement with the EU. China may question whether expanding its trade to the UK now would be beneficial. Indeed, China may not want to jeopardize its future relations with the EU. 18 China is currently interested in reaching a bilateral agreement with the EU and if the UK establishes a limited trade agreement with the EU, it could create a different block of trading partners for China. On the one hand, if there is still a relatively open market with the EU, China could have access to the entirety of Europe. On the other hand, if the UK distances its trade from the EU with the Brexit agreement, it could face difficulties in finding new trade partners. China’s market and partnership can be the solution for the UK after the EU. The outcome of the UK-China relations may depend on the evolution of the UK-EU relations. While it is likely that a trade agreement with China could be positive for Britain, the next steps in Brexit will define whether it could also be interesting for China. For questions, feel free to send an email to Flávia Miari Cançado, Intern at Billiet & Co Lawyers. 1 Chris Buckley and Stephen Castle, “As Theresa May Pursues Deals in China, Her Own Troubles Follow”, (2018) See in 2 BBC, “5 Ambiciosos Projetos de Infraestrutura com os quais a China quer sacudir a Ordem Econômica Mundial” (2017), in English “5 Ambitious Projects with which China wants to shake the World Economic Order”. See in internacional-39976899. 3 Jake Liddle, “China-UK Trade: The Effects of Brexit”, (2017) See in 4 BBC, “Theresa May hails ‘first step’ to trade deal after Xi Jinping talks”, (2018) See in 5 Chris Buckley and Stephen Castle, “As Theresa May Pursues Deals in China, Her Own Troubles Follow”, (2018) See in 6 Oscar Rousseau, “China to end decades-old UK beef ban in six months”, (2018) See in 7 China Briefing, “May Leaves China with Trade Deals amid Brexit Uncertainty”, 2018 See in 8 Chris Buckley and Stephen Castle, “As Theresa May Pursues Deals in China, Her Own Troubles Follow”, (2018) See in 9 Andrew Parmley, “London is the gateway to the world for the EU business”, (2017) See in 10 Alex Gray, World Economic Forum, “The world biggest economies in 2017”, (2017) See in 11 Jake Liddle, “China-UK Trade: The Effects of Brexit”, (2017) See in 12 Belt and Road official website, short infographic video number 1. See in 13 Mercy Kuo, “Belt and road initiative: EU strategic interests in Asia, insights from Richard Ghiasy”, (2017) See in 14 F. William Engdahl, “Will China’s Belt and Road (BRI) Trigger and East-West Rupture Within the EU?”, (2018). See in 15 China Briefing, “May Leaves China with Trade Deals amid Brexit Uncertainty”, 2018 See in 16 China Briefing, “The Beijing Belt-Road Forum: What we learned About China’s Intention”, (2017) See in 17 European Parliament, Directorate-General for Internal Policies, “Consequences of Brexit in the Area of Consumer Protection”, (2017) See in STUD/2017/602055/IPOL_STU(2017)602055_EN.pdf 18 Ralph Jennings, “All Eyes Are On Theresa May To Sell A Doubtful China, Belt And Road On Post-Brexit UK”, (2018) See in chinas-economic-expansion-hits-a-roadblock-at-the-far-end-ofeurope/#47a53696c6e1- 103