Drafting of the UK’s Internal Market Bill set to trigger a No-Deal Brexit

Amid the domestic political turmoil that the UK has grappled with since the initiation of the Brexit process in 2016, and based on the approaching time constraint and the latest development whereby the UK government plans to introduce the drafting of the Internal Market Bill which would allow the UK government to act in contrary to an agreement that it had entered into with the EU, KResearch anticipates that this new trigger will further strain the already-fragile relationship between the UK and the EU; this would possibly result in the collapse of trade negotiations intended to replace the prior arrangements, which were supposed to be finalized within 2020 but ended up driving the UK down a path towards a no-deal Brexit on December 31, 2020.

Should a no-deal Brexit take effect on January 1, 2021, it will further increase the volatility of the Pound Sterling and thus affect the already fragile UK economy. Thailand may not be directly affected by this turn of events, but the UK does play an important role as one of Thailand's major export markets in Europe, with an export value of around USD4 billion, or 1.3% of Thailand's total exports to the global market. The fact that the UK economy is still on a slow recovery may eventually affect Thai exports in the future.

             ​The UK's withdrawal from the EU will prompt the country to set up its own customs system and tariff rates, from January 1, 2021, onwards. At the outset, the UK has announced that 60% of all imports will enter the country tariff-free (compared to 47% of all trade when the UK was still an EU member). Overall, the UK's tax restructuring scheme has relieved Thai exporters of their burdens to some extent. Among the multitude of Thai exports, 30% of Thailand's total exports to the UK still maintain the same tariff rates, including processed chicken, motorcycles, computers and parts, as well as circuit boards. While other products are given tax reductions, these items are generally ones with low export values, for example, products that have become tariff-free like pet food and signal transmission devices, and products that have lower tariffs like gems, jewelry and seasoning sauce. Among the areas that warrant a close watch are the uncertain relations between the UK, the EU and other countries, and trade policies that could potentially change towards the end of 2020. If Thailand is successful in negotiating an FTA agreement with the UK, it stands to gain the upper hand in terms of trade in the long run.