Display mode (Doesn't show in master page preview)

28 Dec 2020

International Economy

Brexit deal: Historic agreement that eases economic tensions amid COVID-19 pandemic (Current Issue No.3176)


​Four years have passed since the United Kingdom held a referendum in which the majority voted to withdraw from the European Union (EU), on June 23, 2016. The UK and the EU have finally concluded their negotiations over the Brexit deal prior to the end of the transition period on December 31, 2020. Going forward, the focus will be on ratification of the deal by the British Parliament for the agreement to enter into force, but in the meantime, it is expected to take effect at certain levels from January 1, 2021, onwards.

The key takeaway from this agreement upon conclusion of Brexit is that the UK will cease to be part of the EU's Common Market, but will leave its free trade relations intact, with both parties set to enjoy zero import tariffs and zero import quotas. KResearch views that the resolution of this trade deal helps to somewhat ease business and economic tensions within the UK in 2021, since the UK still relies heavily on imports from the EU. Meanwhile, its withdrawal from the EU will likely rule out any chance of accelerated economic growth, or for any substantial changes over the forthcoming period. Although the UK will be able to carry out its economic policies more independently, its withdrawal from the EU will cause the UK to lose its status as a service and production hub and regional financial centers – key strengths that have driven its economy forward

          Thus, KResearch perceives that although this agreement will help to solve some of the UK's immediate economic difficulties, major ongoing issues like the COVID-19 pandemic will continue to suppress consumption and weigh on the British economy, continuing until at least the end of 1H21. Thai exports to the UK in 2021 will tend to inch up slightly, thanks largely to a low base in 2020, with  tentative growth of around zero to 3 percent and a total export value of approximately USD 3.08 - 3.18 billion. Only essential goods are expected to perform better in 2021, including processed chicken, rubber products, wheat products and seasonings. Conversely, demand for non-essential products in the UK remains limited, pending a recovery in purchasing power.

From January 1, 2021, onwards, the United Kingdom will enact the UK Global Tariff (UKGT) for the first time in 40 years, using a Most Favored Nation (MFN) tariff rate for WTO members. The UKGT tariff structure stipulates that the tariff rate for a majority of imports will be adjusted downward from the level enforced when the UK was still an EU member, in order to reduce consumption cost  for domestic consumers. Around 60 percent of all imports will not be subject to tariffs, such as raw materials for production, products deemed as necessities and those produced in limited quantity. On the other hand, other goods  will enjoy reduced tariff rates. Thai exports to the UK will be subject to this new tariff rates. Thai products which are expected to benefit from this new tax structure include rubber gloves (excluding surgical gloves), trucks/pickups, jewelry, seasonings and prepared pet foods available at retail stores.

Nevertheless, development of economic relations through an FTA should remain a goal of the Thai government. If Thailand were to succeed in establishing an FTA with the United Kingdom, Thai exports to the UK would likely carry even lower import costs, allowing Thai exporters to maintain their competitiveness.  Thai industrial goods would have a greater chance of becoming part of UK supply chains as a result of lower prices due to tariff cuts.

International Economy