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10 Sep 2020

International Economy

Drafting of the UK’s Internal Market Bill set to trigger no-deal Brexit by the end of 2020 (Current Issue No.3133)


          Ever since the results of the EU Referendum on June 23, 2016, led to the planned withdrawal of the United Kingdom from  the EU, the event that all parties concerned have hoped for is a negotiation to finalize the economic and trade relations between the UK and the EU going forward. However, after the revelation of the referendum, the UK under the leadership of Prime Minister Teresa May announced the implementation of Article 50 of the Treaty of Lisbon in March 2016 to formally pave the way for the UK's withdrawal from the EU. However, the road to negotiations was strife-torn, and the UK went through several political trials which culminated in the change of premiership to Boris Johnson, who promised sufficient support in the UK Parliament to exercise the Withdrawal Agreement, which was delayed to January 2020 from its planned enactment in late 2019. Nevertheless, it is clear that, while four years have passed, the future relationship between the UK and the EU remains ill-defined.

           Amid 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 with the EU, KResearch anticipates that this new trigger will further strain the already-fragile relationship between the UK and the EU; possibly resulting 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 the path towards a no-deal Brexit on December 31, 2020.

Should the no-deal Brexit take effect on January 1, 2021, 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 USD 4 billion, or 1.3 percent of Thailand's total exports to the global market. The fact that the UK economy  is still in 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 60 percent of all imports will enter the country tariff-free (compared to 47 percent 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, its top 20 are all distributed to the UK. Out of these major exports, 30 percent of Thailand's total exports to the UK still maintain the same tariff rates including processed chicken (same export quota), motorcycles at a tariff rate of 6 percent, as well as computers and parts thereof components and printed circuit boards remain at zero percent. While other products are given tax reductions, these items are generally ones with low export value for example, products that have become tariff-free like pet food and signal transmission devices, and products that have lower tariffs like gems and jewelery at 2 percent (from the previous rate of 2.5 percent) and seasoning sauce at 6 percent (from the previous rate of 7.7 percent). Among the areas that warrant a close watch are the uncertain relations between the UK and the EU and other countries, and trade policies that could potentially change towards the end of 2020. Eventually, these factors will influence the performance of Thai import and export businesses. If  Thailand is successful in negotiating an FTA agreement with   the UK, it stands to gain an upper hand in terms of trade  in the long run.

International Economy