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.
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