Evaluate the impact of Brexit on Singapore, EU and UK.
1st Place - Joshua Goh
Brexit is the majority decision of the British electorate to have Britain leave the EU and its common market. However to date, Brexit remains just that, a decision to leave. there have been very little details as to what Brexit entails and most of the concern about the impact of Brexit extends from the enormous uncertainty of what exactly Brexit means. The current UK government under Prime Minister Theresa May has committed to invoking Article 50 of the Lisbon Treaty for Britain to leave the EU. However what comes after the split itself is still largely up for discussion and eventual negotiation with the rest of the EU.
Thus it is difficult to assess the impact of Brexit given that the actual conditions and results of Brexit itself remain difficult to conceptualize. Nonetheless it is clear the mere decision by the UK to commit to Brexit has unleashed hopes and fears for the future of the UK and the EU and for the current world order that has benefitted Singapore.
The true impact of Brexit on the UK has yet to be felt because the UK has mostly remained uncommitted to any exact timeline for Brexit.
Theresa May’s public speech on January 17th was meant to outline her government’s direction on Brexit. To her credit she was clear, the UK would leave the EU common market, limiting migration but at the same time ensuring that the UK continues to maintain independent trade relationships with EU countries. May’s intention is clear, the UK is leaving the EU, there will not be a sham-split to hide a continued and arguably beneficial relationship. However what benefits the UK can obtain from a EU so determined to have not let them go is hard to fathom.
The impact of the Brexit on the EU can clearly been seen in its reaction to Brexit and to May’s speech. At its heart, the EU is concerned about the future viability of its common market and whether Brexit is going to be the first rat out of the sinking ship. Given that UK leaving the EU questions the viability of the union as a political and economic entity, the EU would likely given Britain a difficult Brexit, lest it encourage more countries to exit the EU. Nonetheless it is clear that the EU has a strong hand in the upcoming negotiations for Brexit. Should Britain leave on less favorable terms, it would be poetic justice for Europeans who watched Brexit unfold in disbelief.
Another feature of Brexit that the EU has to deal with is the issue of open EU borders. This was a key feature of the Brexit campaign with Britons upset that their jobs were being taken by Europeans who were able to enter the UK easily via the EU’s free movement policies. The UK is not alone, the increasing support for right-wing politicians such as France’s Marie Le Pen indicate that such sentiments are still present in the more prosperous members of the EU and that it remains an issue to be resolved.
For Singapore, conclusions as to the impact in Singapore should not be rushed simply because nothing has happened. When questioned in Parliament about Brexit’s impact on Singapore, Deputy Prime Minister Tharman Shanmugaratnam replied that the economic and political uncertainties from Brexit “will weigh on the UK, Europe and the global economy for at least a few years, and are likely to dampen growth.”
Though it is uncertain what Brexit’s impact on Singapore is, what is more pressing it what Singapore is doing to guard against such uncertainty. Singapore has trade links with both the EU and the UK and post-Brexit it will undoubtedly be looking to further strengthen them.
Singapore’s current success can be attributed to the open market model brought about by globalization. However Brexit appears to be questioning the future of this model and it is this long-term issue that will have the greatest impact on Singapore should such a model be discarded.
I would argue that the main impact of Brexit is actually common across the EU, UK and Singapore. Brexit itself was sold to the British electorate as a means for them to “regain” their country, to take back and stop sending the EU money that Britons had made. Brexit threw into sharp relief the raw truth that despite the UK’s wealth and power, the British people feared that their relationship with the EU was threatening their way of life and clung to Brexit as a means to bring back the “good old days”.
Regaining national pride is not the same as regaining prosperity. There are numerous examples of nations being granted or taking independence and whose economics still languish. This temporal social catharsis may soothe nationalist and protectionist sentiments but such reactions are dangerously ignorant of the interconnectivity and globalization that forms the lifeblood of the current world economy. Brexit shows that people are willing to discard the current one, but is it out of the frying pan and into the fire? Time will tell.
2nd Place - Calvin Lee
On June 23 2016, the United Kingdom (‘UK’) voted to leave the European Union (‘EU’), a move that shocked the world not only because of its drastic implications on present geopolitics and the world economy, but also because this was a move thought to be clearly against the UK’s self-interest. The world reacted in horror, such as Singapore’s Ambassador-at-Large Bilahari Kausikan’s comment that the UK was ‘committing suicide before our eyes’; the global economy clearly reacted similarly, with the pound falling to a 31-year-old low. Politically, PM David Cameron stepped down, and calls for a Scottish independence vote arose again. Six months on, the implications of Brexit clearly represent larger global political and socio-economic trends within the UK, EU, US and Singapore.
The impact on UK and EU
In terms of economic policies, the Brexit vote clearly represents discontent with the idealistic single market that the EU promised. The ‘Leave’ campaign argued that the UK was receiving the short end of the stick by paying to the EU much more than they received. Such an open market also affected British small businesses, which sought protectionist measures in a closed UK economy; across the Atlantic, this theme of domestic SMEs rejecting globalized trade in favor of domestic business measures similarly carried Trump to the Presidency. Furthermore, there was the general sentiment that the downturn of the EU economy, caused by factors completely unrelated to UK interests or fault (such as Greek debt), was holding back UK’s economy; this sentiment has also been shared by German voters who are tired of having to bail out Greece from its debt crisis.
In terms of social policies, immigration was the key issue that caused much unhappiness in the UK, with the influx of hundreds of thousands of immigrants from Eastern Europe being seen as the cause of unemployment, falling wages and security concerns; German discontent about remaining in the EU similarly stems from a similar immigration issue of the influx of refugees. Across Europe, the trend of nationalistic leaders gaining popular support continues, such as France’s Le Pen, who promised protectionist and anti-immigration measures.
Regardless of whether these fears were justified, a more worrisome social issue that has been exposed in UK society along this fault line between different social classes. On one hand, there was overwhelming support from economists, business leaders and think-tanks that the UK economy would benefit from staying in the EU, but no such sentiment assuaged the fears of the working class that their livelihood was being threatened; the latter masses triumphed at the vote. Such a social divide was also reflected in the US Presidency vote: the red states that carried Trump to victory were largely working-class societies that rejected the liberal ideologies of wealthy city-states.
The impact on Singapore
What do these changes mean for Singapore? Economically, Singapore is unlikely to suffer drastically, and the pound’s fall in value may even be a boon for investments in UK companies, exports to UK, or even studying in UK. Singapore’s exports are unlikely to suffer too greatly since Singapore’s non-oil domestic exports to UK account for less than 1% of total shipments. However, Singapore might be affected if UK companies scale back foreign investment in Singapore, which would also affect local support services. Furthermore, if more European countries are inspired by the UK to leave the EU, this could further detriment the global economy, which is still recovering from China’s recent structural slowdown.
But one lesson that must be drawn from Brexit is that facts and figures may not be able to challenge social fears and anxieties. Instead, Singapore must be quick to recognize social fault lines and act accordingly to address them. Immigration remains a hot topic in Singapore, with many similarly blaming the influx of foreigners at all levels of the workforce for unemployment and increasing cost of living.
In the larger picture, Singapore’s membership in ASEAN must also not be taken for granted. Brexit has demonstrated that ‘national imperatives and narratives could have the upper hand in regional cooperation’, as noted in a recent ISEAS report. The ASEAN pillars of political-security, economic and socio-cultural communities could be threatened by domestic unrest in any of its member-states, and it is in each member’s interest to preserve domestic peace. In this manner, regional prosperity shares a symbiotic relationship with domestic prosperity; achieving regional prosperity requires domestic peace, while achieving regional success will lead to domestic prosperity.
In conclusion, Brexit represents a wake-up call to our understanding of modern politics, where social fears play a bigger role than empirical figures. The politics of the West must, and surely will, adapt to better address such fears. With the rise of protectionism, the future of globalized trade is in doubt. Whether or not this is economically beneficial depends on whose perspective one adopts, but it is at least clear that such an inward-looking approach will hinder the building of global consensus. In the meantime, there remain problems such as climate change, terrorism and regional security that cannot be solved by countries acting alone. The world will suffer if countries remain apart.
3rd Place - Ng Chee Siang
Brexit on the UK
There are countries like Iceland that trades with European Single Market but are not part of the European Union (EU). Britain can follow the examples of these countries although Teresa May has stated that they will adopt a different model – “a new and equal partnership”.
It will no longer be required to contribute a large sum of money to the EU to support the EU’s work and to support the other failing EU countries. Instead, it can now use that money to fund its own budget – putting more into their healthcare system or other investments. Instead of contributing large sums of money to a common pool, UK will instead pay a “tax” for the selected programs the UK would like to participate in.
Scotland might request to leave the United Kingdom (UK) to be part of the EU. A referendum was previously put into discussion by Scotland’s politicians that should UK trigger Article 50 to leave the EU, Scotland will try to leave the UK.
No more overflowing of immigrants from the EU coming through the UK’s borders. A goal pushed by those who wanted Brexit and voted for it. An immigration system will be in place to allow that qualified personnel to enter the UK and contribute to its society, instead of being required by the EU to accept all EU immigrants – regardless of the quality.
Brexit on EU
Brexit's immediately impact on EU will be economically focused and on immigration. In the longer term, it actually poses a political problem for Europe as a whole. UK is an integral part of the EU, one of the creditor nation, a large economy within EU and Europe, and a big contributor to the coffers of EU and ECB. Brexit meant that the EU loses a partner towards the goal of a united Europe, and the ECB losing a funding partner for its initiatives – providing funding for failing EU countries. The funding burden would now lie more heavily on Germany and France – both of which are starting to see the rise in Nationalistic ideology.
Brexit is itself a double-edged sword. It can speed up or break up the integration of Europe, depending on how the negotiation between EU and UK goes. A tough 'departure agreement' would serve as a strong measure against future EU members who wants to leave the EU, but it might result in the start of a trade war between UK and EU, and deter other countries from joining the EU, further destroying the hopes of a United Europe. On the contrary, a weak 'departure agreement' might trigger more EU members leaving, particularly in the current political climate, where Nationalists and nationalistic sentiments are growing stronger every day, fuelled by Brexit and America’s President-Elect Trump.
Brexit on Singapore
For Singapore, UK accounts for less than 1% of Singapore's non-oil export and about 2% of our imports, hence the immediate impact Singapore will experience is small. But the impact, however, will be felt further down the road, when UK companies stop investing in Singapore or start closing operations in Singapore because of the higher cost of operation here.
Singapore companies have huge exposure to Britain's economy, which accounts for ¾ of Singapore's investments in the EU. Most of the companies set up operations in UK itself, so their earnings will be affected after taking into consideration the plunge in Pounds against the Singapore Dollar. But the impact in dollars would not be very big to operations in the UK, it is just an accounting problem. Rather, if leaving the EU does prove to benefit and uplift UK's economy, the increase in business dealings in the UK would probably make up more than what is lost in Pound's devaluation.
On the other hand, there are also Singapore companies that use Britain as a corporate base for their expansion into the EU. Brexit would result in uncertainty over UK's access to the EU single market. This would post as the biggest threat to companies that wishes to enter the EU markets because they may end up having to pay a "tax" to allow their products to be sold in the EU. In this case, it might make more sense for these companies to relocate out of UK and into countries like Germany which are part of the EU single market (There have been several companies that have shifted their corporate headquarters from the UK to other countries within the EU block since Brexit).
The plunge in Pounds, however, would make it desirable for Singapore companies seeking to expand to the UK. Given the recent push by Singapore's Government to get more SMEs expanding overseas, a lower Pounds would make such an expansion less burdensome on a companies' finance. It might represent a turning point where UK companies start retreating from Singapore while Singapore companies start owning a larger share UK's economy.