Brexit: business as usual… for now

Updated 10 Feb 2020

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A new era may have dawned in the United Kingdom post-Brexit but till the end of this year, it will continue to follow all of the European Union’s (EU) rules. Thus its trading relationship will remain the same during this transition period and business as usual will continue for our exports. — AFP/File
A new era may have dawned in the United Kingdom post-Brexit but till the end of this year, it will continue to follow all of the European Union’s (EU) rules. Thus its trading relationship will remain the same during this transition period and business as usual will continue for our exports. — AFP/File

A new era may have dawned in the United Kingdom post-Brexit but till the end of this year, it will continue to follow all of the European Union’s (EU) rules. Thus its trading relationship will remain the same during this transition period and business as usual will continue for our exports.

The EU’s Generalise System of Preferences Plus (GSP Plus) may arguably be the most important preferential access that the country’s exporters avail, of which the United Kingdom is a key market. Assurances of continued access by officials of both countries, accompanied by the usual rhetoric of ‘old ties’, have kept exporter’s concerns at bay.

Read: Brexit and Pakistan

“Brexit will not have a net impact on the demand side of rice,” says Safdar Hussain Mehkri ex-chairman of Rice Exporters Association of Pakistan. Accounting for over a quarter of exports to the European Union, the United Kingdom is Pakistan’s main rice market in the region.

Similar sentiments were echoed by Sohail Pasha Chairman Pakistan Textile Exporters Association (PTEA).

“If an agreement like GSP Plus is not offered by Britain, it will severely impact local businesses. However, all signs point to the continuation of its benefits. Since nothing has changed as yet, we expect to continue as before”.

Being complacent while one of our biggest trading partners undergoes major changes hardly seems to be the best strategy

Going into further detail regarding Pakistan’s mainstay export of textiles, patron-in-chief PTEA Khurram Mukhtar said that in the short run exporters had taken a hit. “Pakistan is the biggest exporter of home textiles in the world but we have seen exports decline in the short run”.

Since Britain voted to leave the EU, uncertainty had been increasing which brought a decrease in purchasing power amidst changing premiers and political turmoil. Resultantly, high street shops had vacant looks as footfall in stores declined, he explained.

“In the long run, it may benefit Pakistan. As Britain will have to pay fewer funds to the EU and its economy will improve, its people will be better able to afford our goods. After all, London will continue to be a financial hub,” he added.

Potential concerns

Preferential access to Britain’s market is vital but it is not the only factor that determines the quantum of exports to the country. In assessing the impact of Brexit, its ripple effect has to be taken into context as well.

There are two main factors that could influence the rice, textile and other export-oriented sectors. Firstly, Britain’s aggressiveness in entering trade deals now that it is free of EU restrictions.

Currently, Britain is concentrating on first world countries such as the United States and Australia to start negotiations on new agreements. While these countries pose no threat to Pakistan’s exports, change in trade dynamics could impact the strength of the pound.

Some of the trade between Pakistan and the United Kingdom is conducted in pounds but a lot of it is in dollars therefore there will not be a direct impact. However, if trade deals increase demand of Britain’s exports as intended, its currency could strengthen making Pakistan’s exports cost less in pound terms and therefore more desirable.

Another important caveat is whether Britain pursues trade deals with countries such as China, India and Vietnam. As it stands, Pakistan’s qualification as a GSP Plus beneficiary puts us in an advantageous position since many of our competitors are not offered the same duty-free access. If status quo is maintained with Pakistan but changed with countries exporting a similar basket of goods, we may not be able to compete successfully.

The second issue at hand is the question of standards. The debate between the United Kingdom’s and EU’s labour and environmental standards has led to chest-thumping fiery speeches. The EU wants Britain to maintain its standards to prevent the United Kingdom from getting an edge as an economic competitor. While asserting its standards will not lower, Britain refuses to be fettered by EU’s requirements.

As the behemoths battle it out, lower standards may work in Pakistan’s favour or against them. For example, the EU regulations on fungicide acceptability levels elbowed India out of the premium Basmati rice market since the country had higher tricylazole levels. This created room for Pakistan to increase its exports. If these standards are lower in Britain, Pakistan could face steeper competition from India.

Being edged out from the British market has consequences for investment, employment generation and sustained growth in an already dicey economy. Being complacent while one of our biggest trading partners undergoes major changes hardly seems to be the best strategy.

Published in Dawn, The Business and Finance Weekly, February 10th, 2020