Gov't should be prepared for 'no-deal' Brexit as worst case scenario

The British government’s deal to break away from the European Union was turned down by the House of Commons by 432 (opposing) to 202 votes (in favor). After the results, British opposition Labour Party tabled a non-confidence motion to the government. The non-confidence vote will commence on Wednesday, which creates great confusion for the political landscape in Britain. In the worst case, Britain might face "no-deal" Brexit, which means that it may have to leave the EU without a secured final agreement, on the Brexit deadline of March 39 based on the Lisbon Treaty.

Britain is the second largest investment destination for Korean companies after the Netherlands among European countries as well as a key economic partner with annual trade volume reaching 14.4 billion U.S. dollars. If Britain leaves the EU, Korean automobiles, which are currently tariff free under the Korea-EU FTA, will be subject to 10-percent tariff rate. It may also negatively impact Korean companies’ performance in Britain. The initial Brexit agreement plan allowed Britain to stay in the single EU market, but no-deal Brexit would impose immediate tariffs, causing further confusion in trade. The change would also cause great impact to the British financial market, known as a top financial hub, causing financial anxieties or deteriorating trade with the EU, which could affect Korea as well.

Fortunately, the financial market reacted calmly to the outcome as it was mostly predicted. However, the vote will add uncertainty to Britain’s political relations with the EU as well as the global financial market and economic conditions.

Some say that the defeated vote will pave way for a new type of protectionism that is preceded by U.S. President Donald Trump’s policy to put its country first. The Korean government and financial authorities should strengthen monitoring of the financial market and act preemptively to Brexit’s potential impacts to the Korean economy. The government should accelerate efforts to sign a free trade agreement with Britain and work with the private sector to take Brexit as an opportunity to raise Korea’s market share in Britain and the EU.