The Potential Impact of Brexit on Pakistan – United Kingdom Bilateral Trade

The EU was established to merge the European nations economically, politically, along with equal citizen rights, single currency and a consolidated foreign policy, to unite all the European nations and make them into a stronger force together. On 23rd June 2016, David Cameron the prime minister of UK at the time, held a referendum giving the choice to the people of UK remaining or exiting the EU; The results were extremely unexpected, it was decided that Britain must exit the EU. This report highlights the opportunities and costs faced by Pakistan, when Brexit will be implemented in 2019. The European Union is Pakistan’s largest Export destination, with total exports worth $6.92 billion in 2016. 23% of the EU’s exports, are to the UK, worth $1.56 billion in 2016; the UK is Pakistan’s largest trading partner in Europe and the third largest, in the World.

Percentage Share in ExportsPakistan has enjoyed a positive trade balance with UK for many years, in goods and service; the Pakistani government has been actively approaching the UK for a free trade agreement post-Brexit. Up until 2016, Pakistan’s export to the UK have increased at a CAGR of 0.054% even though UK’s Exports and imports from the world have seen negative CAGR.

The report points out the many ways that Pakistan, UK and the EU could be affected based on research conducted so far. The European Union is UK’s largest export market, assuming that UK might have to face MFN rates, UK’s exports will drop drastically, products produced in across Europe, including UK, will become extremely expensive. Goods channeled in to the EU through UK will also come to a stop. Overall inflation is expected to rise, considering the instability of the pound; industries are already slowing down and more are expected to decrease pace. FDI and migration are also expected to slow down considerably. It is claimed now that UK’s revival will be based on the individual FTA’s that it will sign with countries outside the EU.

Pakistan, other than trade is also dependent on UK for the FDI it brings to the Country and the funding programs that it implements. A weakening UK or a weakening pound could mean a serious cut in the inflow of fund for Pakistan. Additionally, the weakening pound also means that many of Pakistan’s exports become less competitive in UK.

The potential trade is a very important indicator discussed in the report, considering the indicative potential in the currently traded goods, we see that all products that Pakistan exports to UK are worth $1.56 billion while the potential exports could be worth about $18.95 billion. Next, we consider those that are not currently traded but have high potential if exported. We claim that exports can be increased by about $1.07 billion, if Pakistan started exporting these products including Undenatured ethyl alcohol, fresh or dried mandarins, carcasses or half carcasses of bovine animals, cane or beet sugar, etc.

The report goes on to recommend that Pakistan needs to work to ensure that post-Brexit, it continues to have market access to the UK along the lines of the current GSP+. Additionally, Pakistan will also need to develop new supporters other than France and Germany, to help it keep its GSP+ status in the long-run. UK and EU markets are expected to remain instable during the period of the Brexit negotiations, Pakistan in the interim, should develop more sustainable relations with other Countries outside the European region. Furthermore, Pakistan needs to improve its trade complementarity with UK, so it can meet UK’s import demands. Pakistan should also push to have the following products, currently not covered under the GSP+, for inclusion in any preferential market access agreement with the UK. These include products such as Carcasses or half carcasses of bovine animals (020110), frozen shrimps and prawns (030617) and broken rice (100640)

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