What consequences would a post-Brexit China-UK trade deal have for the EU?

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What consequences would a post-Brexit China-UK trade deal have for the EU?

A China-UK free trade agreement has been extensively discussed since the UK’s vote for Brexit. Many supporters of Brexit argue that the UK’s regained

Publishing date: 07 October 2016
Authors: Alicia García-Herrero Jianwei Xu

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Brexit means that the United Kingdom could be able to run its own trade policy, which opens the door for the potential negotiation of a free trade agreement between the UK and China. Alicia Garcia-Herrero and Hianwei Xu show that a UK-China FTA will be neither easy nor clearly advantageous for the UK:

It will be difficult for the UK to reach an agreement with China without first establishing a new post-Brexit partnership with the EU. Negotiating tariffs with other WTO members will be a pre-condition if the UK exits the EU customs union, and this process will require time and effort.
Even if the UK reaches an agreement with China, the UK cannot serve as a back door for Chinese products to enter the EU, because the EU is very likely use rules of origin to close any such loopholes.
The UK and the other EU economies differ in most of their exports to China, so there would be very limited substitution between them.

It therefore seems that establishing a new trade relationship with the EU would be a more urgent task for the UK in the post-Brexit world, rather than an FTA with China. Under such circumstances, the UK might need to postpone its trade negotiations with other economies outside of EU, including China.

This goes beyond the current discussion of the illegality of the UK starting to negotiate trade deals before it leaves the EU. The issue is whether it makes economic sense for the UK to do so, and the answer is no. In fact, the more the UK reaches an independent favourable trade agreement with China after Brexit, the harder it will be for the UK to strike a good deal with EU.

In the meantime, it is also urgent for the UK to negotiate with the main WTO members on tariffs, because outside the EU, the UK might not participate in the EU schedule of concessions. The best strategy for the UK would be to negotiate with the other WTO members with the EU-based tariffs as a starting point, to avoid negotiating over terms separately and also to maintain a close relationship with the EU.

About the authors

Alicia García-Herrero

Alicia García Herrero is a Senior fellow at Bruegel.

She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University.

Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in , , or ). Alicia is very active in international media (such as BBC, Bloomberg, CNBC and CNN) as well as social media ( and ). As a recognition of her thought leadership, Alicia was included in the in 2017 and .
Jianwei Xu

Jianwei Xu is non-resident fellow at Bruegel. He is a senior economist at Natixis, Asia Pacific. He worked as a professor at Beijing Normal University. He was also a guest researcher at China Academy of Social Science and a youth member of the China Finance Forum 40.

His research mainly focuses on international economics and labor economics. He is particularly interested in topics related to the Chinese economy. He has published many papers in academic journals and also writes policy articles for the media.

He received his Ph.D. in economics from China Economic Research Center, Peking University in 2011. He was also a visiting student in Stern Business School, New York University, from 2009 to 2010.