Policy Alert: Rising Powers React to Potential U.K. “Brexit” from European Union

Policy Alert: Rising Powers React to Potential U.K. “Brexit” from European Union

brexit2With Britain’s June 23 referendum on whether to remain in the European Union (EU) fast approaching, debates about the future of the United Kingdom and Europe have gained attention across the world. Many observers worry about the potential economic and political consequences of Britain’s decision to exit – or “Brexit” – the EU. With polls showing the public split nearly 50-50 on the referendum, President Barack Obama traveled to Britain and urged British voters to stay in the EU. In this Policy Alert, we examine commentary from China, India, Russia, and Japan on the U.K. referendum.

CHINA

Chinese President Xi Jinping urged the British public to vote in favor of a strong and united European Union. With over $61 billion in trade deals announced during Xi’s recent visit to the United Kingdom, he hoped “Britain, as an important member of the EU, can play an even more positive and constructive role in promoting the deepening development of China-EU ties.” At risk is a deal between Beijing and London in October 2015 where China would build a nuclear energy plant at Hinkley Point, the “largest inward investment in” U.K. history.

Commentators debated whether the Brexit decision could have a negative impact on growing economic ties between the United Kingdom and China.

INDIA

While India Prime Minister Narendra Modi declined to comment on the Brexit vote directly during a visit to the United Kingdom late last year, according to the International Business Times, Modi “hinted that he was in favor of avoiding a Brexit after describing the [United Kingdom] as India’s ‘entry’ point” to the EU. India is the third-largest source of foreign direct investment into the United Kingdom.

Most media and policy commentators were not pleased with the potential for the United Kingdom’s potential exit from the EU with some noting India’s unique colonial history with the British Empire.

  • The Hindu thought it didn’t require “a visiting U.S. President to puncture the arguments of eurosceptic Britons,” but the paper sensed these critics’ fondness for the island’s imperial past prevents them from seeing the benefits of staying in the EU: influence on Europe’s economic policies, its status as a global financial hub, benefits of immigration, and a “special relationship” with the United States.
  • Parvathi Menon in The Hindu reported on polling suggesting “ethnic minorities in the [United Kingdom], including those from India, are likely to vote for the country to stay in the European Union.” Nevertheless, many “well-to-do Indians shifted political allegiances from the Labour to the Conservatives” after May 2005 election, including Indian-origin Conservative cabinet minister Priti Patel who now supports Brexit.

The Brexit debate is already having an impact on the Indian economy.

  • Officials close to negotiation on the proposed India-European Union Free Trade Agreement report talks have been delayed due to the possibility the Brexit vote succeeds.
  • Kunal Nathwani, a former scholar at the India-based think tank Gateway House, said if Britain votes to leave the EU, foreign direct investment (FDI) from India may fall over time as Indian businesses look to alternative “gateways to Europe” such as Germany. However, Nathwani noted once outside the EU, the United Kingdom could negotiate bilateral trade deals with India with less “stringent EU regulation” and lower costs.
  • On the other hand, many Indian businesses – led by the Federation of Indian Chambers of Commerce and Industry (FICCI) – warn that Brexit “could harm investment by Indian businesses” in Britain despite “growing U.K.-India trade” being a priority for both governments.
  • Nigel Farage, one of the leading Brexit supporters, proposed increased trade with India as an alternative to make up for lost economic activity with the European Union, but Dr. A. Didar Singh, secretary general of the FICCI, responded by arguing “we firmly believe that leaving the EU, would create considerable uncertainty for Indian businesses” and “would possibly have an adverse impact on investment and movement of professionals” to the island.”

RUSSIA

Several experts and commentators in Russia discussed the potential security and economic consequences of a Brexit for Moscow.

  • A post-Brexit Britain will further “lean on” the United States, “which will inevitably translate into a more pro-American foreign policy with its well-entrenched anti-Russian phobias,” predicted Yelena Ananiyeva, head of the Center for U.K. Studies at the Russian Academy of Sciences’ Institute of Europe.
  • “As part of the EU, Britain simply looks more predictable and responsible as far as Moscow is concerned,” opined Russia Beyond the Headlines. “Without the EU system of checks and balances” in foreign policy conducts, the editorial warned, there will be no mechanism for preventing London from “making erratic and irresponsible moves out of its longstanding antipathy toward Moscow.”
  • This anti-British sentiment among the Russians surged when the U.K. Secretary of State for Energy and Climate Change Amber Rudd opposed a Brexit on the ground that leaving the EU would enable Russia to “hijack” European energy security and “bring Europe to its knees.” The Russian Embassy in London officially protested, accusing Rudd for “misrepresenting” the situation.
  • Andrey Sushentsov, associate professor at the Moscow State Institute of International Relations, warned a Brexit could create a divide in Europe, with the Anglo-Saxon alliance taking a further anti-Russian stance while the core EU countries normalizing ties with Russia.
  • Pavel Kanevskiy, associate professor of political science at Moscow State University, shared a similar view, saying a Brexit would lead to “regional separatism” and impede concerted efforts to promote peace and stability between Russia and the EU.
  • Danila Bochkarev, senior fellow at the East-West Institute, offered a more optimistic perspective, saying “despite often harsh rhetoric and serious political disagreements the financial link between the [United Kingdom] and Russia is strong and will get stronger in case of a Brexit.”

JAPAN

Many Japanese corporations expressed preferences for Britain to stay in the EU, though they remained cautious about moving their businesses out of a non-EU Britain.

  • Hiroaki Nakanishi, chairman and chief executive of Hitachi, called the idea of a Brexit “ridiculous,” but added the company would keep investing in a non-EU Britain. Hitachi recently opened a new $120 million railway plant, and is planning a multi-billion dollar investment in a new nuclear power plant, in the country.
  • Toyota’s chief executive Akio Toyoda assured the firm will “keep making cars at its plant in the English Midlands even if the [United Kingdom] votes to leave the European Union.”
  • Carlos Ghosn, chairman and chief executive of Nissan, stated their “preference as a business is, of course, that the [United Kingdom] stays within Europe – it makes the most sense for jobs, trade and costs.”
  • According to Chris Bryant, antitrust and competition partner at the international law firm of Berwin Leighton Paisner, “Generally [the approach of Japanese firms] is one of concern about the uncertainty, leading to the postponing of decisions that can be postponed, but I’ve seen no evidence of them saying they would leave” from Britain.
  • Nick Woodford, partner responsible for PwC’s Japanese business network in Britain, posited many Japanese firms would find it difficult to relocate from Britain, since their major investments are often in heavy industry, all costing money to close or move. For those Japanese conglomerates that operate management and ownership hubs in London, he said, they could keep their London headquarters while redirecting investments from the United Kingdom to the rest of Europe.
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