As the United Kingdom and the European Union agreed on Oct. 17 (local time) to renegotiate Brexit or the former’s departure from the latter, much attention is being paid to its implications for the Korean economy.
The agreement prevents a “No-deal Brexit” where the United Kingdom will leave the EU without any agreement on Oct. 31. A No-deal Brexit has been recognized as a significant burden on the Korean economy as it would increase uncertainty over the global economy. The agreement, however, is subject to approval by EU countries and ratification by the European Parliament and the British Parliament.
Nevertheless, as Brexit is likely to become a reality, its impact on the Korea economy is garnering attention. The Korea International Trade Research Institute of the Korea International Trade Association and the Bank of Korea analyzed that Brexit’s impacts on the Korean economy would be limited given the level of Korea’s trade with the United Kingdom.
The United Kingdom is Korea’s second largest trading partner among EU member countries. Last year, bilateral trade added up to US$13.37 billion and Korea’s exports to the United Kingdom made up only 1.1 percent of Korea's total exports in 2018. Korea's major export items are passenger cars, ships and offshore structures while its import items are crude oil, passenger cars and pharmaceuticals.
Some experts forecast that Korea's gross domestic product (GDP) will drop most sharply among those of major countries due to Brexit in spite of other analysis that the aftermaths of Brexit on the Korean economy will be limited. In a recent report, the Korea Economic Research Institute predicted that Korea's real GDP will shrink 3.1 percent by 2033 if and when Brexit occurs. This is greater than a 2.2 percent cut in the real GDP reduction of the EU expected to receive the biggest impact from Brexit. This contrasts with the other analysis that the aftermaths of Brexit on the Korean economy will be limited.
The Korean government is responding quickly. In preparation for Brexit, the Korea-United Kingdom Free Trade Agreement (FTA) has been concluded and is undergoing a parliamentary ratification process. The two countries have concluded the Korea-United Kingdom FTA at the level of preferential trade in the Korea-EU FTA. Even if Brexit happens, there will be little change in the continuity of trade relations between the two countries.
The Korea government plans to complete the ratification procedures such as the National Assembly's approval before Oct. 31 to make the Korea-United Kingdom FTA go into effects on time.