Brexit and the Korea-UK FTA, their Economic Implications
Authors:   Asia-Europe Perspective Association, Yoon Seung-Hwan 
Published: December 2024

On 31 January 2020, the United Kingdom finally left the European Union. It took three years and seven months for the UK to break away from the EU since the referendum in June 2016, going down in history as the first case after the EU’s launch in 1993. With the transition period (sometimes called the im- plementation period) that keeps the UK bound to the EU’s rules until the end of 2020, the UK and the EU are negotiating future relations. Still, the differences between the two sides are hardly narrowing. In addition, the possibility of No Deal Brexit is increasing because the pandemic of new coronavirus (COVID 19, Coronavirus Disease 2019) has been disrupting negotiations. With the global economy shrink- ing due to COVID 19, the global impact is expected to be even greater if No Deal Brexit does happen. In this regard, this study analyzed the economic impact of Brexit on the world and the Korean-UK FTA’s economic repercussions as part of its countermeasures. Based on those results, this study tried to draw implications from Brexit and for the Korea-UK economic relations.
From the perspective of real GDP, according to the analysis results, Brexit is expected to cause economic damage to both the UK and the EU, but the damage is likely to be much greater in the UK. It is also found that other countries, including Korea, are getting some benefits. It is not optimistic to expect the outcome of the negotiations to be a win-win for each other because it is technically impossible to reverse Brexit, and the differences between the two sides are too significant to reach an agreement. Regarding the Korea-UK FTA, it is predicted to benefit both countries under all scenarios. In particular, the elimi- nation of non-tariff barriers under scenario 2 is likely to improve GDP much higher than that of tariff removal. It indicates that it is necessary to focus its negotiating power on easing or abolishing non-tariff barriers when the Korean government proceeds with further negotiation with the UK.
Equivalent Variation (EV) as a measure of welfare significantly decreases for both sides, but the UK’s economic impact from Brexit is much greater than that of the EU. EV (Welfare) in China, the United States, and other countries increases considerably, which seems to be attributed to the large amount of trade with the EU. In the case of the Korea-UK FTA, while both countries show an increase in welfare in all scenarios, other countries’ welfare decreases, suggesting that Brexit could be an opportunity for Korea. In particular, when Korea concludes and implements a high-level FTA with the UK by easing or eliminating non-tariff barriers, welfare can be further increased, which is an example of how the non-tariff barriers are having a negative impact on an actual trade.
Imports also decline in both the UK and the EU, as seen in real GDP and welfare, with a much largerdecrease in the UK but show an increase from Korea and other countries. In terms of exports, all countries except ASEAN show a decline, which seems to be attributed to a relatively large drop in imports from the UK and the EU. Imports and exports as a result of the Korea-UK FTA increase slightly in both Korea and the UK. However, in other countries, imports decline and exports are insignificant, but they increase slightly. This seems to be caused by a relatively large change in imports from Korea and the UK. The terms of trade under Brexit also worsen in both the UK and EU, but other countries show a sign of improvement. The terms of trade under the Korea-UK FTA improve in Korea and the UK, but other countries except Japan are found to be insignificant but worsening.