On 23rd June 2016, citizens of the United Kingdom (UK) shocked the world especially their European partners by voting to leave -“Brexit” – the European Union (EU). Equally upset was the United States (U.S.), whose president had campaigned against Brexit. The U.S. Secretary of State John Kerry lamented that Brexit constituted the loss of his country’s dearest friend in Europe. “The historic concord between the U.S. and Europe (had) made the West safe and rich. Now it’s in danger of collapse,” added Eurasia foreign policy commentator Ian Bremmer, pithily stating what was at stake.
Clearly, while these arrangements “made the West safe and rich,” they were never designed to safeguard or promote the interests of developing countries. That is the core issue. Brexit is nothing less than a body blow to the edifice of the International Monetary Fund-North Atlantic Treaty Organisation (NATO)-World Bank that was born in Bretton Woods at the end of 1945, a powerful system which has successfully staved off most attempts of reform to reflect the changes in the world circumstances for the last 70 years.
Financial markets, like the politicians, pollsters and bookmakers, found themselves on the wrong side of the odds and triggered panic selling. The UK’s pound sterling fell by 11 %, the most in 31 years, and riskier assets that include stocks fell across the world. Trading had to be halted in Japan while in India, the Bombay Stock Exchange index nose-dived, taking the rupee with it.
But since the initial bout of panic, calm has slowly returned to the markets as UK and European politicians start to confront the cost and complexities of implementing the divorce. Secretary Kerry’s request to EU politicians to not be “revengeful” while negotiating the terms of UK’s exit reveals the tensions. The increasingly loud demands by right-wing parties across other major EU members like France and Netherlands for similar referendums indicate the extent of discontent.
Apart from the dislocation in the EU and global financial market, Brexit is loosening the western-dominated, post-second world war geopolitical and economic arrangements, and allowing emerging powers like China and India to obtain a fair, proportionate representation of their interests which they have, so far, been largely unsuccessful in securing.
Outgoing UK Prime Minister David Cameron was realistic when he said that UK should now seek the “strongest possible economic links” with “important partners like India and China.” This is an argument that those in favour of “leaving” had also made, albeit shaded by colonial nostalgia.
There are several potential opportunities for India in the Brexit turmoil. First London, the global financial centre already hosts substantial Indian private interests. Moreover, Brexit will not immediately alter the status of London as a global financial centre despite the German ambition for Frankfurt to rival and replace it. Indian companies that have been raising money in London will find the continuity comforting. Nearly 800 Indian firms already have a presence in UK – like automobile maker Tata Motors (owner of UK luxury brand Jaguar Land Rover), IT companies like Tech Mahindra, and mining giant Vedanta Resources – which together generate a turnover of £19 billion ($25.4 billion) from their UK-based operations. These may now be forced to open additional offices in the Continent. There will be additional costs, but it is no longer a hardship since English is becoming the operating language of most multinational firms.
Then there’s India’s old friend Russia, which is likely to be less isolated in Europe as a result of the Brexit. Not surprisingly, Russia is the only major power that welcomed the referendum result. Moscow has been cornered by the eastward expansion of NATO and sanctions imposed by the EU after the annexation of the Crimea by Russia. However, it might be premature for Russia to celebrate because while the economic arm of this alliance – the EU – has stumbled, the military arm – the NATO – could draw ever closer in the face of this political and economic crisis. The upcoming NATO summit in Warsaw starting on 8 July will lay out NATO’s future thrust.
With the UK out of the Union, Europe, especially Germany, can revert to a relationship determined by geoeconomics realities rather than Anglo-Saxon hostilities against Russia. A Russia that is under less pressure is strategically more valuable for India because it reduces the incentive for Moscow to compromise defence, nuclear power and space technology co-operation between the two countries. Specifically, it also lowers the appeal for a cash-strapped Moscow from playing junior partner of a cash-rich China since Beijing is becoming a bigger consumer of Russian gas exports than Europe. Now is the time for India to cement its relationship with Russia by overt gestures like further increasing its stake in Moscow’s energy sector and by signing a major arms deal with it.
Finally, the important issue of trade. Apart from the need for the UK to negotiate individual bilateral Free Trade Agreements (FTAs) with the remaining 27 countries in the EU, Brexit also complicates the ongoing Transatlantic Trade & Investment Pact (TTIP) negotiations between the U.S. and the EU. The repudiation of the Trans Pacific Partnership (TPP) by the leading candidates for the U.S. Presidential election of 2016 — Hillary Clinton, Donald Trump and Bernie Sanders – as well as the U.S. government’s threat that the UK would be at the back of the queue for a separate trade agreement with it, can be an impetus for reviving the stalled World Trade Organisation, which is at least a global system, and bilateral FTA’s.
India can, therefore, leverage this opening by speedily concluding an advantageous bilateral trade treaty with the UK, since commerce between the two is worth over $14 billion in 2015-16 and India is among the top three investors in the UK in recent years.
It is also possible that Brexit could make the EU’s negotiating stance more flexible, becoming an opportunity for India to seal the almost decade-old negotiations for the EU-India free trade deal. So far the EU has held the FTA hostage to India-Italy bilateral differences and insistence on duty cuts for its auto and wine exports to India. Conversely, the Indian government has reviewed existing FTAs and concluded that they need to be renegotiated because the country has gained little in terms of increased market access.
All said, if like the UK’s Brexiteers who opted out of the EU, an angry and increasingly disillusioned American electorate endorse Donald J Trump’s inward-looking Presidency in November, then Beijing will surely pounce on the opportunities that Brexit has spawned. If India can be equally nimble, then the possibility of an Asian century becomes more feasible.
This article was first published by Gateway House: Indian Council on Global Relations. You can read the original article here.
