Interview with Mr. Tsangyao Chang
Ph.D. Professor of Economics and Finance, Feng Chia University, Taichung, TAIWAN
Visiting Professor, Wuhan University, Hubei School of Economics, Shanghai University, CHINA
Visiting Scholar, Romanian Academic Institute of Economics, ROMANIA
Chair, Chinese Education and Human Resource Management Network Association, TAIWAN
BREXIT: brake or progress in the way of economic globalization?
BREXIT is an abbreviation for “British exit”, which refers to the June 23, 2016, referendum whereby British citizens voted to exit the European Union. The referendum has affected global markets, including currencies, causing the British pound to fall to its lowest level in decades after the result is acceptance for leaving. This event definitely prevents the development of the process of economic globalization. There are some reasons which are given out to explain this conclusion.
First, European Union is one of the biggest political and economic alliances on the world and it represents for the most far-reaching and successful of the current global cooperation. When one important member of the alliance as England leaves and gives up all of benefits, it means economic globalization does not bring interests for all partners in some cases, even though it is the closest and strongest cooperation. Some countries, which are the members of or would like to enter the international associations, will be doubts about the practical benefits of the process of globalization. And at least, they will make this process happens slower than before to observe more carefully. In other words, a new barrier is formed next to the already existing ones to the process of economic globalization. In contrast, the organization of international cooperation will also stricter in extending its scope to avoid the instability can occur, affecting existing relationship which is very difficult to build up.
Second, in the case of BREXIT, because EU and England are both powerful financial institutions, the weakness of cooperation between the two sides not only affect bilateral economic cooperation but also cause adverse impacts on investment and world trade, especially with countries that use the euro and sterling in payment and foreign investment.
Third, after BREXIT, the EU received many significant challenges from both outside and inside. Particularly, some members began to demand special privileges as England before or threatening to leave. Moreover, the big countries outside the alliance, such as American, also require more interests in international cooperation when EU would like to reserve some parts of previous cooperation with England. It is really easy to see that EU is facing the most difficult time to protect cooperation developments which have achieved before in the new situation. And the failure of the EU in addressing any aspect of the problem is also backward step of the process of economic globalization and caused many negative effects.
How BREXIT can influence, the EU economic and commercial relations with Asia and America?
With the event-BREXIT, EU will be affected on many aspects, especially economic. Nowadays, EU still has to solve the debt problems of some member states, thus the loss of funding contributions from the UK, which is around 12 billion net worth and ranked second in alliance, is a considerable damage. In addition, according to statistics, 53% of UK imports are from the EU. Thus, when relation between the two partners was interrupted because of BREXIT, the EU can be lost about 413 billion export value from this country. Finally, losing one key member as England, EU will definitely be declined position in the international scope, especially in the field of monetary and liquidity. Because England always uses an EU member position to negotiate economic cooperation but still uses its own currency is pound, thus the EU should also somewhat affect this currency. However after BREXIT, the EU will completely lose power to influence one of the strong currencies of international trade, which led to the liquidity impact of the previous contract to use the pound in payment. Those are the inside difficulties that EU has to face when England leaves the alliance. However, the economic and commercial relations with Asia and America of EU should be analyzed in some other views.
In the case of Britain leaving the European Union (EU), the economic corporation will be impacted, even causing economic turmoil in Europe. But in Asia, the influence will be a lot less, according to a new commentary published by Bloomberg. Calculation of Capital Economics in London organized shows that when the British people decided to leave the EU (BREXIT) in the referendum held on 23/6, the GDP growth of the Asian economies will only
decrease by 0,2%. Capital Economics figures given are based on estimates by the Economic Research Institute for Social and England (NIESR), under which the UK imports will decrease by 25% in two years after Britain left the EU. According to experts chief economist
at Capital Economics, said Daniel Martin, exports to the UK accounted for 0.7% of GDP in Asia and even in British exports fell by 25% in two years, the GDP growth throughout Asia fell only 0.2%. In other words, the economic and commercial relationship between EU and Asia will not be affected too much in general.
However, this good situation is not the same for some specific countries. These economies such as Vietnam, Cambodia and Hong Kong will suffer the most, because it is the economy exporting more goods to England in Asia. And as demand in Britain will decline occurred after BREXIT, exports of goods in this market will undoubtedly decrease. That’s not to mention the British left the EU means that will not join the free trade agreement between Vietnam and the EU recently signed again. Thus, the advantages that Vietnam exported goods to the EU will not be available in the UK market. Currently the UK is one of the largest trade partners of Vietnam in Europe. In five years, trade turnover between the two parties has more than tripled, from $ 1.7 billion to $ 5.4 billion. British investment in Vietnam has doubled, reaching over $ 4.5 billion. Thus, under effect of BREXIT, the most difficult thing that EU needs to solve is to guarantee investment capital and export turnover of the industry in which the UK consumed mainly. Because all of conditions in the free trade
agreement still have exactly the same for EU.
In the relationship with American, EU has many problems to be solved due to economic and commercial corporation between the two sides at a level deeper and more closely in various fields. This collaboration not only affected in terms of goods, but also influenced larger in terms of currency types used when both sides possess strong currency on the financial markets. Market volatility after BEXIT makes the pound devaluation, pushing the dollar rose, forcing the Federal Reserve System (FED) to postpone the decision to raise interest rates longer because it takes time to assess the impact as well as negotiating the terms involved. Investors are turning to search assets priced in the greenback also makes dollar price increases and weakening the ability of US exporters. Furthermore, after the British left the EU, the key manufacturing industries exporting goods of this country to the US as the automobile is no longer to belong to this common economic alliance. Therefore, the EU will lose at least $85 billion, which share is calculated from the exporting value of goods from Britain to the US, which does not have any short-term alternatives that could be offset.
What should do Romania in this context, to become a factor of stability in the region?
To become a factor of stability in the EU after BREXIT, Romania should focus on developing the energy industry, particularly oil refining. Based on the favorable geographical location and natural potential as well as working experience in this field, Romania can play a very important role in the production and transportation of energy in Europe, to ensure energy security for the whole region, especially in the context of Ukraine are much uncertainty is leading to uncertainty sources Russian gas supply. In addition, England leaves EU which will bring out the second largest energy source in the alliance and a powerful counterweight part in the negotiations with Russia on energy issues. If Romania can grow up in this field and take on this new role in the EU, it will definitely maintain certain stability in the region.
In the long-term purpose, Romania development not only helps the energy transaction fluently from Russia, but also diversifies the gas supply for EU. When the country can open investment market for energy field, other countries can build up more refineries inside. And then, attracting the FDI to develop national economy and protect energy security in the region. However, to get these goals, Romania needs to complete and promulgate clear rules that help foreign investors can avoid the situation as Kazakhstan before.
Otherwise, automotive industry is also one of the most important industries in Romania. It can be use FDI attracted to focus on expanding automobile manufacturers to replace England exporting to America. Only when holding an important position in the region’s economic security while expanding the manufacturing industry to occupy the international market, thereby contributing to the overall development of the EU; Romania could become an essential element in the stability of the region.
What strategy should apply to Romania for attracting foreign direct investment (FDI)?
In this time, Romania is at the great position to attract FDI from western firms and investors. However, comparing with the potential of a market of 21.2 million inhabitants, good geography condition, and great natural resources; the FDI flows of the country are quite low. To improve this situation, Romania has to make some changes to overcome its disadvantages in the investors’ view, such as unemployment, labor migration, inequalities between Romania’s regions, contrasts between rural and urban areas, and the fragile democratic consensus. In other words, the regulators of Romania need to indicate that they can give out the investment law system of clear, coherent and ensure the interests of the national capital inflows.
In addition, Romania has to emphasize the advantages of the country in the current context that can be mentions as follow:
– Romania is a politically and socially stable country;
– Some industries continuous privatization, restructuring and administration reform;
– Taking the crucial geographical position, where is a gateway between West and East of Europe;
– Romania is a member of the international financial institutions, such as IMF, EBRD, World Bank and the EU Commission;
– Having the high qualification of labor force with low costs;
– Existence of important natural resources and proximity to energy suppliers;
– There are increasing business opportunities because this market is still growing while the entry barriers remain low.
Using these advantages effectively, Romania has many opportunities to convince foreign investors and firms and attract larger FDI inflows. Especially, if it wants to develop energy industry, it will need to improve not only investment funds but also the equipment, machinery and high technologies from the advanced countries in Europe.
Who do you think could be the strategic partners of Romania in the near future? Why? And under what conditions?
The strategic partner of Romania in the near future could be America. In fact, this relationship has a strong basement that is Joint Declaration on Strategy Partnership for the 21st century between the United States of America and Romania. Follows an agreement, two countries have cooperated in many fields such as trade and investment, energy security, education, science and technology. With development in bilateral relations, Romania definitely has all of suitable conditions to improve its position on the global market. In return, the US would tighten relations with the EU, thereby avoiding some parts of a loss after BREXIT. In addition, the two countries are reducing competitive pressure and economic domination of Russia and China, which have the benefits that will be achieved when the EU fall into difficulties of BREXIT.
To get the successful agreement, both of Romania and America have to perform certain obligations to ensure benefits for all parties. For Romania, it needs to improve the current production status; complete regulatory framework; and use effectively the natural resources as this writing mentioned above. On another side, the most important act that America has to control within a reasonable range is not using FDI and economic corporate to make effect on politic fields. Even though the two countries support each other on major increases in the region is necessary to ensure that the process of economic development, they also need to respect the role of justice in cooperation to maximize the benefits of both sides.