BREXIT and Effects of Global Economy

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Illustration by Kutawaringin Industrial Park

British Exit (Brexit) is expected to take place on March 29, 2019. The soft Brexit scenario will cover the implementation period from that day on. The UK officially leaves the EU until 31 December 2020. During the implementation period, the UK will continue to be treated functionally as an EU member state and remain a party to EU international treaties. Disruptions to trade and investment flows will be minimized, and business will continue to be maintained while the United Kingdom is liquidating future trade and investment relations with other partners, including Indonesia.

Impact of Brexit for the European Union

The European Union ( EU) was formed in Maastricht in November 1993 after a long journey from the European Economic Community (the EEC- European Economic Community) which was founded on March 25, 1957, in Rome. The EEC aimed to realize economic integration among countries, became the European Union in 1993.

Globalization applies the principle of Free Movement of Goods, Services, Personnel and Capital (Rahmi Jened, 2007: 243) associated with various changes in technology, which consists of reducing international transportation costs, increasing global communication and increasing massive computing power produced by the microprocessor. There are 6 (six stages of economic integration) (Betharia, 2014: 32), namely: (1) Preferential Trading Areas (PTA), (2) Free Trade Areas (FTA). (3) Custom Union (CU) (4) Single Market, (5) Economic and Monetary Union (EMU) and (6) Complete Economic Integration ( Political Union).

After years of economic integration, the European Union tends to be a deglobalization, which is a process of reducing interdependence and integration between certain units throughout the world. It is widely used to describe the historical period when the economy, trade, and investment between countries declined.

One of the reasons why Britain left the European Union was because the membership in economic integration through the EU is not considered giving justice to Britain and improving the UK economy. On the contrary, for the European Union, the liberation of United Kingdom has made the laws in the European Union more homogeneous for all EU member states that adhere to the Civil Law Tradition, so their legal policies have been harmonized through the Directive. The OECD has seen the overall impact of Brexit on employment, and its influence on political finance (Simon Robert, 2018: 3).

Impact of Brexit for Indonesia

Indonesia’s goal, as stated in the Preamble to the 1945 Constitution is ” Promoting public welfare …”. One aspect used to describe the welfare of a nation is the success of economic development (Article 33 paragraph 3 of the 1945 Constitution of the Republic of Indonesia). Within the framework of the Indonesian Market Economy system, Indonesia has now ratified the Agreement on Establishing the Trade Organization(WTO). It is aimed to create a “Fair Competition” which is enforced with 3 (three) legal instruments namely (Rahmi Jened, 1997: 28):

Intellectual Property Law ( Intellectual Property Law );

Competition Law or Anti-Monopoly ( Competition / Anti Trust Law );

Cheating Competition Prevention Law ( Unfair Competition Prevention Law )

Intellectual Property Law aims to protect intellectual creation from piracy and counterfeiting. Antitrust or competition law to ensure market existence from anti-business competition actions such as monopolistic practices, oligopolies, and other practices. Fraud competition prevention laws encourage business practitioners not to violate honest industrial and commercial practices of such as discrediting competitors or misleading consumers. Indonesia has the largest economy in Southeast Asia and is one of the developing market economies in the world. Indonesia is also a member of G 20 and is classified as a new industrial country, although Indonesia’s DGP ranking is still below the world average because it still depends on the domestic market, government budget expenditures and ownership of state-owned companies which plays a vital role in economic growth.

Britain is an important partner of Indonesia as the second-largest economy in the EU and the fifth-largest globally. The UK is among the top 10 countries with patent applications throughout the world, including in Indonesia. However, the UK is not included in the five capital-exporting countries in Indonesia. The UK is the 22nd trading partner and imports from, and exports to the UK is only around 1-2% of the total. The value of Indonesian exports to the UK was offset by the value of Indonesia’s imports from the UK at 1,406,495-1.0495.5. Brexit is not very influential for the Indonesian economy. More is expected from the UK to increase its export-import activities with Indonesia and to expand its investment projects in Indonesia (setkab.go.id/en/brexit-wont-affect-indonesia-uk-relations-foreign-inistersays/?yop_poll_tr_id=id=id_ & yop-poll-nonce-1_yp586111c417d. accessed 24 March 2019).

Impact of Brexit for ASEAN

Based on the Agreement in Cebu (Philippines) in 2007 the ASEAN Economic Community (AEC) was agreed to be effective in 2015. However, given the weaknesses of the organizational personality of ASEAN, ASEAN is actually still in the third integration stage, and AEC cannot be realized yet. ASEAN countries will be the main target of the UK trade agreement because many ASEAN companies have invested in the UK and are dependent on European Union trade.

Such economic development will lead to more competition, reduction of domestic market forces concentrated in industry, the reallocation of economic resources from comparative advantages to competitive advantages, reduction of production costs in the sector by increasing the scale of production and naturally leading to contraction and reduction of uncompetitive companies and efficiency of crucial resources in economic liberalization. However, the efficiency of economic resources should not deny justice.

Lessons from Brexit for ASEAN by upholding the three legal instruments, Anti Monopoly, Intellectual Property Law, and Law on Prevention of Fraud Competition which must be supplemented by AEC through several legal institutions:

a. ASEAN Court of Justice(ACJ);

b. ASEAN Competition Commission (ACC);

c. ASEAN Intellectual Property Offices such as the Office for Harmonization in the Internal Market (OHIM) and the ASEAN Patent Office (APO);

d. Ratification of Brussel Convention on Jurisdiction and Enforcement of Verdict in Civil and Commercial Affairs (1968)

e. ASEAN Consumer Protection Commission and Consumer Protection Law in each ASEAN country.

Finally, the existence of the AEC must be improved by preparing Indonesian laws and regulation and sectoral attention. At least the three legal instruments mentioned above must be in line with the laws of ASEAN countries. Finally, Indonesia must improve and maximize its business competitiveness, insights for substitute exports and imports so that Indonesia is not only a market for other countries.

Author: Prof. Dr. Rahmi Jened, SH., MH

Details of the research available at:

http://pasca.unhas.ac.id/ojs/index.php/halrev/article/view/1850

Rahmi Jened, Betharia Noor Indahsari. 2019. Lessons Learned from the British Exit from the European Union for Indonesia and the ASEAN Economic Community. Volume 5 issue 1. Hasanuddin Law Review

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