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The Great Free
Trade Myth
British Foreign Policy and
East Asia Since 1980
Michael Reilly
The Great Free Trade Myth
 Michael Reilly

The Great Free Trade

Myth
British Foreign Policy and East Asia Since 1980
Michael Reilly
Taiwan Studies Programme
School of Politics and International Relations
University of Nottingham
Nottingham, UK

ISBN 978-981-15-8557-9 ISBN 978-981-15-8558-6 (eBook)

https://doi.org/10.1007/978-981-15-8558-6

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
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 It has justly been observed, that the interests and pursuits of so active and
opulent a portion of the community as is engaged in trade throughout the
British dominions, occupy, at all times, much of the attention, and, in the
proper spirit of a commercial nation, influence many of the measures of the
government.
Sir George Staunton: An Authentic Account of an Embassy from the King
of Great Britain to the Emperor of China, London 1797
To Won Kyong
 Acknowledgements

This book is the product of innumerable meetings, interviews, discus-

sions, and engagement, both formal and informal, over the course of
four decades. It would be impossible to list all the friends, colleagues,
and interlocutors whose contributions, often unwitting or subconscious,
through information, advice, encouragement, penetrating questions,
constructive criticism, or casual remarks did so much to advance my own
knowledge and understanding.
Among the many former FCO colleagues who have contributed, I owe
a special debt to Rodric Braithwaite, whose patience, kindness, sound
advice and, in the words of another colleague, puckish sense of humour,
were inspirational and motivating in equal measure to an inexperienced
and hesitant junior officer. His own pellucid prose—stimulating, thought-
provoking, humorous but never dull—also provides a model to aspire to
but one to which I fall badly short.
My first and last postings in Asia were in countries under authori-
tarian governments which often went to considerable lengths to control
and manipulate the flow of information, and to suppress the views of
those to whom they took exception. Opposition politicians and dissidents
fighting for human rights did much to advance my own knowledge in
these circumstances, often at great personal risk. Choi Hyuk Bae and Phee
Jung Sun in Korea both deserve special mention in this regard, but I am
grateful to them all.

ix
x ACKNOWLEDGEMENTS

Despite the peripatetic nature of a diplomatic life, I have been fortunate

in making friendships that have endured the tests of time, distance, and
culture, among them David Huang, Michael Hsiao, and David Lin in
Taiwan. All of them have in one way or another contributed to this book.
I was also privileged to work with a tremendous group of colleagues in
BAE Systems, especially Tony Ennis, a casual remark of whose was an
inspiration for this book. They helped provide an important counter to the
somewhat rarefied views of diplomats. Colleagues in other missions also
helped with deeper insights and to see matters in a different perspective,
none more so than Bob Wang, Brent Christensen, and Guy Wittich.
I am most grateful to the Ministry of Foreign Affairs in Taiwan for the
generous award of a Taiwan Fellowship, and to colleagues in the Institute
of European and American Studies at Academia Sinica in Taipei, Chien-yi
Lu especially, for hosting me for its duration. The fellowship gave me the
opportunity and wherewithal to write much of this, the superb facilities
of Academia Sinica, especially its libraries and beautiful campus, the space
and stimulus to do so.
But my biggest thanks by far go to my wife Won Kyong, who has been
with me from the very beginning of this adventure. Quite simply, without
her support, her tolerance, understanding, and patience, it would not have
been possible. My debt to her is beyond price.
 A Note on Romanisation and Names

Both the People’s Republic of China and Republic of Korea have standard
authorised systems for the romanisation of their scripts, hanyu pinyin in
the former and the revised romanisation system in the latter. Although
widely used, pinyin is not standard in Taiwan and the older Wade-
Giles system is still commonly used for place names and more—one of
Taiwan’s two main political parties still writes its name in Roman script as
Kuomintang, not Guomindang, for example.
In both Taiwan and Korea, individuals are free to romanise their names
as they see fit. Both the Wade-Giles system (in Taiwan) and the McCune-
Reischauer system in Korea are frequently used for this, together with
other forms of the individual’s own choice. For example, the Korean
family name Lee can also be written as Rhee, Li, Yi, or variants thereof,
and the Chinese family name Xu as Hsu. I have sought throughout
to follow the accepted current form for place names and the personal
preferences of individuals.
Although China’s capital is now generally known as Beijing, official
practice in the FCO until 1995 was to refer to it as Peking (one of
China’s pre-eminent universities is still known in English today as Peking
University, not Beijing University, while another is Tsinghua University,
the Wade-Giles form, not Qinghua, which it would be in pinyin). Rather
than attempting to standardise, I have therefore used whichever form was
in use in correspondence at the time.

xi
xii A NOTE ON ROMANISATION AND NAMES

Until 1991, when North and South Korea both joined the United
Nations, the British government recognised the government in Seoul
as the sole legitimate government of Korea. It was common practice
in reports and correspondence therefore to refer simply to ‘Korea’ or
the ‘Korean authorities’ when discussing the Republic of Korea (South
Korea). All references to ‘Korea’ or ‘Korean’ in this book similarly refer
specifically to the Republic of Korea and the authorities therein, not the
peninsula as a whole.
 Contents

1 Introduction 1

2 Imperial Ties and Free Trade 15

3 Protests and Power Turbines—Korea, 1980 33

4 Whisky, Drugs and Bonds—Korea, 1987–1997 51

5 Gratuitously Disagreeable—Taiwan, 1980–1990 67

6 Planes, Trains and Visas—Taiwan, 1995–2010 87

7 The Reluctant Multilateralist—South East Asia,

1980–2000 105

8 A Tarnished Era: China Since 2010 127

9 The United Kingdom and East Asia Towards 2050 153

Bibliography 171

Index 177

xiii
 About the Author

Michael Reilly is a non-resident senior fellow of the Taiwan Studies

Programme in the School of Politics and International Relations at the
University of Nottingham. A former British diplomat, he studied and
worked for eighteen years in East Asia. His final diplomatic appointment
was as the British representative in Taiwan, after which he spent four years
in China with a major British aerospace company. He is co-editor with
David W. F. Huang of The Implications of Brexit for East Asia (2018) and
with Chun-yi Lee of A new beginning or more of the same?—The European
Union and East Asia after Brexit (forthcoming).

xv
 Abbreviations

AIIB Asian Infrastructure Investment Bank

ARF ASEAN Regional Forum
ASEAN Association of South East Asian Nations
ASEM Asia Europe Meeting
ATP Aid for Trade Provision
ATTC Anglo-Taiwan Trade Committee
BNFL British Nuclear Fuels Ltd.
BREL British Rail Engineering Ltd.
CAL China Airlines
CBI Confederation of British Industry
CCP Chinese Communist Party
CEGB Central Electricity Generating Board
CFSP Common Foreign and Security Policy
CLP China Light and Power
COCOM Coordinating Committee for Multilateral Export Controls
CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Part-
nership (see TPP)
DfID Department for International Development
DMZ Demilitarised Zone
DPP Democratic Progressive Party
DPRK Democratic People’s Republic of Korea (North Korea)
DTI Department for Trade and Industry
EC European Community
EEC European Economic Community
EU European Union

xvii
xviii ABBREVIATIONS

FCO Foreign & Commonwealth Office (also referred to as Foreign

Office)
FDI Foreign Direct Investment
FPDA Five Power Defence Arrangements
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade
GE General Electric Company (USA)
GEC General Electric Company (UK)
GDP Gross Domestic Product
GSP Generalised System of Preferences
HSBC Hong Kong and Shanghai Banking Corporation
IAEA International Atomic Energy Agency
ICG Intergovernmental Consultative Group (on Indo-Chinese refugees)
ICI Imperial Chemical Industries
ICT Information and Communications Technology
IPR Intellectual Property Rights
KCIA Korean Central Intelligence Agency
KEDO Korean Peninsula Energy Development Organisation
KMT Kuomintang (Chinese Nationalist Party)
MAC Military Armistice Commission
NAAFI Navy, Army and Air Force Institutes
NATO North Atlantic Treaty Organisation
NDRC National Development and Reform Commission (China)
NPT Non-Proliferation Treaty
ODA Overseas Development Administration (predecessor to DfID)
ODP Orderly Departure Programme
OIE World Organisation for Animal Health (previously Office Interna-
tional des Epizooties )
PLA People’s Liberation Army
PRC People’s Republic of China
RoC Republic of China (Taiwan)
RoK Republic of Korea (South Korea)
RAF Royal Air Force
SOE State-Owned Enterprises
TAC Taiwan Aerospace Corporation
TGV High-Speed Train (Train à Grande Vitesse)
THAAD Terminal High Altitude Air Defence
TPP Trans-Pacific Partnership (see CPTPP )
TRA Taiwan Railways Administration
UK United Kingdom
UN United Nations
UNHCR United Nations High Commission for Refugees
UNSC UN Security Council
USA United States of America
USSR Union of Soviet Socialist Republics (Soviet Union)
WTO World Trade Organization
 List of Figures

Fig. 2.1 Exports of goods and services as a percentage of GDP

for the UK and EU, 1980-2018 EU = EU member states
as at mid-2020 (Source World Bank National Accounts
data, and OECD National Accounts data files, https://
data.worldbank.org/indicator/NE.EXP.GNFS.ZS?contex
tual=region&end=2018&locations=EU&name_desc=true&
start=1980&view=chart, retrieved 20 July 2020) 16
Fig.2.2 Net inflows of FDI as a percentage of GDP, UK and EU,
1990–2019 (Source World Bank Data Bank series
on Foreign Direct Investment) 29
Fig. 8.1 China’s imports from France, Germany, Italy and the UK,
2000–2015 (Note Figures are US dollars. Source
International Monetary Fund, Direction of Trade Statistics) 130

xix
 CHAPTER 1

Introduction

I set foot in East Asia for the first time in September 1979. A young and
wholly inexperienced diplomat, I had been in the Foreign & Common-
wealth Office (FCO) for scarcely nine months before being posted to
Seoul, initially to learn Korean before taking up a position in the British
embassy as the junior political officer. It was a posting for which I was
singularly unprepared. Although I had travelled in remote areas of the
world as a student, to travel even for weeks at a time with friends of
a similar cultural background and speaking the same language was no
preparation for the impact of being suddenly confronted by an alien
language and script, very different food and even different implements
with which to eat it. And the individualistic self-confidence, even arro-
gance, of a young westerner came quickly into conflict with the collective
and hierarchical nature of Asian society. Nor did I go without reserva-
tions. Not only did South Korea seem to me in my ignorance to be
something of a backwater as a diplomatic posting, but the country was
also under the authoritarian rule of Park Chung Hee, who had governed
since seizing power in a military coup in 1961, and concerns about
repression and human rights abuses were widespread.
Not that this seemed to worry the government in London unduly.
South Korea was one of the four Asian ‘economic tigers,’ along with
Hong Kong, Singapore and Taiwan, all of them growing at a seem-
ingly breakneck pace, and the principal objective of the embassy was to

© The Author(s) 2020 1

M. Reilly, The Great Free Trade Myth,
https://doi.org/10.1007/978-981-15-8558-6_1
2 M. REILLY

help British exporters win business, not to persuade the Korean govern-
ment to treat its citizens properly. As one of my predecessors in the
embassy explained to a British journalist: ‘We’re a commercial embassy
actually. South Korea is a land of golden opportunities for the British busi-
nessman.’ He went on to complain about the British press focussing on
‘ depressing aspects like the mass arrests,’ or torture and the suppression of
human rights, worried that such reports would discourage businessmen.1
But my reservations were soon balanced, if not overcome, by the excite-
ment I quickly felt at the sheer pace of change that embraced not just
Seoul and South Korea but almost all East Asia. This was to be a recurring
theme throughout my career.
Physically, Seoul could hardly be considered an attractive city. Exten-
sive damage in the Korean war combined with widespread poverty in the
1950s, followed by rapid economic growth since the early 1960s, had
bequeathed a legacy of gimcrack buildings best described as ‘shoebox
vernacular,’ although a surprising number of traditional one-storey build-
ings with their distinctive tiled roofs remained, even in central parts of the
city. The country was still very isolated and largely inward-looking. The
few westerners were almost invariably assumed to be Americans, either
military or missionaries.
This isolation was in part historic, in part a consequence of the post
2nd World War settlement in East Asia. Neither North nor South Korea
were then members of the United Nations. Reflecting the Cold War
divide, only three of the five permanent members of the UN Secu-
rity Council—the USA, United Kingdom and France—recognised South
Korea. Not even all the members of the then nine-strong European
Economic Community (EEC) had diplomatic relations with South Korea,
and fewer than fifty countries had embassies in Seoul.2 Most of these
were modest presences in downtown office blocks or houses adapted to
meet diplomatic requirements. Only a handful of countries had a more
substantial presence.
As befitted the main security guarantor, which at the time had more
than 30,000 troops in the country, the largest embassy was that of the
USA, which occupied a large but functional office block, built with aid
money in the early 1960s, and just across the road from the main govern-
ment building, then a large Japanese era complex, since demolished. In
a sign of the uneasy relationship with the former colonial occupier, the
Japanese embassy was close to the American one but tucked away down
a side street, behind a high wall and in a decidedly utilitarian building.
 1 INTRODUCTION 3

Taiwan and Korea were then close allies, the strength of the rela-
tionship apparent in the large Taiwanese embassy (formally that of the
Republic of China). This was a grand building, albeit of fading elegance,
a combination of western and neo-classical Chinese architecture, which
occupied an enormous compound in a prime part of the city, close to the
city hall.
Only two other embassies were of any note. Reflecting the United
Kingdom’s imperial past, the British embassy compound occupied
another prime location in the centre of the city, adjacent to a former royal
palace. At that time there was still a gate in the wall between the two
compounds, a legacy of the turbulent era when the embassy first opened,
and the king wanted an escape route to a safe refuge in case he should
be attacked. The ambassador’s residence was one of the oldest and most
imposing western style buildings in the city. Only later did I learn that it
was of a generic design originating with the British Indian government
and adapted for use in consulates in China. At one time, near-identical
buildings could be seen in many of the treaty ports along the Chinese
coast, and the design is still apparent today in the former British consulate
in Tamsui in Taiwan, now a museum.
Like its British counterpart, the French embassy occupied a sizeable
compound close to the city centre. But its buildings were much newer.
Designed by a Korean student of Le Corbusier, these bore all the hall-
marks and shortcomings of the maestro’s designs, a large concrete flying
saucer-like rooftop swimming pool being reportedly unusable as the
building could not support the additional weight of water therein. At the
time, the only direct flights between Korea and Europe were to and from
Paris. Due to the Cold War, these went via Anchorage in Alaska rather
than across the then Soviet Union; in 1978 one of them strayed badly off
course and was forced to land by Soviet fighter aircraft near Murmansk,
the pilot managing to do so on a frozen lake.
The British empire was almost a thing of the past, with the government
in London around this time persuading most of the remaining colonies in
the South Pacific into a sometimes reluctant independence, but residual
trappings remained and being a British diplomat, even a very junior one,
brought a degree of status. In part this was cultural—in East Asia gener-
ally, civil servants are regarded with greater respect and deference than
are most of their European counterparts—and in part historic, not least
due to recollection and appreciation of the UK’s contribution to the
United Nations forces fighting in the Korean War from 1950 to 1953.
4 M. REILLY

This brought with it, on paper at least, a vestigial commitment to the

defence of Korea through a continuing contribution to the UN Honour
Guard. Most of the time the degree of obligation this might or might not
incur was diplomatically not raised, although one incautious colleague was
rash enough to tell a visiting journalist ‘If there’s a showdown it’s up to
the South Koreans and Americans. Can you see us sending in a division?’3
Although this contribution was minimal, never more than one platoon at
a time, it was served by a regular RAF VC10 flight every other month.
From a personal point of view this presence brought the benefit of regular
supplies of familiar foods, ordered from the NAAFI4 in Hong Kong, and
regular and speedy mail contact with home via the British Forces Post
Office service.
About the time that I arrived in Korea, Robert Shaplen, the New York-
er’s Far Eastern correspondent for most of 1960s and 1970s, published a
book based on his experience in Asia going back to the Leyte landings by
US Forces in 1944. In his introduction, Shaplen compared the welcome
US forces received in the Philippines then with the looks of contempt
and hatred on the faces of locals as he fled Saigon on its fall to North
Vietnamese forces in 1975. ‘What had happened over those thirty-odd
years… to cause love to turn to hate?’ he asked.5 He went on to describe
a period of upheaval and change, of violence and unrest in Asia. But he
concluded on an optimistic note: China and the US had normalised rela-
tions, China and Japan had drawn closer and he thought China seemed
determined to pursue a moderate and modernising course.
In September 1979 and indeed in the years afterwards, it seemed hard
to reconcile this optimism with events on the ground. January 1979 had
seen the downfall of the Shah of Iran and the founding of the Islamic
Republic, followed a month later by the Chinese invasion of Vietnam,
while the year-end would see the Soviet invasion of Afghanistan. The Cold
War was at its height, not least in East Asia. Seoul had the atmosphere of
a city under threat: a huge US Army base dominated the centre of the city
(it is still there today but smaller, while the growth of the city over the
subsequent forty years makes its modern presence far less apparent) and
a nightly curfew was in place, supplemented by monthly air raid drills.
A couple of days after my arrival I watched from the window of my
high-rise hotel as a convoy of tanks rolled along the city’s main thor-
oughfare during the curfew. To my young and cynical mind these were
tools to oppress the population but the threat they were a reaction to
was real: in 1968 a North Korean commando squad had got within a few
 1 INTRODUCTION 5

hundred metres of the presidential Blue House and in 1974 the presi-
dent’s wife was killed at the National Theatre in an assassination attempt
on her husband. Barely more than a month after my own arrival the pres-
ident himself, Park Chung Hee, was assassinated, not by a North Korean
infiltrator but by the head of his own intelligence service.
This heralded the onset of a decade of turmoil for much of East Asia,
culminating in the Tiananmen Square massacre in Beijing in June 1989.
In Korea, Park’s assassination was followed by a military coup less than
two months later, then the Gwangju massacre of May 1980, in which at
least 165 civilians, probably more, were brutally killed by paratroopers
sent in to quell the protests, and the murder of several members of the
government by a North Korean bomb in Rangoon (Yangon) in 1983.
The Rangoon bomb came barely a month after a Korean airliner had been
shot down after straying into Soviet Union airspace, with the death of all
269 people on board. Four years later another 115 people were killed
when North Korean agents detonated a bomb aboard another Korean
Air flight.
At the time, a Chinese general used to sit with North Korean coun-
terparts across the table from American, South Korean and British
representatives in Military Armistice Commission talks at Panmunjom in
the Korean Demilitarised Zone (DMZ). In the spring of 1983, a Chinese
civilian airliner on an internal flight was hijacked and forced to land at a
small military airstrip near Seoul. The subsequent negotiations over the
return to China of plane and passengers was the first substantive contact
between the governments of the People’s Republic of China (PRC) and
the Republic of Korea (RoK), which until then refused to recognise one
another.
My first posting to Seoul ended in 1984; two years later and back in
London I was on the Indo-China desk as it was then called in the FCO,
dealing not only with the fallout from the end of the Vietnam war, in the
form of the exodus of ‘boat-people,’ but also with the ongoing fighting
in Cambodia. An almost un-noticed sideshow of this was the simmering
conflict between China and Vietnam, in which the former was shelling
the latter on a near-daily basis.
Thirty years on, the upheaval and change has continued but over-
whelmingly for the better. In 2012, my wife and I were strolling around
the town of Yichang on the Yangtse river in China when we met an old
woman in her 80s. Her family had moved to Yichang from Wuhan further
downstream when she was a young girl to escape the Japanese advance
6 M. REILLY

early in the 2nd World War. She had subsequently lived through the
Chinese civil war, then the horrors of the Great Leap Forward and mass
starvation, then those of the Cultural Revolution. For her, the 30 years
since the start of Deng Xiaoping’s reforms and opening had brought
peace, stability and relative prosperity. She was far from alone—her story
is widespread throughout East Asia. It is a story I have been privileged to
witness, albeit at a distance and from the semi-detached perspective of a
western diplomat.
Despite this progress, forty years on signs of Shaplen’s optimism
remain hard to come by. Nationalism is on the rise again; China has
developed beyond all recognition but the moderation in its policies that
was assumed prior to 1989 is hard to reconcile with its territorial expan-
sionism in the South China Sea, or its increasing assertiveness towards
Taiwan, whose young people are fearful as to whether their country
will survive against the relentless squeeze of Chinese pressure under
Xi Jinping. Japan, widely predicted in the 1980s to overtake America
economically by the end of the century, instead suffered the ‘lost decade’
of economic stagnation. Globalisation is bringing losers as well as winners
to East Asia—competition from cheap labour in China has meant that real
wages have stagnated in Taiwan for the better part of two decades.
And while Pax Americana has provided a degree of security and reas-
surance to much of the region, will it continue? While American foreign
policy helped mould countries such as Japan, South Korea and Taiwan
in ways to America’s liking, and brought them firmly within its security
ambit, many in America now see China as a strategic rival. Just as impor-
tantly, North Korea apart, almost all the region has also benefited from
the US designed post-war trading system, a system that at the time of
writing is under threat, with potentially huge consequences for a part of
the world that has built its prosperity on trade.
Not all is gloom. There have been encouraging moves from authoritar-
ianism to democracy. China’s economic rise has been fuelled in no small
measure by Taiwanese investment, something unthinkable in the 1980s.
The leaders of the USA and North Korea have met face to face although
inter-Korean dialogue has waxed and waned, seemingly in accordance
with the prevailing mood in Pyongyang.
But all this has gone hand in hand with another upheaval. On 1
January 1973, the United Kingdom (UK) joined the then European
Economic Community (EEC) as one of three new members. Eleven
 1 INTRODUCTION 7

months earlier, Sir Alec Douglas-Home, the then British foreign secre-
tary, had visited Seoul. His briefing notes on the impending accession to
the EEC were full of confidence and optimism:

We believe that our entry… will increase Europe’s economic strength…As

a member of the Community we shall seek to reinforce its outward looking
policies and the enlarged Community will be a considerable force for
the maintenance of liberal trade…It is inevitable that the scope of the
Community’s external policies will broaden as member countries become
harmonised. We shall be joining the Community at a moment when we
shall be able to influence the process of development in these fields.6

Forty-four years later I was in Taipei when the UK electorate voted 52%
to 48% to leave the—by now 28 strong—European Union. Tempting
though it is to ask Shaplen’s question about love turning to hate about
the UK’s exit from the EU, or even more, to see in it the same ideological
factionalism and absence of cohesive leadership that he described in Asia,
that is not the purpose of this book. Many others have already written at
length about the decision and the reasons behind it.
But over the same interval I witnessed at first-hand how rivalry
between European countries, driven by their trading interests, gradually
gave way to increasing co-operation and engagement with the coun-
tries of East Asia as they both grew economically and, in some cases,
changed politically. The influence of Europe on this trend is the subject
of considerable debate: the EU’s approach is sometimes portrayed as a
‘values-based diplomacy’ that attempts to impose European norms on
countries with very different traditions through missionary style preaching
or exhortation, an approach that is not well received in the region.7
I do not intend to debate this here. What I do consider to be incon-
trovertible is that increased engagement by the EU with the countries
of East Asia over the last forty years has been mutually beneficial. It has
contributed to increased stability and security in East Asia. This has both
aided the rise of China but has also been a constraining factor, making
China a more predictable and reliable neighbour than would have been
the case otherwise. The United Kingdom was a major influence on this
engagement, helping shape European involvement, and thereby offset-
ting the decline in influence that it would have otherwise experienced in
East Asia, especially following the handover of Hong Kong and the rise
of new actors. And the UK was in turn a major beneficiary, above all, of
8 M. REILLY

inward investment from East Asia as businesses there sought to develop

opportunities in the European single market. By 2016, Japanese compa-
nies alone were employing close to 5% of the entire labour force in the
UK’s manufacturing sector.8
The UK’s withdrawal from the EU inevitably raises questions over the
future direction and depth of engagement with the region, both by the
United Kingdom itself and by the EU without the UK as a member. The
British government has spoken of increased bilateral engagement with
the countries of East Asia after Brexit, even to the extent of opening a
new military base in the region. But the basic question of whether it has
the resources to do so, even if it has the political will to commit to this
long-term, remains unanswered.
While domestic critics have dismissed visions of new military bases as
mere ‘grandstanding,’9 during and since the 2016 Brexit referendum, the
idea that Britain has always been a great trading nation has increasingly
taken hold, and with it the notion that by leaving the EU the country
can recapture its trading destiny. In practice, as I will seek to explain,
this is something of a myth. But it is a powerful and seductive myth that
has influenced—and not infrequently misdirected—British policy towards
East Asia over the last forty years. The growth of British influence since
has come despite this, not because of it.
After the 2nd World War, the British government was driven by
economic necessity to increase exports to help repay debts incurred in
fighting the war and rebuild the country. In the late 1970s too, increasing
exports was an essential aspect of emerging from a humiliating IMF struc-
tural adjustment programme. But to do this, the country relied heavily
on former colonial links, and as a result was slow to adapt to a changing
global economic environment, the rise of the new Asian economic power-
houses especially. Meanwhile, the domestic market remained protected
from the full force of Asian competition as successive governments in
London anxiously sought to protect industry and jobs.
Far from being a great free trading nation, as some politicians would
like to believe, for most of the last seventy-five years, and in common with
the policy of many of its European partners, Britain’s approach to East
Asia has been essentially neo-mercantilist. The British government was
not alone in this: trade is the driving force behind European engagement
with East Asia, and in trade the member states of the EU remain fierce
competitors. It was possibly one reason why Margaret Thatcher was so
keen to see the European Commission retain responsibility for setting and
 1 INTRODUCTION 9

managing European trade policy, although she was also vocal in her desire
to see the EU try to speak with a single voice on the global stage (both
positions contrary to what many Brexiters would like to believe).10 In
Britain’s case, this neo-mercantilism inhibited its willingness to co-operate
with partners almost from the very start of its membership of the EEC.
This intra-European competition and reluctance to co-operate
provided repeated opportunities for the countries of East Asia to use
it to their own advantage, as I will try to show. In part, British reluc-
tance was due to somewhat patronising and outdated assumptions about
the country’s influence and standing. Apart from France, no other EU
member state has had the same history or depth of connections with East
Asia as the UK. This could be an advantage for them almost as much
as the reverse, especially in dealings with China, which has never been
slow to dredge up perceived past humiliations by imperial Britain, or to
accuse it of duplicity over Tibet, for example, accusations from which
other member states are largely exempt. By the 1980s too, the UK was
increasingly anxious to extricate itself from potential security commit-
ments which it could no longer afford, while clinging on to the same
links for the trade benefits they brought.
In East Asia, this policy was becoming steadily more untenable as
governments increasingly started to question the UK’s commitment to
the region or grated at outdated attitudes. In the short term, accession
to the EEC gave the British government valuable breathing space in its
trade objectives. In common with other European governments, it faced
pressure from domestic manufacturers and unions to offer some protec-
tion from new and aggressive Asian competition. This affected a range of
manufacturing sectors: textiles, electronics, footwear, cutlery and more.
With the European Commission responsible for Community trade policy,
the British government could, and did, push in Brussels for high levels
of protection for its own key sectors, while claiming to Asian govern-
ments that the responsibility for the quotas, tariffs and ‘voluntary restraint
agreements’ lay with the Commission, not itself.
But it was in the longer term that the real benefits of accession to the
EEC were to accrue, following the creation of the European single market
in 1993, itself very much a major British policy objective and achieve-
ment. This was to bring significant economic benefits, especially in terms
of foreign direct investment. As early as 1990, the then trade secretary was
telling the prime minister that the UK had managed to double its share
of exports to Japan as a proportion of Japanese gross domestic product
10 M. REILLY

(GDP) and that 130 Japanese companies had established factories in the
UK.11
The UK was able successfully to build on both this and its histor-
ical links, on the one hand to persuade the countries of East Asia to
see it as their ‘natural partner of choice’ within the EU, or ‘gateway
to Europe,’ and on the other to influence the formulation of Euro-
pean policy towards the region. By examining the history of the UK’s
engagement with the region over the last forty years through a series of
case studies, I aim to show that while Britain’s overall policy remained
neo-mercantilist in nature, British diplomacy evolved over that time from
being primarily bilateral, to working with partners in the EU to achieve
national objectives, and how in East Asia this brought significant bene-
fits for the country; benefits that would have been much harder, if not
impossible, to achieve had Britain sought to act unilaterally. Furthermore,
by acting in this way, British diplomacy was able to more than offset
what would otherwise have been a near certain decline in the country’s
influence and standing in the region.
Not surprisingly, most academic studies of the EU’s relations with the
region focus on relations with China or Japan. As the world’s second
and third largest economies respectively, they are of major significance
for the trade-based interests of the EU. I examine the region, however,
primarily through my own involvement in the course of my diplomatic
career, from the very junior level first of attaché then 2nd Secretary in
Seoul, through participation in multinational summit preparations, to my
final appointment as the UK’s representative in Taiwan. Through this, I
have been able to observe at first hand the way EU influence has grown
over time but also experienced the way British diplomacy has adapted to
this influence, and been able to lever it successfully to counter any loss of
influence stemming from changes in our wider relations with the region.
I include, too, consideration of recent policy towards China, not from
a diplomatic perspective but that of a business representative, a role in
which I spent four years at the end of my career.
There is, therefore, a strong personal flavour to the account, which
has a heavy focus on South Korea and Taiwan. I make no apology for
this. For much of the period under consideration, levels of awareness in
Europe about both of them were modest (I still recall the astonishment
in 1995 of the senior FCO official responsible for relations with Asia on
being told that the South Korean economy was bigger than that of all the
ASEAN economies combined).12 Critics might object that I focus too
 1 INTRODUCTION 11

heavily on a few major contracts, or even on a single firm, GEC, and that
these were far from representative of British diplomacy to the region as a
whole,.
To try to mitigate such criticism, South East Asia features primarily
in the context of multilateral diplomacy, principally in efforts to end
the conflict in Cambodia and the problems surrounding ‘boat people’
fleeing Vietnam. This is not intended as a slight on other countries in the
region, more a matter of pragmatism. I could have chosen more recent
conflicts in the region, such as Timor Leste’s struggle for independence
from Indonesia, resolution of the unrest in Aceh following the disastrous
Indian Ocean tsunami of Christmas 2004, or the long drawn out polit-
ical struggle in Myanmar, all ones in which I was also involved in the
diplomatic efforts to find solutions.
Although this is very much an account formed by personal experience,
however, I have no wish to be accused of breach of privilege and have
therefore sought to draw on the official records in support of my argu-
ment or analysis as far as possible. In these more recent cases, any account
must therefore await the release of the files for public scrutiny. For the
same reason, my three years in the Philippines from 1997 to 2000, where
British personnel played a disproportionate role in the EU’s development
aid programme, are not covered.
In looking at Vietnam and Cambodia, I have gone beyond my original
involvement to consider the rise of broader multilateralism in EU-Asia
relations, principally dialogue in the ASEAN Regional Forum (ARF) and
the Asia Europe Meetings (ASEM). Japan, whose own relations with the
UK were the catalyst for so much of the inward investment that helped
transform the British economy in the 1990s, is overlooked not through
any personal animus or bias but ignorance—I have never been sufficiently
involved in policy with Japan to be able to offer a meaningful perspective.
Others have covered it in far more detail and with far greater expertise
than I would be able to. The same is true of Hong Kong. So much has
been written about China, on the other hand, that I almost hesitate to
mention it separately at all. But China’s rise has been, and will continue
to be, a major influence on its neighbours and I have sought to cover
this, albeit inadequately, in looking at those neighbours.
In each case that I consider, I have looked primarily at periods when I
was directly involved but have supplemented this with reference to both
the public records and other published work to provide a broader context
and longer perspective as appropriate. In some cases, principally more
12 M. REILLY

recent policy towards Taiwan, the files are not yet open and in these cases
I have sought recourse to contemporary media accounts, rather than rely
on my own, inevitably selective and less than fully reliable, memory.
Looking back over the last four decades, a circularity and inter-
dependence can be seen between the broad themes I have mentioned.
The rise of China has not happened in isolation but has been part of
the broader changes within East Asia, which in turn have driven greater
European interest in the region, initially in response to the new trade
opportunities created. As trade has grown, so it has stimulated wider
interest: people to people exchanges in the form of tourism, studying
and more; exchanges on human rights; co-operation on climate change,
environmental protection and more.
The final chapter therefore considers briefly what the future is likely
to hold in store now that the UK has left the EU. Questions must be
asked about the extent to which both will focus on relations with East
Asia with the UK no longer a member. China’s Global Times newspaper
voiced the doubts of many in the region in describing the outcome of
the 2016 referendum as a ‘lose-lose’ situation for both the UK and EU,
and a reflection of the ‘general decline’ of Europe.13 Faced with many
challenges closer to home, in the Middle East, in North Africa and grap-
pling with new challenges on home soil, particularly the rise of an angry
populism, will the EU scale down its engagement with the countries of
North East Asia?
As importantly, how will those same countries respond? Will China,
for example, faced with a more antagonistic and less accommodating USA
than it has been accustomed to, see in Brexit an opportunity to strengthen
its relationship with the EU as a counter to American pressure? How
would its neighbours react to such moves? Will Taiwan and Korea seek to
follow suit, or will they place more emphasis on their relations with the
USA at the expense of those with the EU or UK? Will such a significant
split in the EU act as a deterrent to further regional co-operation in East
Asia or might it, perhaps paradoxically, be a spur? I end by trying to assess
what withdrawal from the EU will therefore mean for the UK’s long-term
interests in East Asia and, as importantly, what the consequences are likely
to be for the region itself. For example, one author has described relations
between China and Taiwan as a ‘cold peace,’ to which the EU’s carefully
calibrated approach has until now contributed.14 Will Brexit put this at
risk?
 1 INTRODUCTION 13

Notes
1. Robert Whymant: British silence on Seoul repression condemned, The
Guardian, 27 August 1974.
2. Ireland, one of the nine members of the EEC, did not establish diplomatic
relations until 1983.
3. Robert Whymant, The Guardian, 22 May 1975.
4. NAAFI—Navy, Army and Air Force Institutes, the official trading organ-
isation for British forces.
5. Robert Shaplen: A Turning Wheel, Thirty Years of the Asian Revolution,
London 1979.
6. Briefing note for foreign secretary’s visit to South Korea, February 1972,
UK National Archives (hereafter TNA), FCO 30/1315.
7. For a brief overview of this debate see Wai Ting: EU-China Rela-
tions After Brexit, in David W.F. Huang and Michael Reilly eds.: The
Implications of Brexit for East Asia, Singapore 2018.
8. Michael Reilly: The Burial of Thatcherism? The Impact of Brexit on the
UK’s Relations with North East Asia in Huang and Reilly, op. cit.
9. Michel Peel: UK Grapples with Post-Brexit Asian Ambition, Financial
Times, 4 January 2019, https://www.ft.com/content/1816b5f6-0f71-
11e9-a3aa-118c761d2745, retrieved 12 February 2019.
10. Margaret Thatcher: Speech to the College of Europe, Bruges, 20 September
1988, http://www.margaretthatcher.org/document/107332, retrieved
10 February 2019.
11. Minute from secretary of state for trade and industry (Nicholas Ridley) to
prime minister, 8 June 1990, TNA, PREM 19/354.
12. ASEAN—Association of South East Asian Nations. At the time, the
member states were Brunei, Indonesia, Malaysia, Philippines, Singapore,
Thailand and Vietnam.
13. Britain Steps Backward as EU Faces Decline, Global Times , 25 June
2016, http://www.globaltimes.cn/content/990440.shtml, retrieved 12
February 2019.
14. Maaike Okano-Heijmans: EU Trade Diplomacy and the Cold Peace in
Cross-Strait Relations , Clingendael, 2016, https://www.clingendael.
nl/publication/eu-trade-diplomacy-and-cold-peace-cross-strait-relations?
utm_source=New+Policy+Brief+EU+trade+diplomacy+towards+China+
and+Taiwan&utm_campaign=8e268496ba-NEW_POLICY_BRIEF_
2016_11_10_EU_TRADE_CHINA_TAIWAN&utm_medium=email&
utm_term=0_fccd1f7a2c-8e268496ba-79888485, retrieved 20 February
2019.
 CHAPTER 2

Imperial Ties and Free Trade

The Origins of Free Trade

One of the most persistent arguments of those in theUnited Kingdom
(UK) arguing for leaving the EU has been that doing so would free the
country to negotiate its own trade deals with other countries around the
world. Underlying this is a frequently expressed notion that EU bureau-
cracy and the differing objectives of some other member states were
somehow hampering Britain’s global trading ambitions. This was stated
clearly by then prime minister Theresa May in her Lancaster House speech
of January 2017, in which she set out her vision for the future relation-
ship between the UK and the EU after Brexit. In it, she asserted that
‘Many in Britain have always felt that the United Kingdom’s place in the
European Union came at the expense of our global ties, and of a bolder
embrace of free trade with the wider world.’1
Somewhat inconveniently, UK trade statistics overall do little to
support this free-trade vision, or the notion that membership of the EU
is somehow holding it back. As Liam Fox, the UK’s international trade
secretary from 2016–2019 admitted, trade is considerably less important
to the UK than to its former fellow EU member states, with an export
to GDP (Gross Domestic Product) ratio of 27.3% compared to an EU
average of 47.3%.2 It was not always the case. As Fig. 2.1 shows, in 1985
the ratio was almost the same for both the UK and EU. But since 1990,
the rate of growth of exports has been proportionately faster and greater
for the EU than for Britain. Yet this has largely coincided with the impact

© The Author(s) 2020 15

M. Reilly, The Great Free Trade Myth,
https://doi.org/10.1007/978-981-15-8558-6_2
16 M. REILLY

Exports of goods and services as percentage of GDP, 1980 -

2018
50
45
40
35
30
25
20
15
10
5
0
1985 1990 1995 2000 2005 2010 2015 2018
EU UK

Fig. 2.1 Exports of goods and services as a percentage of GDP for the
UK and EU, 1980–2018 EU = EU member states as at mid-2020 (Source
World Bank National Accounts data, and OECD National Accounts data files,
https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?contextual=region&
end=2018&locations=EU&name_desc=true&start=1980&view=chart, retrieved
20 July 2020)

of structural reforms that were meant to liberalise the British economy.

(The figures are for exports of goods and services, further suggesting that
the oft-heralded shift in the economy towards services has not made a
material difference to export performance.)
But it is a powerful narrative nonetheless and one reason (although
there were others) why the withdrawal agreement Mrs May negotiated
with the EU provoked so much opposition from the government’s own
Brexiter parliamentarians. They feared that the proposal for continuing,
albeit temporary, membership of a Customs Union with the EU would
prove long-lasting, possibly permanent, preventing the full achievement
of their objective.
Behind this view is a conviction that prior to joining the Euro-
pean Community, the UK had a long and glorious history as a nation
committed to free trade. By contrast, some other EU member states,
especially ‘Mediterranean members,’ are supposedly inherently protec-
tionist and this protectionism affects British interests and places its
economy at a disadvantage.3 Hence the government’s official position
paper on the proposed future relationship with the EU post-Brexit,
 2 IMPERIAL TIES AND FREE TRADE 17

published in August 2017, included the establishment of an independent

international trade policy as one of three key objectives.4 The same paper
highlighted the importance of China in international trade, with a strong
inference that negotiation of a free trade agreement with China would be
a priority for the UK once it left the EU. This was consistent with a wider
Brexiter narrative, that the UK needed to be building stronger trade ties
with the fastest growing economies in the world, many of which were
in East Asia, and not be hampered from doing so by its links with the
supposedly much more sclerotic economies of the EU.
This perception of the UK as a free-trading country is usually placed
as dating back over 150 years to the abolition of the Corn Laws in
1846 by Robert Peel, the Conservative prime minister of the day. But
it overlooks a fundamental feature of the UK’s trading history. For in
contrast especially to Germany, the primary interest of British businesses
overseas was less in exporting goods and more in investing: in utilities,
especially, notably railways, but also in natural resources—agriculture in
Australia and Argentina, rubber plantations in Malaya, mines everywhere.
The remittances from these investments were returned to the UK and the
export of goods from the country—of railway locomotives, for example,
was frequently to supply these investments. This is such an important but
often overlooked point that it merits a short digression into economic
history following the repeal of the Corn Laws.
The laws had served the interests of the land-owning classes very effec-
tively by keeping the price of imported grain high and the immediate
outcome of their abolition was a split in the Conservative Party, whose
land-owning members not surprisingly opposed Peel’s move. Abolition of
the laws was a unilateral move; there was no quid pro quo demanded from
countries exporting their grain to the UK, such as reducing or abolishing
tariffs they might impose on British exports.
At the time the laws were repealed this did not matter, for two reasons.
Firstly, the initial economic impact of the repeal was limited—over twenty
years later, over 80% of grain, meat, dairy produce, and wool consumed
in the UK was still produced domestically. Secondly, at least until 1870,
the country could legitimately claim to be the ‘workshop of the world,’
with its two biggest foreign markets being the United States of America
and Germany, the two next largest industrial economies. But over the
ten years between 1870 and 1880 the UK was faced first with an influx
of wheat from the American prairies and Russia at prices with which
domestic growers could not compete, secondly with an abrupt fall-off in
18 M. REILLY

exports to the USA and stagnation in those to Germany as competition

from domestic producers in each took off, and finally, increased competi-
tion from American, German, French and Belgian manufacturers in third
country markets the UK had hitherto dominated if not monopolised.5
The dominance of British manufactured exports in world markets up
to this point was due not to superior quality or lower prices, however,
but to London’s unrivalled position as the pre-eminent global financial
centre. This remained unchallenged up to the outbreak of the 1st World
War in 1914. Foreign governments and enterprises raised money for their
projects on the London capital market while domestic manufacturers, in
new industries especially, complained about the difficulty of raising capital
because preference was given to financing foreign bonds. More than one-
third of all the overseas finance out of London prior to the 1st World War
went to North America and much went to Europe too.
But after 1875 especially, as the competition from other exporters
grew, significant amounts were going into the colonies and dominions
overseas, or countries such as Argentina, whose economies were also
heavily dependent on that of the UK. Most of this went into financing
new railways, built to open up major new agricultural areas.6 Finance
from London was followed by rails, locomotives and rolling stock from
elsewhere in the UK, the capital used to finance the infrastructure helping
create a privileged market for British goods, frequently reinforced by
British management of the enterprise. (Many of the infrastructure projects
being pursued by China under its Belt and Road Initiative make for
interesting contemporary comparisons.) The scale of this is rarely appre-
ciated today. Railways throughout Latin America, for example, were not
only predominantly British owned but staffed by Britons, down to the
lowest managerial levels. Nationality, not competence, was frequently the
primary criterion for selection.7
(Even in the 1980s, a company like the Hong Kong and Shanghai
Bank—at the time registered in Hong Kong, not in London—recruited
its managerial level staff almost exclusively in the UK. They were also
overwhelmingly if not universally male, forbidden from marrying until
they had served with the bank for a set period of years and even then, only
with their managers’ express permission. British companies were also still
prominent in international shipping, again sending young recruits from
the UK to serve overseas in managerial positions. Today, British-owned
companies have all but disappeared from international shipping, while a
largely overlooked aspect of globalisation has been the extent to which
 2 IMPERIAL TIES AND FREE TRADE 19

hitherto expatriate managerial positions are now occupied by nationals of

the country concerned, often more highly educated as well).
This meant that Great Britain was able to sustain a strong export base
of manufactured goods, even while losing out to competitors in many
of its previous established markets. In short, the political commitment
to free trade worked firstly because it kept the domestic price of food
low, secondly because British investment overseas, especially in countries
where management decisions were usually taken by Britons, ensured ready
markets for British manufactured exports even as foreign competition
grew, and thirdly because the same investment saw a steady export of
people in support, acting as a safety valve against limited opportunities at
home.

Imperial Preference and East Asia

This was driven and sustained by a powerful imperial mind set, exempli-
fied by the views of Joseph Chamberlain, colonial secretary from 1895 to
1903, who saw the ‘Anglo-Saxon race’ as ‘infallibly …the predominant
force of future history and universal civilisation’ with a national mission
to bring civilisation to the world.8 While such a view was common at the
time and far from confined to the ‘Anglo-Saxon race’—it differs little, if at
all, from the French mission civilisatrice—it has also brought with it long
term baggage that has been difficult to shake off, not least in Asia. The
UK features at the top of China’s list of the overseas imperialists respon-
sible for its ‘century of humiliation’ for example, and suffered from then
Malaysian prime minister Mahathir Mohamad’s’ ‘Buy British Last policy’
of 1981.
To underpin his imperialist vision, Chamberlain advocated replacing
free trade with the rest of the world by a system of ‘Imperial prefer-
ence,’ which would see lower or zero tariffs on goods from the empire
and dominions than on those from the rest of the world. At the time,
his arguments were rejected by others within the Conservative Party
who recognised this would mean higher prices on food imported from
the USA or Europe. But they would be successful in 1932 when the
chancellor of the exchequer, Chamberlain’s son Neville, introduced a
general system of tariffs, goods from the empire being admitted tariff
free. Admittedly, this was against the background of worldwide moves to
protectionism, notably the introduction of the Smoot-Hawley tariff in the
USA in 1930.
20 M. REILLY

The changed economic circumstances for the UK after the 2nd World
War had a dramatic impact on the country’s wider economic interests.
Britain was still an imperial power, with worldwide obligations. But for
the USA, under the Roosevelt administration’s support for Britain prior
to formal entry into the war after Pearl Harbor, ‘eliminating imperial
preference had become a neoreligious quest’ and it sought to make free
trade on American terms a key pillar of the post-war global economy.9
By 1945, Britain’s exports were barely half what they had been in 1938
and its overseas capital assets fell 45% between 1938 and 1948, through a
combination of nationalisation in the countries concerned and the expiry
of concessions, or their exchange or forced sale as part of wider deals to
settle post-war debts.10 More than half of the remaining stock of £1960
million was in Commonwealth countries.
In East Asia, the biggest share by far was in Malaya and Singapore,
where the total nominal capital in 1948 was £64 million. But this was still
less than the amount invested in New Zealand or in British Central Africa.
The figure for China, at £36 million, was dwarfed by the £260 million
invested in South America, still more the £397 million in Australia.11
Post-war British governments were not unnaturally anxious to protect
what overseas investments did remain, and the government’s early move
to recognise the new People’s Republic of China (PRC) in 1950, one of
the very first western countries to do so, was driven by an ultimately futile
attempt to protect this investment.12
The immediate post-war policy objective in respect of the region was
to ‘re-establish our commercial position in China and Japan and …to try
to exercise such influence as was possible upon the post-surrender poli-
cies for Japan.’ But after Indian independence in 1947 and the advent
of the PRC, Malaya remained as ‘one of the great jewels in the British
imperial crown,’ the significant investments there being both markets for
British exports and major earners of all-important foreign exchange. By
1964 they would also be among the most profitable of all the UK’s over-
seas investments, earning more than twice the average level and exceeded
only by those in Germany. (Interestingly, investments in Italy were the
next most profitable—even before Britain had joined the EEC, the oppor-
tunities within it were clearly attractive.)13 Retaining Malaya, or at least
preventing it from falling to a communist insurgency, therefore became a
major priority and 25 battalions were committed to its defence, the largest
deployment of British land forces in East Asia. (The Royal Navy retained
 2 IMPERIAL TIES AND FREE TRADE 21

a significant presence in Asian waters, its strength in the Far East in 1950
being roughly the same as that of the US Navy).14
From a trade perspective, other than Hong Kong, the rest of East
Asia barely featured in the British mind set in the 1950s. Japan was still
re-building its economy (although the stock of British investments here
was higher than it had been in China in 1948) while Korea and Taiwan
were both poor, predominantly agricultural economies. In 1950, 90% of
Taiwan’s exports were agricultural, mainly sugar, or timber. Around 40%
of imports were financed by US aid and for most of the decade the USA
and Japan together accounted for around 70% of all Taiwan’s imports
and 50% of its exports. In 1955, just 0.04% of British bilateral trade
was with Taiwan. The figures for Korea were similar.15 In short, in the
wider context of Britain’s worldwide interests, East Asia on its own was
of peripheral importance. The lack of impact was not helped by a strong
tinge of racism in national attitudes, Rana Mitter noting Churchill’s ‘clear
contempt for the Chinese in general’ prior to the 1943 Cairo conference
at which Churchill, Roosevelt and Chiang Kai-shek met to discuss the
post-war future of Asia.16

The Impact of the Suez Crisis on East Asian Policy

That East Asia featured in policy considerations at all was mainly due to
the post-war security environment, particularly in the context of the Cold
War, which in the region was far from ‘cold.’ The Chinese civil war of
1945–1949 was followed by the Korean War of 1950–1953, to which the
UK committed significant forces, and recurrent crises between China and
Taiwan. The UK’s primary concern was to try to ensure such conflicts
remained limited and thereby minimise the diversion of US attention
and resources from Europe. Although the country no longer carried
global economic weight, its leaders nevertheless felt confident enough
‘to strive to apply their ‘superior wisdom’ gained from long experience of
leadership in East Asia to guide their US ally towards making sound deci-
sions.’17 As Steve Tsang so cogently explains, the Suez debacle of 1956
brought a sharp end to such pretensions, at least in public. Thereafter,
British foreign policy would be defined first and foremost by ensuring the
maintenance of the ‘special relationship’ with the USA.
So, two years later during the Quemoy Crisis of 1958, when China
embarked on an intensive shelling of the island of Quemoy (Kinmen),
held by the Nationalist forces of Chiang Kai-shek in Taiwan but at the
22 M. REILLY

entrance to the harbour of the mainland port city of Xiamen, prime

minister Harold Macmillan instructed the Foreign Office: ‘The impor-
tant thing now was to stand by the Americans both in the interests of
interdependence and in order not to give comfort and encouragement to
our enemies and we should not appear even in private discussion to be
sniping at the Americans over the rights and wrongs of the situation.’18
The primacy of the ‘special relationship’ has endured to this day in
British foreign policy, at least so far as the politicians are concerned, if
not necessarily the officials who implement it. In 1986, as the desk officer
responsible, I was firmly put in my place when daring to suggest that the
first priority for a prime ministerial bilateral tête-à-tête with a counterpart
at the forthcoming Tokyo economic summit should be the Japanese prime
minister as host, rather than the American president. More recently, it
was expressed rather more crudely and bluntly by Jonathan Powell, prime
minister Tony Blair’s chief of staff, when he instructed the British ambas-
sador in Washington in 1997 that ‘We want you to get up the arse of the
White House and stay there.’19
A combination of decolonisation, a changing global security environ-
ment and harsh economic realities, however, have seen a steady reduction
in the UK’s security presence in East Asia, which today is purely vestigial.
A battalion of Gurkhas continues to be stationed in Brunei, paid for in
full by the sultan, and the country remains a member of the Five Power
Defence Arrangements (FPDA), created in 1971, under which the UK,
Australia and New Zealand jointly agreed to consult on assisting in the
defence of Singapore or Malaysia should they be threatened by another
power. The threat had been very real, due to Konfrontasi, the policy of
then Indonesian president Sukarno, aimed at preventing the creation of
Malaysia through the combination of already independent Malaya with
British North Borneo (now the Malaysian states of Sarawak and Sabah).
British troops remained in Malaysia throughout the emergency, which
ended in 1966 with the coming to power in Indonesia of Suharto and the
signing of a peace agreement between Indonesia and Malaysia in August
of that year.
Publicly, the FPDA was presented as an interim measure pending the
creation of a ‘South East Asia Zone of Peace, Freedom and Neutrality,’
a concept the Singaporeans reportedly considered ‘hogwash.’ Privately,
officials recognised that the withdrawal of British forces from the region
would have only a marginal effect in relation to any wider threat from
outside, and the real aim of the FPDA was thought to be in helping
 2 IMPERIAL TIES AND FREE TRADE 23

improve co-operation between Singapore and Malaysia.20 Following the

1973 oil price crisis, Britain faced major economic difficulties and Denis
Healey, the then chancellor of the exchequer (finance minister) was
anxious to make major savings in the defence budget as part of efforts
to address this.
The commitment to the FPDA was estimated to cost around
£13million, out of total non-NATO overseas defence costs of £150
million. In July 1974, the British press was told of the government’s
intention to announce the complete withdrawal on cost grounds of
all British troops from Malaysia and Singapore the following October,
although withdrawal had been considered as early as 1968. Nor was there
much enthusiasm in London for keeping the Gurkha battalion in Brunei,
even though it was already paid for wholly by the sultan. It was thought
that ‘our responsibility for Brunei’s external affairs brings us into unde-
sirable conflict with Malaysia’ and that ‘protection of an ‘undemocratic
regime’ is embarrassing internationally and in the UK.’21 It would be
another ten years before the Sultan of Brunei could be persuaded to
accept full independence from the UK, while a compromise agreement
saw the retention of a token Royal Navy presence in Singapore as well as
five RAF personnel at the Butterworth radar station in Malaysia.
In what may have been a reflection of the continuing importance in
British eyes of the relationship with the USA, the token commitment of
a platoon to the UN Honour Guard in Korea survived unscathed until
1993, when it was finally withdrawn against the background of a steady
run-down of the Hong Kong garrison, from where it was drawn, in the
run-up to the handover of Hong Kong in 1997.
If the United Kingdom felt compelled to maintain such security
commitments as a way of sustaining its ‘special relationship’ with the
USA, no such obligations applied in respect of its partners in the Euro-
pean Community (EC). It enjoyed, and continues to enjoy, a close and
co-operative security dialogue with France, a fellow nuclear power, former
colonial power and permanent member of the UN Security Council, with
the accompanying shared experience and baggage that this entails. With
other EC members, however, its historic links and continuing security
presence in East Asia, however vestigial, may have encouraged a lingering
belief in the ‘superior wisdom’ that it had applied in respect of the USA
prior to Suez.
If so, it is a notion deriving directly from the Chamberlain view
that remains remarkably enduring among some Brexiters, as shown by
24 M. REILLY

the one who asked in 2016: ‘Why should we allow accident of geog-
raphy to trump ties of language and law, habit and history, culture
and kinship?’22 Subsumed within this appears to be a conviction that
somehow the country’s rightful trading partners are its former dominions,
who would welcome British exports without question, had exporters not
been distracted by the lures of trading with Europe. It ignores the extent
to which trading patterns were already changing after the 2nd World War
and continued to change up to and in the years after the UK joined the
EC, especially in respect of Australia and New Zealand, about which such
views are probably strongest, notwithstanding that for both trade with
China is now far more important than that with the UK.23 It is, presum-
ably, a reflection in part of the large scale emigration from the UK to
both, Australia especially, which continued into the mid-1960s.
It also ignores the history of British export performance more gener-
ally following the 2nd World War, as the advantages for exports of captive
markets through British owned companies overseas started slowly to
disappear. Of 24 economies surveyed in 1964-5, only in four—Kenya,
Iraq, Belgium and Sweden—had the country’s share of imports increased
since 1958. Elsewhere, the story was one of decline—alarmingly so in the
case of the USA, Canada and Australia.24 Far from espousing free trade,
from 1945 the priority for successive governments became protecting
existing overseas investments and markets, with the emphasis increasingly
on the latter, despite a study showing that ‘the ownership of manufac-
turing facilities abroad increases enormously the sales in overseas markets
by British -owned companies.’25

The Ties that Bind

In short, it is hard to see the conviction as other than the reflection
of a lingering imperial mind set, reinforced perhaps by residual secu-
rity commitments. This was most obvious and most recent in the case
of Hong Kong, but the fight against the communist insurgency in
Malaya in the 1950s, followed by Sukarno’s Konfrontasi, gave signifi-
cant numbers of young Britons on national service direct experience of
the region. And even as the withdrawal of troops from Singapore and
Malaysia was considered, other factors helped to sustain colonial percep-
tions. Brunei remained a British colony until 1984, largely because the
sultan feared being absorbed into Malaysia. Although tiny, the country
was of considerable economic importance to the UK, its large oil reserves
 2 IMPERIAL TIES AND FREE TRADE 25

being controlled and exploited by Shell. Students from Malaysia and

Hong Kong continued to come in large numbers to the UK to study,
while British trading houses such as Jardine Matheson and Swire and the
Hong Kong and Shanghai and Standard Chartered banks were prominent
throughout the region, both helping maintain a high profile for the UK
and continuing to recruit new managers predominantly, if not exclusively,
from Britain.
All this served to encourage and sustain a nostalgic attitude towards
parts of the region and with it, perhaps, a sense of entitlement in terms
of preferential access to the markets for British exporters. As Table 2.1
shows, East Asia continues to be relatively more important for British
exporters than for those from the rest of Europe, accounting for a consis-
tently higher proportion of total British exports than it does for total EU
exports.
But during the 1970s and 1980s, the fastest growing markets in the
region were those of Japan, Korea and Taiwan. British exports to all three
grew much more slowly than did those of France and Germany, as the
country remained focused on its former colonial ties with South East Asia.
Furthermore, the overall economic size of these countries was but a frac-
tion that of the North East Asian tiger economies.26 A country genuinely
committed to free trade would have been far quicker to seize the new
opportunities, as the following chapters will show. It also placed the UK
at a disadvantage compared to its European neighbours (and trade rivals)
and does not bode well for adaptation to the country’s global business
interests post-Brexit.
The attitude was apparent in the views of the then trade secretary, John
Nott, following a visit to East Asia in 1980, when he wrote to the foreign
secretary complaining that ‘more traditional markets like Hong Kong and

Table 2.1 Exports of goods and services from the UK and EU to East Asia as
a percentage of total exports, 1980–2019

1980 1990 2000 2010 2018

EU 2.92 5.3 5.97 7.1 8.1

UK 5.0 7.5 7.5 9.4 13.9

EU = EU member states as at mid-2020

East Asia = 5 original ASEAN members (Indonesia, Malaysia, Philippines, Singapore, Thailand) plus
PRC, Hong Kong, Japan, S. Korea and Taiwan
Source International Monetary Fund, Direction of Trade Statistics
26 M. REILLY

Singapore have, of course, been neglected in the years since our entry in
the EEC…For the time being the Germans and French are doing better
than us in China and we must wait and see if our ‘link’ with Hong Kong
pays off.’27
He would wait in vain. By 2008, both France and Italy were exporting
more goods to China than was the UK, while German exports were
greater by a large margin than those of the other three countries
combined. Despite the supposed advantages offered by traditional ‘links,’
Nott complained that many more German and French businesspeople
were on the ground than British counterparts, even in Hong Kong.
33 years later little had changed with 50% more French nationals and
36% more German nationals resident in Shanghai than British ones.28

From Free Trade to Protectionism

These trends were just as apparent in British trade with Korea. In 1978
both France and Germany accounted for more than twice as much of
Korea’s imports as did the UK, and both had a much stronger pres-
ence on the ground in Korea in the form of resident expatriates there.
Both also placed more emphasis in their relationship on education and
training, France having signed an Economic Co-operation Agreement
and Germany sponsoring several thousand Korean students on training
programmes. By contrast, in Korea n eyes, far from being a free trader,
the UK was ‘the most protectionist of all [its] major customers.’29
This view was not without merit. Then, as now, Korea was a major
exporting country but was heavily dependent for access to the EC market
on preferential treatment under the Generalised System of Preferences
(GSP) of the GATT (General Agreement on Tariffs and Trade—fore-
runner of the World Trade Organisation). In 1977 it was the fifth largest
user of the scheme, 8% of all imports into the EC under the GSP coming
from Korea. The EC planned to make major adjustments from 1981,
targeting the preferences much more towards poorer countries, to Korean
consternation. Many of Korea’s exports—notably in textiles, televisions
and cutlery—were in areas where the UK was then anxious to protect
its domestic industry and it was clear from internal briefing that while in
meetings with third countries UK officials took the line that trade policy
was a matter for the European Commission, the British government
was more than happy to see ‘voluntary restraint’ agreements and other
restrictive trade measures applied.30 This practice of sheltering behind the
 2 IMPERIAL TIES AND FREE TRADE 27

Commission or ‘the EU’ when unpalatable or unpopular measures were

taken was to become more common over the years.
Korea was far from alone in seeing the UK as protectionist. Also
in 1978, Taiwan had cause to complain about new quotas for textile
imports that the European Commission was introducing. It felt particu-
larly aggrieved, for while it was the fourth largest source of such imports
into the EC after Hong Kong, India and Korea, its quota was being
reduced by a larger amount than theirs were, and it was also being denied
access to the EC’s preferential tariffs. Internal exchanges between White-
hall officials shed an interesting light on British attitudes, for in this
area the Commission did little more than co-ordinate national positions,
deeming quotas to be autonomous matters, the management of which
was for member states to decide. In this, the UK was one of the most
restrictive.
Other member states were happy to allow the Taiwanese to manage
the quotas, whereas the UK insisted on managing them itself, a process
known as import administration. As one official noted at the end of the
year, ‘A gesture towards the Taiwan Textile Federation might help to
offset the hurt they feel…It will also ensure that we do not appear to
be too far out of line with Germany, Italy and Belgium,’ all of which had
a less restrictive attitude towards Taiwanese textile imports than did the
UK.31 Not only was this procedure time-consuming for UK civil servants,
more seriously, the system hindered competition by favouring established
importers at the expense of new entrants to the market. Ministers finally
agreed to come into line with the rest of the EC and allow the Taiwanese
to administer the quotas from early 1979.32
To the politicians with their ostensible free trade convictions, the
fault for this relative under-performance lay with British business. In
1980, Nott complained that ‘there is the oft-repeated criticism that our
exporters use Hong Kong as a watering hole rather than treating it as a
market in its own right,’ a complaint repeated in similar form forty six
years later when his then successor Liam Fox accused business executives
of being ‘fat and lazy,’ saying they would rather play golf than try to
win export deals. (Despite Nott’s complaint, Hong Kong at the time was
second only to Japan as a market for British goods in East Asia, exports by
value being almost 50% greater than to China, South Korea and Taiwan
combined.)33
In part, such comments simply reflect the frustration of politicians
whose interest in exports lies primarily in their usefulness in delivering
28 M. REILLY

positive media headlines, rather than profits for shareholders, but they also
reflect a deeper failure to understand the nature of British trade overseas,
especially in Asia. For on the one hand, names redolent of Britain’s colo-
nial past continued to be prominent in trade with and within the region,
not just in trading houses but in banks, shipping companies, airlines
(Cathay Pacific, majority owned by the Swire group) natural resources
and more. On the other hand, much of the country’s supposed export
success was down to the activities of these trading houses actively sourcing
the necessary goods from the UK.
Prior to the 2nd World War this was not a problem: the combination of
extensive overseas investments, powerful British trading houses and colo-
nial governments ensured a steady supply of orders. But it was far from
axiomatic, as the politicians may have assumed, that by the 1980s British
companies in the region were sourcing most of their purchases from the
UK in the way they might have done a century earlier. Companies might
still be ‘British’ by registration and share ownership, and profits continued
to be remitted to and managers recruited from the UK, but purchases
were less and less sourced there.
Some may argue that this is of purely historical interest and increas-
ingly irrelevant as the British economy has become steadily more focused
on services. In 2018 these accounted for 71% of GDP, compared to just
17.5% from manufacturing. But this overlooks several important points.
First, exports of manufactured goods remain more important than those
of services, which are just 80% those of the former. And as Fig. 2.1 shows,
the rise of the service sector has not had a dramatic effect on exports as a
proportion of overall GDP. Secondly, it should not be assumed that trade
in services is unrelated to trade in goods. Exports of the latter are often
closely linked to the former: two of the largest contributions to services
growth in the economy in 2019, for example, came from the Information
and Communications Technology (ICT) sector and the motor trade.34
This is especially so in the case of East Asia, where export success in
the services sector has often been through the importance of established
banks (HSBC, Standard Chartered) and trading houses (Swire, or Jardine
Matheson, a diversified holding group with over 450,000 employees)
which have also been responsible in the past for major manufacturing
export orders for British companies.
Finally, the growth of the surplus in trade in services has taken place in
parallel with another major change in the British economy, the huge rise
 2 IMPERIAL TIES AND FREE TRADE 29

in inward investment from overseas following the creation of the Euro-

pean single market, much of this emanating from East Asia. This also
reflects the impact of globalisation more generally, with the rise of global
value chains, ‘just in time delivery’ and more. In short, it is simplistic
and misleading to see trade in services as somehow unrelated to trade in
goods, or as the contribution of just one or two sectors, such as financial
services.
As Fig. 2.2 shows, for more than a decade after the advent of the
single market in the early 1990s, inward investment was consistently more
important for the UK than for the EU as a whole. Its contribution to
GDP was even more significant for the UK than for other large European
economies such as France and Italy. Only in much smaller economies has
the impact been greater, most notably the Netherlands, reflecting its key
position as an entrepot and transport hub for much of the Single Market.
In one important respect only, the old pattern remained unchanged.
In Hong Kong, by the mid-1980s imports from the UK were dominated
by capital goods and public procurement contracts, with captains of local
business and a British controlled civil service continuing to have close
ties of language, habit, culture and kinship to suppliers. In other areas,
consumer goods especially, British labels were rapidly being supplanted

14

12

10

0
1990 1995 1999 2000 2001 2002 2004 2005 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

UK EU

Fig. 2.2 Net inflows of FDI as a percentage of GDP, UK and EU, 1990–2019
(Source World Bank Data Bank series on Foreign Direct Investment)
30 M. REILLY

by those from elsewhere. Throughout East Asia more generally at this

time, imports from Europe were dominated by requirements for local
infrastructure projects. In part this reflected the needs of the countries
concerned, but also import barriers the same countries imposed as they
sought to modernise their economies and build up their domestic indus-
tries as part of the process. With the ultimate decisions on so many
purchases taken by governments not businesses, political lobbying became
an integral aspect of sales bids. British companies and politicians were
at least as active in this as any other European countries—indeed, the
evidence suggests that the UK and France probably led other EC member
states in this regard reflecting, perhaps, long experience from working
with compliant colonial administrations.
As we shall see, this was to lead to strong, at times intense, rivalry
between European countries to win specific contracts, a competition that
was to hinder the ability of the EC as a whole to create a more unified
approach in its dealings with East Asia. Over time the nature of this rivalry
would change as the patterns of trade itself changed, but the under-
lying competitive nationalism remains. By 2017, at least one influential
European think-tank was bemoaning the lack of European unity in the
handling of relations with China, complaining about the opportunistic
behaviour of many member states. Or, as others have put it, intense
competition between member states of the EU, especially the larger ones,
has inhibited the implementation of a common external economic policy,
partly for fear that this might require making concessions in areas of
national importance to them. In short, they want policies focused on their
own access to the Chinese market.35 The United Kingdom has been as
guilty of this as any other EU member state and professions of commit-
ments to free-trade on the part of British politicians should be seen in
this context, and taken less at face value and more as a convenient cloak
in which to wrap economic nationalism.
The next chapter, which considers experience in Korea in the early
1980s, will show this in more detail, arguing that the combination of
a lingering sense of ‘superior wisdom’ and dependence on government
lobbying made the UK reluctant to work more closely with its European
partners, ultimately to its own disadvantage. It also provides some impor-
tant historical context for contemporary European concerns about ‘divide
and rule’ behaviour on the part of China, showing that such behaviour
has more to do with the Europeans themselves and long pre-dates the
current China-related concerns.
 2 IMPERIAL TIES AND FREE TRADE 31

Notes
1. Cited in Kevin O’Rourke: A Short History of Brexit : From Brentry to
Backstop, 2019.
2. Liam Fox: Free Trade Speech, Manchester, 29 September 2016, https://
www.gov.uk/government/speeches/liam-foxs-free-trade-speech, retrieved
30 January 2020.
3. The Brexit Inflection Point: The Pathway to Prosperity, Legatum Institute,
2017, cited in M. Wolf: Six Impossible Notions About ‘Brexit Britain’,
Financial Times, 30 November 2017, https://www.ft.com/content/06e
fe986-d52b-11e7-a303-9060cb1e5f44?emailId=5a20a69b8b77210004
f7916a&segmentId=2f40f9e8-c8d5-af4c-ecdd-78ad0b93926b, retrieved
21 July 2020.
4. Future Customs Arrangements —A Future Partnership Paper, https://
www.gov.uk/government/publications/future-customs-arrangements-a-
future-partnership-paper, retrieved 21 August 2017.
5. Leland H. Jenks: The Migration of British Capital to 1875, New York
1927.
6. A. R. Hall: The Export of Capital from Britain 1870–1914, London 1968.
7. Brian Fawcett: Ruins in the Sky, London 1958, includes a fascinating
autobiographical account of working on Peruvian railways, which were
owned by a London based company. Key decisions on equipment were
often taken in London, while all managerial staff in country, many of
them alcoholics and of limited competence, were expatriates.
8. Cited in O’Rourke: op. cit.
9. Warren Kimball, cited in Jonathan Fenby: Alliance, London 2006, p. 57.
10. Bank of England: United Kingdom Overseas Investments, 1938–1948,
London 1950, https://www.bankofengland.co.uk/-/media/boe/files/
archive/uk-overseas-investments/1938-1948, retrieved 30 January 2020.
11. Ibid.
12. Steve Tsang: The Cold War’s Odd Couple, London 2006, p. 19.
13. Tsang, op. cit., pp. 11, 13; W. B. Reddaway: Effects of UK Direct
Investment Overseas, Final Report, Cambridge 1968, p. 358.
14. As late as 1964 there were 38 ships in the Royal Navy’s Far East Fleet,
based in Singapore, including 3 aircraft carriers and five submarines. The
fleet was disbanded in 1971. Eric Grove: Vanguard to Trident: British
Naval Policy Since World War II. 1987.
15. Tsang: op. cit., p. 152.
16. Rana Mitter: China’s War with Japan, 1937–1945, London 2013, p. 308.
17. Tsang, op. cit., p. xvi.
18. Cited in Tsang, ibid., p. 144.
19. Christopher Meyer: DC Confidential, 2005.
20. Letter from Westbrook, FCO to Hawtin, MoD, 9 September 1974, FCO
24/1876, TNA.
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