Trade and development after Brexit

In the season of goodwill, let’s not forget our responsibilities to developing countries when we leave the EU.

Rorden Wilkinson is Professor of International Relations and a fellow of the UK Trade Policy Observatory at the University of Sussex.

It may be an island paradise for tourists but Seychelles' precarious economy is heavily reliant on the UK and the EU. By Tobias Alt, Tobi 87 (Own work) GFDL or CC BY-SA 4.0, via Wikimedia Commons

A great deal of the Brexit debate has focused on the possible shape of the UK’s trade architecture after 2019. It has, however, largely ignored how others—particularly developing countries—see or will be affected by the UK’s departure from the European Union (EU). I think this is to our peril and we should, with some urgency, turn our attention to thinking about the future of our relationship with the developing world. But we need to do so remembering to shoulder our responsibilities to weaker and poorer countries, extending ‘goodwill’ to all.

While it is obvious to say that Brexit affects many more countries than the UK, the voices of the 79 African, Caribbean and Pacific (ACP) countries that have a formal trade and development relationship with the UK via the EU have seldom been heard.[1] Fifty-two of these countries are Commonwealth members comprising former UK colonies and protectorates as well as those—like Rwanda—that have chosen to join the Commonwealth. The remainder are former French, Belgium, Portuguese and Dutch colonial possessions.

These countries currently enjoy preferential market access and development assistance under EU arrangements. Europe also extends preferential access to other low-income and least-developed countries through the EU’s Everything but Arms (EBA) initiative and its Generalised System of Preferences (GSP).

However, Brexit relinquishes the UK of all of these commitments. This raises a number of important questions:

• What shape will UK trade relations with its former colonies take?
• What of the UK’s relationship with those members of the ACP that are neither former colonies nor members of the Commonwealth?
• What will the EU-27’s relationship be with all of these countries?
• Will the EU still have, or even want to have a relationship with former UK colonies?
• What role is there for the Commonwealth?

There are of course opportunities to craft better trade arrangements of greater benefit to developing countries:

• The Economic Partnership Agreements (EPAs) that have governed the most recent phase of EU/ACP relations have been a bit of a mess and it is not clear they have actually benefitted the ACP countries. A new and improved regime could be negotiated that genuinely proves to be of value to both sides; and
• A new trade relationship with the Commonwealth may be apposite particularly given that recent work suggests there is a distinct ‘Commonwealth effect’ that acts as a boost to trade performance and economic growth.[2]

Brexit is not just about opportunities. It is also about responsibilities.

But Brexit is not just about opportunities. It is also about responsibilities. It is here that the UK’s departure from the EU begins to bite. As with all other trade arrangements, the UK cannot formally begin to negotiate new trade partnerships until at least 2019 (assuming that Article 50 is indeed triggered in March 2017). Even then, it is unlikely that negotiating new agreements with the developing world will be at the top of the UK’s list of priorities.

Yet, the consequences of ignoring developing countries are profound. Without a roll-over, stop-gap or new regime after 2019 the loss of preferential market access will render major sources of export earnings and employment vulnerable in many of these countries. This includes bananas, sugar and tourism in the Caribbean; tea, fish, gold, diamonds, citrus fruit, fresh veg, beef, beans, flowers, carpets, clothing, footwear, vehicles and tobacco in sub-Saharan Africa; and sugar, fish and palm oil in the Pacific.

A tea plantation in Malawi, Africa. By Steve Evans from Bangalore, India (Flickr) CC BY 2.0, via Wikimedia Commons

We should not under estimate the significance of Brexit to these countries. For example, the UK takes 40 per cent of all sugar imports into the EU from the ACP. Unless remedial measures are forthcoming, exposing sugar exporting ACP countries to competition from world markets will generate a huge economic shock that will have dramatic economic consequences in the short- to medium-term.

Commonwealth statistics suggest that 22 non-least-developed ACP countries would face a new “tax” of US$250 million if nothing is put in place after Brexit and most-favoured-nation (MFN) rates apply. South Africa alone would face an increase in import duty of US$80 million.[3] This is not to mention the reduction in European Development Assistance that would be available after Brexit (the UK is currently the third largest contributor to the European Development Fund).

Two of the world’s smallest and most vulnerable countries will suffer most from Brexit: Seychelles and Mauritius.

As things stand, two of the world’s smallest and most vulnerable countries will suffer most from Brexit in terms of the proportion of their current exports: Seychelles and Mauritius.[4]

Seychelles is a country of 89,000 people in the middle of the Indian Ocean. It is heavily reliant on tourism and fisheries, although it also dabbles with re-exporting oil, financial services and copra. It is also dependent on European Development Assistance for its economic viability. Thirty-six per cent of all Seychelles' canned tuna—its major goods export—comes to the UK. To illustrate how vulnerable Seychelles is to external shocks, it is worth noting the impact of European and North American nervousness about flying to long haul tourist destinations after September 11, 2001, which underpinned a dramatic fall in per capita GDP from $18,232 to just $10,232 (a fall of 45.2 per cent) in just 12 months.[5]

Mauritius is better able to weather economic storms than its northern neighbour. Its economy is more diversified and its fundamentals reasonably sound. However, its economic diversification strategies have brought it into close competition with—rather than away from—its small island-state counterparts in the Indian Ocean region, all of which are chasing the same high-end tourist, banking, information technology, fisheries and tertiary education markets.[6]

It is worth bearing in mind that while Seychelles and Mauritius will suffer considerably in this scenario, they are middle-income countries. Although their lot is precarious enough, it pales into insignificance when compared to least developed countries whose capacity to buttress external shocks is severely limited. As the most recent UNCTAD LDC report makes clear, 40 per cent of the world’s poor live in least-developed countries. Of the 48 countries that make up this group, 13 have seen living conditions worsen significantly in the past year.[8] For those LDCs dependent on the UK, Brexit does not bode well.

So, while the challenges of leaving the EU for the UK may be considerable, we must not forget our responsibilities to the smallest, most vulnerable and least visible—particularly those with which we have long-standing relationships. If we do, we risk exacerbating the insecurity of significant proportions of the world’s poorest and most precarious populations.

20 December 2016

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory. 

[1] Comprising 48 in sub-Saharan Africa, 16 in the Caribbean, and 15 in the Pacific.

[2] Commonwealth Secretariat, The Commonwealth in the Unfolding Global Trade Landscape: Prospects, Priorities, Perspectives, (London: Commonwealth Secretariat, 2015).

[3] Mohammad Razzaque and Brendan Vickers, ‘Post-Brexit UK-ACP trading arrangements: some reflections’, Commonwealth Trade Hot Topics, 137, 4 November 2016, p. 2-6.

[4] Razzaque and Vickers, ‘Post-Brexit UK-ACP trading arrangements’, p. 6

[5] Uma Kothari and Rorden Wilkinson, ‘Global change, small island state response: restructuring and the perpetuation of uncertainty in Mauritius and Seychelles’, Journal of International Development, 25: 1 (2013), p. 95.

[6] See Kothari and Wilkinson, ‘Global change, small island state response’.

[7] UNCTAD, The LDC Report 2016—The path to graduation and beyond: making the most of the process, (Geneva: UN publications, 2016).