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Could Brexit be bad for the Caribbean?

BIG DECISIONS: The CARICOM Secretariat in Guyana. The region’s leaders will have to weigh up whether or not to seek trade deals with the UK

LAST MONTH CARICOM heads of government met in Georgetown.

Among the many issues they considered was Britain’s decision to leave the European Union. Their focus was on a secretariat paper largely intended for information.

While they recognised the British people’s decision represented a watershed in world affairs with far-reaching and long-lasting geopolitical and geo-economic repercussions, they decided that the best approach was to monitor developments as the process unfolds.

PRIORITIES

It is a position that contrasts with that of many other nations that have begun to strategise, focus on priorities, and initiate an exploratory dialogue with British ministers, and in particular with the new Ministry of International Trade which will undertake all third country trade negotiations.

Brazil with Mercosur, (a sub regional free trade bloc in South America) the US, Australia and others have decided to act now on so far informal suggestions that the UK intends on having a significant number of draft or outline trade agreements with third countries in place by 2019, the most likely date when the UK will leave the EU.


DEAL MAKING: Prime Minister Theresa May (left) with the German Chancellor Angela Merkel. May is currently negotiating the terms of Britain’s EU exit

They have recognised publicly that all third countries wanting some form of freer trade arrangement with the UK will have to negotiate new agreements.

Under EU law such discussions are technically impermissible while the UK is still a member.

However, it is now widely understood that the UK is likely to seek, when establishing with the EU27 the rules of engagement for Brexit, some form of understanding or arrangement that will allow it the freedom to negotiate in parallel international trade deals.

QUESTIONS

The objective will be to establish by 2019 what the Minister for Exiting the European Union, David Davis, has described as the basis for a huge new trade zone.

At the same time, it has also become clear that the options for the UK’s future relationship with the EU are narrowing.

Although no formal announcement on the approach is expected for some time yet – this is expected to be contained in a white paper towards the year’s end – it is apparent from the language being used by key ministers that Britain is likely to seek a unique trade agreement with Europe.


KEY MARKET: The UK accounts for around 77 per cent of the Dominican Republic’s overall exports of bananas

While the detail of this is not known, it seems likely the UK government’s ideal outcome would be some form of advanced association type agreement with the EU27 that enables free trade in most goods and services, and one which in some way accepts that the UK will control the free movement of EU citizens. This may possibly include financial arrangements in discrete areas, for instance on development or scientific co-operation.

Whether this or a similar approach will succeed remains to be seen. Some analysts believe these demands will cause negotiations to break down; whether it is politically saleable in the UK, where factions among the leave voters and politicians have wildly differing views on what Brexit means; or whether the process will end in the UK deciding on a WTO arrangement with the objective of becoming a Singapore type low-tax offshore centre located between the US and the EU27, all remain to be seen.

Irrespective, these are all developments that suggest that it would be wise for Caribbean governments and the region’s private sector to be addressing now a number of key questions.

lThe most obvious among these questions are does the UK matter as a trade partner? Is it as a nation still of long-term political and strategic importance to the region?

lAre the Caribbean and the UK’s shared history, cultural ties and values still of significance? And are there areas of cooperation, such as climate change and security, that make the relationship special?

Assuming the answer is a qualified yes, and there is a broad based acceptance that the relationship matters more for some countries than for others, the most pressing question that then needs addressing is, what configuration might offer the region the best future basis on which to engage profitably with the UK?

Put another way, should CARICOM seek to achieve with the UK something similar to the existing trade relationship it has under the EU-CARIFORUM Economic Partnership Agreement? Or should it try to establish something wholly new that is more skewed to key sectors, services and regulatory issues?


TAKE A BREAK: The Brexit result may see the region’s tourism industry take a hit

Alternatively, should it work with others, for example Central America or Cuba, or should it consider for example re-engaging with the UK through the African and Caribbean Pacific (ACP)?

The issue of configuration is far from academic having already become a matter of private discussion, brainstorming and seminars in the Commonwealth, in parts of the ACP, in Central America, in Mercosur, as well as in some CARIFORUM member states and in the UK’s Overseas Territories.

Of particular note in this respect is a debate underway within the Dominican Republic. Experts there make clear that while the UK is of limited economic significance in terms of the country’s overall exports, visitor arrivals and investment, and its banana market in the UK is significant. So much so that it accounts for around 77 per cent of the Dominican Republic’s overall exports of US$171m to the UK.

TRADE

As a consequence, high level consideration is being given to whether the country should, in seeking a new trade arrangement with the UK, join with Central America or perhaps some other Latin American configuration; a position that stems from the now deeply held belief in Santo Domingo that the country will continue to be ostracised by CARICOM.

This is of some importance as it may affect how CARICOM eventually negotiates. The value of the UK export market for CARIFORUM essentially has three components: CARICOM (minus Trinidad & Tobago) which largely exports agricultural products, manufactured goods and some services; Trinidad which largely exports oil and gas and related products; and the Dominican Republic which largely exports agricultural produce, manufactured items such as garments, and rum.

Disaggregate this and it is immediately apparent that CARICOM would be in a weak negotiating position.

This suggests that unless the region can obtain early assurances from the UK about continuing market access, there is the real possibility that the UK will accept what is offered by larger pro-active groupings like Mercosur or Central America, while agreeing a new domestic agricultural regime that together will leave no space for Caribbean exports.

In all of this it is now much harder than in the past to guess how the UK will weigh its historic relationship with the region as there is now a strong interest in many parts of the UK in the much larger and more dynamic Latin American market.

■ David Jessop is a consultant to the Caribbean Council and can be contacted at david.jessop@caribbean-council.org

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