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What will Brexit do for the Caribbean?

NEW CHALLENGES: Brexit could lead to increased volatility in Caribbean industries such as agriculture

AS THE UK marches closer to its departure from the EU on March 29, the possibility of resolving all previous trade agreements and forging new agreements with the EU and the rest of the world becomes a more daunting task.

Whether this departure is characterised by a “deal”, a “no-deal” or some sort of compromise, ultimately, Brexit will have significant consequences for the future of many economies around the world.

Many Caribbean countries (most notably those that make up the English-speaking member states of CARICOM) have a series of challenges to confront as the UK takes this step.

At present, much of CARICOM has taken a “wait and see” approach to Brexit, which could be costly to the economies of member states depending on how this situation manifests in terms of UK/Caribbean economic relations.


Secretary-General Ambassador Irwin LaRocque welcomes British High Commissioner to Barbados and the Eastern Caribbean Janet Douglas

In April, the UK High Commissioner for Barbados and the Eastern Caribbean, Janet Douglas, in a statement assured CARICOM member states that the UK will produce a viable trade arrangement upon leaving the EU.

TRANSITION

She said: “To address that we have started discussions with Eastern Caribbean countries through the CARIFORUM [CARICOM and the Dominican Republic] Secretariat so that on the day after we leave the EU, so after March 31, 2019, there is as seamless as possible a transition from the existing trade arrangements to the new trade arrangements.”

While Ms Douglas’ assurances are welcomed, a note of caution is needed because the very nature and circumstances of exiting the EU are constantly changing.

As such, it is imperative that CARICOM member states take precautions against the possibility that a viable trade arrangement will not be made following Brexit. As mentioned in a previous article, the UK has already agreed to replicate the EU’s ‘Everything but Arms’ (EBA) initiative to allow lower income developing countries to continue to access the UK market duty free.

Much of the Caribbean (excluding Haiti) do not qualify under this initiative because they are classified as “middle income” developing countries.

With this comes the increasing possibility that for many CARICOM member states trade with the UK could be reduced or terminated altogether.

Perhaps even more important is that CARICOM’s access to the EU market could also be significantly affected since the UK acted as an advocate for CARICOM when dealing with the EU.

With the departure of the UK, CARICOM member states could find themselves in a precarious position with the EU that seeks to expand it’s policy of reciprocal trade with all partners wishing to gain access to the EU market. As a result, it is imperative that members of CARICOM come together to look at their options going forward.

In a previous article for The Voice, the possibility of expanding South-South trade was explored.

While South-South trade is possible, its development and consolidation among Caribbean states and the rest of the Global South will take time before the region could fully benefit from it in a way that makes its trade with the EU negligible.

As such, in the short-term it is worth exploring the viability of CARICOM’s ability to create a new trading relationship with the UK following Brexit and whether this option should be considered by Caribbean leaders and policymakers.

What consequences will there be if the Caribbean fails to create a new trade deal with Britain?

At present, CARICOM member states enjoy preferential access to the UK market as part a body called CARIFORUM (CARICOM and the Dominican Republic). CARIFORUM was signed in October 2008 under the CARIFORUM-EU Economic Partnership Agreement (EPA).

When the UK leaves the EU, the CARIFORUM-EU Economic Partnership Agreement will become obsolete and CARICOM member states will no longer enjoy preferential access to the UK market.

While it is hard to determine what the consequences would be for the Caribbean, it is possible that there would be increased volatility in industries such as agriculture for which CARICOM member states enjoyed a certain degree of duty free access.

Other industries such as tourism and by extension services could also be heavily affected. In addition to this, without the UK as part of the EU, CARIFORUM would be left to negotiate access to the EU market with little leverage and support that it once had with the UK’s presence.

The EU, with the support of the World Trade Organisation and the United States, argue that trade should be reciprocal instead of preferential.

This has consequences for industries in the Caribbean such as agriculture that struggle to compete on the global market. For many CARICOM member states preferential duty free access to larger markets has been essential to preserving jobs and livelihoods in the region. As such, CARICOM member states need to consider their options for their relationship with the UK and the EU.

What kind of trade relationship could the Caribbean forge with the UK?

According to the Principal Consultant of Caribbean Trade Law and Development (CTLD Consulting) Alicia Nicholls, right, the UK is the Caribbean’s largest trading partner in Europe.

Although the UK cannot formally start negotiations on trade with other countries until it has left the EU, the UK has already begun informal trade talks with some countries.

The Dominican Republic has already put forward proposals for a post-Brexit UK-Dominican Republic free trade agreement.

This has been especially important for the Dominican Republic since the UK, according to the DR’s Ambassador to the UK, is the republic’s fastest growing market for exports.

For other Caribbean states there are a number of options that could present themselves following Brexit. Nicholls contends that CARICOM could in theory put forward a request for an interim arrangement that maintains the similar Economic Partnership Agreements (EPA) that were made under the EU. This could allow for a transition period before a new free trade agreement could be negotiated.

This, at the moment, is what High Commissioner Janet Douglas has proposed.

CARICOM during this transition period could pursue a negotiation of a UK-CARICOM free trade agreement, but this will be contingent on whether the UK is interested in forging a viable trade agreement with CARICOM member states since there is likely to be significant competition from other developing countries with larger economies looking to establish their own trade agreements with the UK.

A Commonwealth free trade agreement?

Last year Theresa May highlighted the benefits of free trade among Commonwealth countries as part of her bid to find new economic partners following Britain’s departure from the EU.

There is a possibility that CARICOM could access the Post-Brexit UK market through the Commonwealth if a Commonwealth free trade agreement is established.

The idea has been discussed, but it has not been entertained seriously as a full policy directive of the UK Government. One of the reasons why a Commonwealth free trade agreement is appealing to some analysts is because trade between Commonwealth countries is 20 per cent higher, while the value of trade is expected to reach one trillion by 2020.


Secretary-General Ambassador Irwin LaRocque welcomes British High Commissioner to Barbados and the Eastern Caribbean Janet Douglas

For CARICOM the Commonwealth has a highly developed small states agenda, which has been shown in initiatives such as the Commonwealth Small States Trade Finance Facility which was launched in 2015. It is believed that developing trade and investment between Commonwealth countries could reap further advantages owing to what is termed the “Commonwealth Advantage” that claims that Commonwealth countries have a shared language, history, common principals, values, respect for the rule of law and a common law legal system with a combined market of 2.4 billion people. These advantages could facilitate easier and deeper levels of cooperation between member states.

The challenges ahead

This, of course, is still theoretical and at the time of going to press there are no formal plans by the UK or any Commonwealth state to push forward for a Commonwealth free trade agreement.

The trade Ministers of the Commonwealth have not met frequently to discuss trade policy among member states and even if they did, formulating a viable trade agreement could take years to achieve. This, combined with the fact that the Commonwealth comprises of 53 diverse countries, each with different interests and different development priorities, makes the formulation of a Commonwealth free trade agreement an arduous and complex task that could take decades to perfect.

In addition to this, many states in the Caribbean suffer from structural economic weaknesses that are the result of a lack of investment in technology that could have lowered production costs and increased production yield.

In the areas of agriculture and light manufacturing this factor is part of the reasons why Caribbean countries outside of Trinidad and Tobago, Dominican Republic, Guyana and Jamaica have struggled with industrialisation.

Even if a Commonwealth free trade agreement was created there is no guarantee that such an agreement would reflect the interests and economic needs of many CARICOM member states.

Many Caribbean states would struggle to compete with other developing countries that have lower production costs and higher production yield. Would CARICOM member states be able to ensure that they could have trade policies that favour duty free access instead of the reciprocal trade that the EU currently favours?

These are the challenges and problems that CARICOM member states must consider before and after the full manifestations of Brexit become apparent next month.

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