Article 50 is triggered – but what will it mean for the poorest countries?
Clothes, footwear, fruit, nuts and vegetables. Every year, Britons consume £34 billion-worth of products from some of the poorest countries in the world. Millions of people around the world rely on exports to the UK, and we rely on them. So, what will happen now that the UK is leaving the EU? In a new report, Traidcraft and the Fairtrade Foundation uncover some of the most important risks and opportunities. Here are the highlights.
£1 billion in new tariffs?
The most immediate risk for producers in poorer countries is the introduction of new tariffs. Currently, many products imported from the poorest countries get duty-free access to the UK through EU trade arrangements. But with Brexit this is likely to change.
The government is planning to take the UK out of the EU’s Customs Union, which currently determines the UK’s trading relations with the rest of the world. And unless new trade arrangements are put in place, import taxes will automatically be introduced. Our research shows that products from the poorest countries would face around £1 billion in extra taxes each year.
As so often, the people who are likely to be hit the hardest by the new costs are the most vulnerable. Farmers and workers risk losing their jobs as products from their countries become more expensive and less competitive. And with new tariffs, we are likely to see even bigger pressure to reduce production costs; meaning lower wages, weaker labour rights and environmental protection.
Joab Gideon works for the Kenyan flower company Longonot Horticulture. His business depends on the UK market and could face new tariffs of between 8.5-12 percent. He says: “If the tariffs were higher… the cost of production would be too high. It’s already too high and if we had to add on extras, that would affect worker’s incomes. Workers would suffer the consequences, we shall have to let people go”.
In other words, Brexit could push farmers and workers into greater poverty and make it even harder for them to pay for basic services such as healthcare and education.
Unfair advantages for wealthier countries
The second risk comes from new trade agreements with wealthier countries. The government’s immediate priority is likely to be to strike free trade agreements with countries like the US, China and Australia. This will give their producers duty-free market access and other advantages; however it could undermine businesses in poorer countries.
Jatta Vand Der Berg is the director of banana company Quinta Pasadena in the Dominican Republic. She fears what might happen to her business if the UK signs free trade agreements with wealthier competitors. She says “At the moment we do not pay import tax to Europe but Ecuador and Colombia do… If the UK had a free trade agreements with [them], our country would no longer be able to export. The banana industry in this country would not survive”.
This is why the government needs to carry out impact assessments as part of all negotiations and take steps to ensure that new trade agreements do not undermine developing countries’ economies.
Harmful new trade arrangements
The third big risk is that new trade arrangements are made with poorer countries, but that they are harmful for their development. Right now, we are hearing that the government wants to pursue free trade agreements with developing countries. We think this would be a big mistake.
Free trade agreements do not just require the UK to open its markets to developing countries, but for them do the same. It means that producers in some of the poorest countries would have to face competition from one of the most advanced economies in the world.
This could have a detrimental effect on their businesses and countries’ abilities to develop more valuable processed production. Most poor countries are dependent on the export of a few primary commodities, which generate little income, technology, skills and jobs. They need to diversify their economies, and to achieve this, protect and nurture key industries until they are competitive. Therefore, the government needs to go beyond free trade and look at solutions that are designed to improve sustainable, economic growth in developing countries.
Or an opportunity for fairer trade?
Brexit has created a lot of uncertainty and risks but it doesn’t have to be this way.
Currently, many of the poorest countries have preferential access to the UK market through EU schemes that benefit developing countries. This enables goods from these countries to be more competitive while allowing them to protect their own markets.
There are indications that the government recognises the risks facing developing countries. They must now commit to ensure that developing countries will be no worse off as a result of Brexit by guaranteeing to continue to provide preferential market access.
This will be easier and less time-intensive than negotiating controversial free trade agreements, and it would provide certainty for businesses in developing countries and the UK.
And in the long-term, the government should look to improve existing arrangements to maximise trade as a tool for sustainable development. By adopting innovative policies, the government can use trade to ensure that no-one is left behind, deliver on its commitments towards the Sustainable Development Goals, and its promise to use trade to fight poverty.
But if this is going to happen the government must act now to reassure developing countries that it will put in place the right type of trade policies. That’s why Traidcraft, the Fairtrade Foundation and other organisations are campaigning for a Brexit that works for people in the poorest countries.