How could Brexit contribute to development?

Since Britain voted to leave the European Union in June, there have been lots of questions about the future direction of its trade policies – and very few answers. Matt Grady suggests what a pro-development trade policy might look like.

Analysis of UK and EU trade policy takes up large chunks of our policy unit’s time. Phrases like EU competency and Lisbon Treaty were heard in our meetings years before the EU referendum result in June, and have made increasingly regular appearances in the mainstream media since then.Through a mix of research, analysis and consultation we’ve identified 3 priorities the government must address to ensure that Brexit shockwaves are not damaging for developing countries.

1. Guarantee market access

The UK government could use withdrawal from the EU as an opportunity to establish the gold standard in development friendly, open market access by providing non-reciprocal duty-free and quota-free access to the UK for imports from developing countries. Allowing goods from developing countries to enter the UK without the imposition of taxes results in more competitively priced goods which enables the farmers and producers, who rely on exports, to increase their share of global trade. Eligibility for this preferential market access should be based on economic vulnerability criteria so that it benefits the countries most in need. As countries become more competitive in specific sectors they could then graduate from receiving selected preferences leaving space for other nations to take their place.

As a member of the EU, the UK provided duty-free, quota-free access to developing economies via the generalised scheme of preferences (GSP), everything but arms (EBA) and GSP+ initiatives[1]. These schemes include rules of origin which often restrict the ability of countries to add value to goods from regional partners. This leads to developing economies being pushed towards low value primary products whilst most of the value addition takes place in richer, developed economies. A development friendly scheme would include more flexible rules of origin to enable inputs from all eligible countries to be pooled, leading to greater regional integration. Maximising cumulation in this way fosters greater cooperation and would enable countries to expand their capacity for value-added production.

It has been suggested that the government should negotiate free trade agreements (FTAs) with developing country partners but this would be premature. Bi-lateral FTAs tend to lead to neighbouring countries trading with economies like the UK on fragmented terms which hinders regional cooperation. Introducing an open market arrangement for an initial period of 10 years would provide immediate security for developing countries and, if sufficient regional integration had taken place, could form the basis of future trade relationships.

In addition to the continuity this would offer developing country producers, it should also offer a simple political solution to the government. It wouldn’t require extensive negotiation and would be WTO compliant.

2. Review investment protection policy

The UK is a leading player in global investment with 105 Bilateral Investment Treaties (BITs). These treaties contain Investor–State Dispute Settlement mechanisms, which enable foreign investors to challenge government policy decisions while imposing no enforceable responsibilities on investors. Increasing evidence is showing that BITs are not necessary to facilitate investment but are being used as a tool to increase corporate influence at the expense of democracy. UK investment policy has not kept pace with global reform trends, the introduction of the UN Guiding Principles on Business and Human Rights, the Sustainable Development Goals or the Paris Climate Accord. The UK, as it develops an independent trade policy framework, must take a new approach to investment that better balances investors’ rights with responsibilities to contribute to sustainable development in the host country.

Look out for a dedicated post with much more detail on our work on investment protection soon.

3. Protect developing country interests in future FTAs

As the government begins to negotiate trade relationships with other developed economies it must take into account the impacts on developing countries. For example, if the government agrees an FTA with a large agriculture exporter such as Australia this could create competition for developing countries currently relying on preferential market access. Trade negotiations with other OECD countries could also result in fragmented regulatory regimes creating additional bureaucracy that LDCs may lack the capacity to cope with. The government must put in place robust impact assessments which should consider the impact on developing countries and on the UK’s ability to meet its Sustainable Development Goals commitment to increase LDC’s share of global trade[2].

Brexit could result in incredibly damaging trade diversion for producers in developing countries and increased prices for UK consumers. We are calling on the government to ensure that they take the necessary steps to ensure this doesn’t happen. Addressing these 3 elements of UK trade policy would be a significant step towards providing security for economically vulnerable countries.

Matt Grady is Traidcraft’s trade policy advisor. He is on Twitter @MattGradyTwit

[1] http://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-of-preferences/index_en.htm

[2] https://sustainabledevelopment.un.org/post2015/transformingourworld

Tom WillsBrexit, trade, investment