How should the UK trade with developing countries after Brexit?
In a previous blog, Traidcraft presented our views on how the UK should trade with the world post-Brexit. Now that it is clear that the UK is going to be leaving the Customs Union, it is important that the government makes a clear trade offer to the world’s poorest countries that supports their economic development.
In her big Brexit speech in January, Theresa May revealed her plans to take the UK out of the EU Customs Union, meaning that we will now be in control of our own trade policy and able to directly negotiate trade deals with other nations. In doing so, she used the language of fairness and respect: “a great, global trading nation that is respected around the world … we will take this opportunity to make Britain stronger, to make Britain fairer, and to build a more Global Britain too.”
In pursuit of new trade deals, the government has been talking to Australia, China, India, the Gulf States, New Zealand and South Korea. However, it’s unclear what plans are in place for our developing country trading partners. If the government takes us out of the Customs Union without any alternative arrangements, our trading relationships with the world’s poorest nations will be governed by ‘WTO rules’. This will mean goods produced by farmers, workers and businesses in those countries will face new tariffs amounting to £1 billion. This would be disastrous for vulnerable groups around the world, and would expose the Prime Minister’s vision of a great and well-respected trading nation as empty rhetoric.
Traidcraft have put together a paper that looks at the options for the UK’s trading relationship with developing countries and offers a clear recommendation for how we can ensure that Brexit does not undermine global development.
In this blog, we will deal what on the surface looks like the most politically attractive option (continuing existing EU treaties) and present our suggested alternative – a non-reciprocal market access scheme.
Why not replicate or ‘roll over’ existing EU treaties?
Rather than negotiate new deals with developing countries, why not simply retain the arrangements that we had as a member of the EU? This sounds like it would be the simpler choice, and that it would be less disruptive for our trading partners. However, there are a couple of major problems with such an approach:
- It really wouldn’t be that simple
The current EU’s trade agreements with developing countries are far from simple, constituting Free Trade Agreements (FTAs), some of which are Economic Partnership Agreements (EPAs), and which are at varying stages of completion (many are not ratified, some are with individual countries pending wider regional agreement). Replicating these arrangements post-Brexit would require the agreement of all other parties. These negotiations could be difficult and in theory they couldn’t even start until we have officially left the EU, whilst adding the UK as a ‘party’ to existing EU agreements is probably not possible at all now that it is clear we will be leaving the Customs Union. Furthermore, the UK has less to offer than the EU – the world’s largest trading bloc – and so we must expect that other countries would try to improve the terms as they currently stand.
Far from being the easy option, attempting to ‘roll over’ some of these deals is likely to divert negotiating resource away from the UK’s priority countries and is fraught with legal and political complexity which could leave developing countries in a damaging trade limbo.
- We would miss a valuable opportunity to improve the status quo
The EU’s approach of seeking to strike reciprocal FTAs (including EPAs) with some of the world’s poorest countries has been controversial from the start. FTAs require developing countries to open their economies to an extent that many view as potentially very damaging, especially for the poorest. Other criticisms include the EU’s insistence on including a promise to negotiate to liberalise investment policy and public procurement rules in the future, and the effect the negotiation process has had on regional integration For the latest position on the EU-East African EPA see the work of SEATINI, or for more general critique of EPAs see the South Centre.
The EU’s approach was designed at the height of support for unfettered globalisation and has been strongly resisted – particularly in regions made up of predominantly of poorer countries. There is now widespread recognition, including from our Prime Minister, that “the forces of liberalism and globalisation which have held sway in Britain, America and across the Western world for years have left too many people behind” and that there needs to be more active management to respond to the deeply felt concerns of individuals at home and abroad. With Brexit the UK can now take a lead in demonstrating that fairer approach.
The alternative: a non-reciprocal market access scheme
Most developed countries outside the EU offer preference schemes to developing economies, rather than seeking FTAs.
Traidcraft supports a non-reciprocal market access scheme, an arrangement that is simple to implement, provides stability for people in developing countries, and is being talked about by everyone from the ODI to the Commonwealth Secretariat and the African Union.
This means that the UK would allow goods from developing countries to enter the UK market without obliging trade partners to open up their markets to us in return. Canada, New Zealand, Japan, the United States and Norway all run similar schemes, which are compatible with WTO rules.
Offering such a scheme is simple and does not require time-consuming negotiation – crucial when the energies of David Davis and Liam Fox are focussed on striking deals with the EU, the USA, Australia and China. With a preference scheme, market access can be provided to many economically vulnerable countries in one streamlined arrangement.
The UN’s definition of ‘least developed country’ (LDC) includes 49 countries, but a UK scheme can and should go further, offering access to a wider group based on an objective assessment of genuine need and potential. There are different ways that such a group could be formulated. For example, we could build on the UN’s work which pulls landlocked and small island states together with the poorest countries and those with the least diversified economies. Or the scheme could support regional integration by including all the members of a customs union, where most of the members are classed as LDCs.
The point is to ensure a fair and defensible system that is simple to operate, provides generous market access to countries in need and respects ongoing regional integration processes.
The UK is at a historic crossroads in terms of trade policy, and decisions made now have the potential to have a profound effect on both the UK and our trading partners. A market access scheme offered to the most vulnerable countries would make a huge amount of sense for everyone, from exporters worried about the costs of trading with the UK post-Brexit to the UK’s team of trade negotiators anxious to get on with the priority issues of striking a trade deals with the EU and other developed nations.
To find out more about our proposal, please read the full ‘Post-Brexit trade’ paper.
Liz May is Director of Policy and Advocacy at Traidcraft Exchange. She tweets @LizMay12