Emmanuel De Groof and San Bilal, ECDPM blog, 3 September 2018.
While Prime Minister Theresa May was in South Africa, Kenya and Nigeria for the first time since the beginning of her mandate, her government back in London was stepping up preparations for a possible cliff-edge Brexit. The need for greater clarity on the impact of a no-deal on trade, particularly with Africa, grows. What are the contingency plans in place? A deal, at least on a transition until 2020, would allow for more consideration of issues that are too big to be glossed over.
A cliff-edge Brexit is not just a hypothetical scenario. The UK may withdraw from the European Union on 29 March 2019 without any deal on its future relationship with the EU27 or even on the withdrawal itself. Concluding a deal depends on several variables, including on the European Union and the UK jointly revising the draft withdrawal agreement, and on parliamentary approval on both sides.
The proposal that the UK has put forward this summer to ‘opt in’ a single market for goods only may not be acceptable either to the EU, which holds on to the indivisibility of the fundamental four freedoms (free movement of goods, services, capital and persons) or to those sections of the UK’s political class advocating for a harder Brexit. Amidst these uncertainties, the UK Prime Minister during her visit in South Africa pledged £4 billion for African economies.
If a cliff-edge Brexit materialises, the EU will be cut off from one of the biggest EU investors in Africa ($55 billion foreign direct investment stock in 2016). At the same time, African countries risk losing preferential access to the UK market, which now absorbs a significant share of African exports from countries such as Botswana, Seychelles, The Gambia, Equatorial Guinea, Mauritius, Kenya. This also applies to specific sectors and products, including tea, fresh vegetables, processed fish products, beef, diamonds and citrus. The added value, so to speak, covered by preferential access of African countries to the UK market is evaluated at €391 million per year.
During her three-day African tour, Theresa May announced that the UK would roll-over the EU’s existing Economic Partnership Agreement (EPA) with the five Southern African Customs Union (SACU) countries and Mozambique. The UK could choose to do the same elsewhere in Africa and replicate existing EU trade regimes. This is what the UK Parliament’s International Trade Committee had recommended. The UK Government is expected to adopt a similar message, in a pending technical note on ‘trade agreements continuity’.
Rolling over existing EU trade regimes will, of course, require third countries to agree. Whether or not a cliff-edge Brexit occurs, and until a final decision is made on a transition, considering a roll-over is the safest course of action. From the African perspective, it prevents a possible loss of preferences without precluding further negotiations with the UK. From the UK perspective, announcing a roll-over has no immediate bearing on its current negotiations with the EU and, at the same time, underpins its profiling as a trade-friendly Global Britain, whatever the outcome may be: without agreement on a transition, a roll-over ensures continuity of African-UK trade flows. With a transition, EU trade agreements apply anyhow to the UK and their partners, ensuring the same level of continuity.
In principle, without a EU-UK deal or a roll-over, as of 29 March 2019 developing countries lose the preferential access to the UK they have enjoyed so far through existing EU regimes (the European Union’s Economic Partnership Agreements, or the generalised system of preferences that includes the everything-but-arms scheme). The UK government has already indicated it will maintain preferential access for least developed countries. But how? And what about the other countries in Africa?
There are a couple of methods to maintain -or even expand- African preferential access to the UK. Setting aside for a moment the roll-over option, the British government could offer unilateral preferential access to its market or adopt an open trade regime on a most-favoured-nation basis. The UK could even consider extending preferential access from products to services (such as retail, telecommunication, consulting, etc.). In any case, the new independent UK trade regime would have to comply with WTO rules.
The UK could, furthermore, combine market access with less stringent market regulations. Such regulations concern indications about where a product originates from and how it is assembled (rules of origin), limitations to preferential treatment once production surpasses a certain volume (product graduation), and rules on food safety and animal and plant health standards (sanitary and phytosanitary measures). These regulations, of course, have their own logic, including consumer protection. In addition, flexibility could further weaken the UK’s position as a transit market to the EU, as the EU will not loosen its own regulations.
In the short term, African policymakers should be aware that the UK’s trade and investment policy will be primarily driven by UK (economic) interests. Two important questions will help clarify this approach. First, to the UK: will you develop a comprehensive trade policy in Africa (apart from the countries visited by Theresa May)?
Second, to both the UK and the EU: what is the nature of your future trade relation? How this European saga will influence Africa will also depend on future UK-EU relations, in the short and long term, and regardless of a transition period or no-deal. Intra-firm trade in intermediate goods and via transit countries is still on the rise. Any disruption of UK-EU trade will therefore affect African exporters of goods supposed to transit through either market so as to reach the other. This is why both questions are related.
Contingency plans have their own pitfalls. But this does not diminish their importance – quite the contrary. Developing and implementing such plans under time pressure is, however, no sinecure. Time can add clarity. A deal, at least on a transition phase until 2020, would allow for more consideration of issues which cannot be passed over too lightly.
Actually, the withdrawal agreement itself and a follow-up treaty on how the EU and the UK will relate in the future (those negotiations could start during a transition) are too big to fail: it’s not only about the EU and the UK. A sense of responsibility will benefit not only the 511 million EU citizens including, at the time of writing, the 66 million UK citizens. Deals on a transition and on the future will influence trade with non-European countries, and affect the much larger population in African developing countries, too.
For more information on ECDPM’s past work related to Brexit and international cooperation, explore our dossier on the topic.
The views expressed are those of the authors and not necessarily those of ECDPM
Photo courtesy of Number 10 via Flickr.