By Aurelia Bruce From iAffairs

The result of the Brexit vote undoubtedly shocked the region. Having had our own experience with referendum on remaining in a regional system, the vote has stirred discussions on possible exits in the CARICOM /CSME project. While the political lessons of Brexit and the future of regional integration in the Caribbean can be discussed in a future article, this article considers the trade and economic implications of Brexit on the Caribbean.

As a result of the Brexit vote, the British Pound declined drastically, to rates that the UK has not seen since the 1980s. This unintended consequence of the referendum may pose a challenge to tourism dependent nations of the region whose main source markets for tourists include the UK. While in the short term tourist arrivals may not be hampered (because trips are planned in advance), the average spend per UK tourist may see a decline as the weakened pound results in less purchasing power for UK visitors. Additionally as UK persons save more to combat the uncertain economic environment, they would be less likely to spend on luxuries like a Caribbean vacation.

More importantly however, is what happens to Caribbean – UK trade if Britain leaves the European Union and its customs union entirely – which is the aim of the “leave” proponents like Nigel Farage. The main framework for trade cooperation between the Caribbean and the UK is the EU-CARIFORUM Economic Partnership Agreement (EPA). The EPA allows for preferential and in some instances asymmetrical trade between the 15 Caribbean States and the EU. Trade agreements ensure that there is certainty in trade which is necessary for the conduct of business; that negotiated commitments are legally binding between countries and predictable.

The EPA is essential for the region in securing preferential trade to the EU, and the UK in particular (its main partner in the UK). For the region, preferential trade is important to ensure competitiveness of exports, trade development and integration into global trade. The EPA is also a development cooperation agreement as a legacy of the ACP – EU “historical relationship” (read colonialism) and the evolution of the Lomé Convention turned Cotonou Agreement which set the stage for the EPA. The EPAs are being negotiated with ACP regional blocs, the Caribbean being the first region to conclude and sign such an agreement in 2008.

In the case of the Caribbean, the EPA was negotiated between individual member states of the Caribbean, the EU as a collective and the European Community. Articles 233 and 245 of the Agreement defines parties and lays out territorial application of the treaty, suggesting that on the part of EU signatories they must be members of the EU and a territory to which the Treaty establishing the European Community is applied and under the conditions laid down in that Treaty. The Brexit vote then calls into question the position of the UK in the treaty. As has been discussed as well, in the withdrawal negotiations the EU and the UK would have to determine the UK’s status in the plethora of negotiations that they have concluded collectively.

As an important trading partner for the Caribbean, the possibility of not having a legal and binding framework for preferential trade with the UK is daunting. This would pose a significant challenge to the exports of goods and services from the region. If withdrawal negotiations do not go well, and the UK has to re-engage countries on foreign and trade policy, this would not be favourable for the Caribbean.

While the UK can return to non-reciprocal trade with the Caribbean this is unlikely (having received reciprocal market access under the EPA) and not a long term solution (in the context of the WTO). This may be an interim step however, given that realistically the Caribbean may not be high on the UK’s agenda.
On the other hand, the UK can re-negotiate an agreement with the Caribbean bloc (CARICOM – UK or CARIFORUM – UK for example), or with individual Caribbean states (Trinidad and Tobago – UK or Barbados – UK for example). Commitments made by both parties in the EPA may be the starting point of these negotiations – with both parties seeking to get additional market access and better terms of trade. This may be an opportunity for the Caribbean to conduct of a review of challenges with EU – EPA trade and strengthen their trade with the UK.
If the withdrawal negotiations go well however, the status quo can continue and conceivably the UK would remain in these existing arrangements (perhaps with some amendments) and/or be able to sign on as an individual party to the agreement. This is necessary because in a number of EPA provisions, the EU Commission, EU Parliament and other EU institutions are called on to make decisions and the UK would no longer be a party to these institutions. The outcome of these withdrawal negotiations are indeed important for these EPAs not only in the Caribbean but also with the rest of the ACP grouping of states.

While in the interim trade preferences remain unhampered. Regional governments and businesses ought to be devising a strategy to maintain UK trade in the medium term. The impact of Brexit on development aid from the EU / UK is also being weighed. There is no forecast that UK aid to the region would cease (with or without a trade agreement) given our historical ties, but Brexit may hamper the EU’s commitment to the development cooperation funding set out in the EPA.

Moreover, British preoccupation with home affairs and their lessened priority to engage in new trade agreements until their exit of the EU is wound-up would not ease the Caribbean’s uncertainty as to its place on the UKs foreign affairs or trade agenda. Moreover, our place on their trade agenda has to be taken in tandem with other ACP regions; the Transatlantic Trade and Investment Partnership agreement (which is still being negotiated and the UK and EU would have to determine whether the UK leaves those negotiations or sign on as a third party (making it a US, UK and EU agreement); and internal negotiations with the EU and its member states as it relates to EU – UK trade, and multilateral commitments.

Additionally, given that most of the region’s trade strategy and intervention in the EU markets as it relates to EPA has mainly targeted Britain, the region should be keen to secure a legal (in the context of the WTO), predictable and binding trade arrangement with the UK that maintains its commitments (if not better) under the EPA. Again, the need to conclude a new agreement will be dependent on the UK’s status post-withdrawal, and the form of such a framework would also have to be determined. Undoubtedly regional governments are doing their own assessments and preparing for all possibilities, but the above is heavily dependent on the nature and extent of the Brexit. For the UK, the work has just begun.

Aurelia Bruce is an International Trade professional passionate about regional integration, development and the future of our Caribbean. She has had experience conducting trade-related research in both the Caribbean and Canada. Bruce is a graduate of the University of the West Indies (UWI) Cave Hill Campus, with a Master’s degree in International Trade Policy (distinction) and a BSc. in Political Science with Law (Hons). She can be reached at [email protected]

Image courtesy of Abi Begum

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