THE CARIBBEAN must now assess what Brexit means for Caribbean-UK relations and the likely impacts on its domestic economies. In the wake of this unprecedented decision to leave the European Union, the UK electorate may have set in motion seismic shifts in the global economy; huge aftershocks and waves which may overwhelm the small economies of the Caribbean. In the absence of prior proactive steps by Caribbean Governments, and strong leadership in the future, Caribbean economies may be one casualty of collateral damage left in the aftermath of of Brexit.
On the morning after the referendum, the people of the Caribbean awoke to the steepest drop in the value of the pound in the last thirty years. With the snowballing of the “leave” vote in EU referendum, this drastic decline may pose a challenge to tourism dependent nations of the region whose main source markets for tourists include the UK.
With significant turmoil in the international financial markets and widespread uncertainty as to the future between the UK and the European Union, tourism demand, particularly consumer appetite for non-essential and luxury travel may steeply decline.
A sharp decline in the value of the pound and the resultant decline in purchasing power for UK visitors has implications not only for travel, but for investments in the luxury property market – a key source of Foreign Direct Investment, which many Caribbean economies have in part hinged their economic recovery on. With peak tourist season still ahead, a decline in tourism arrivals, and more importantly tourism spend because of the uncertainty and weakened pound, is a very real threat.
For a region with high levels of dependency on tourism, the implications of Brexit may reverse the recent economic gains by economies still struggling from the fallout of the Global Financial Crisis and anemic growth.
Uncertainty best describes the trade framework and institutional arrangements of Caribbean–UK trade. In the lead up to the referendum, the Vote Leave campaign deflected concerns about the loss of the trade arrangements entered into by the EU with what have been some of the UK’s biggest trade partners. Instead, Vote Leave focused on a go-it-alone negotiation of new bilateral trade deals, which include trade deals with the Caribbean. If Britain leaves the European Union and its customs union entirely – which is the aim of the “leave” proponents like Nigel Farage – what will be the impact on Caribbean – UK trade framework?
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 have ensured that there is certainty in trade which is necessary for the conduct of business built on commitments that are legally binding between countries and predictable.
The relevance and efficacy of the EPA was hotly debated in Caribbean countries, as the EU had traditionally provided special tariff preferences for bananas from African, Caribbean and Pacific (ACP) states (the OECS in particular). Some WTO members repeatedly contested the compatibility of this preferential treatment with WTO rules and to that end, the Lomé Convention led to the Cotonou Agreement which set the stage for the EPA.
This EPA was an attempt to provide development cooperation and preferential trade between the ACP regions and the EU in a manner consistent with WTO obligations. The EPAs are being negotiated with ACP regional blocs, the Caribbean being the first region to conclude and sign such an agreement in 2008.
If the vote to leave the EU is passed in the UK Parliament and the UK leaves the EU – the UK would no longer be a contracting party to the EPA and the question of whether or not they would still be part of the EPA would arise. The EPA allows for a new entrant to the EU to accede to the EPA – but so unprecedented is Brexit, that it does not indicate the procedure for an exit of an EU Member State.
If the UK then is not a Contracting Party of the EU, and therefore not a country to which this agreement applies what happens to Caribbean–UK trade?
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. In doing so, they need to also pay close attention to the outcome of the withdrawal negotiations between the EU and the UK. The amicability of these negotiations will determine, among other things, the status of the UK in the context of the EU and the UK’s trade agreements which have been negotiated with the EU.
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.
This brings the analysis to a related consideration – the UK’s foreign policy. UK funding has been a large source of donor/development funding to the region under the EPA. 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 would not ease the Caribbean’s uncertainty as to its place on the UK’s foreign affairs or trade agenda. Moreover, the region’s 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.
Of course, as a major champion of the Caribbean (because of the “historical” connections), the UK leaving the EU calls into question the willingness and commitment of the remaining EU states to the Caribbean and Caribbean development, given their limited relationship with the region when compared to the UK – Caribbean relationship, or even the Caribbean’s relationship with other countries in this hemisphere.
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. For the Caribbean, the work must be both address these external threats, and —with the rise of anti-regional sentiments — the threat within.