Post-Brexit Africa-UK trade and investment arrangements

Thursday, 28 July 2016
Author: 
Africa APPG

These are meeting minutes from the Africa APPG & RAS event in parliament on the 20th July 2016. An audio recording of the event in available here

On the 20th July, the Africa APPG together with RAS arranged an panel meeting in parliament. This discussion brought together various stakeholders to discuss the impacts of Brexit on the EU and UK’s trade agreements with African countries.  The panel discussion was lively and each panelist brought a unique perspective to the dialogue resulting in a rich and multi-dimensional analysis of the economic, political and social implication that Brexit may have on Africa-EU EPAs.

 

Chair of the Africa APPG, Chi Onwurah MP, chaired the meeting and opened the discussion stating that the Africa APPG looking closely at how trade impacts Africa and effect of European Partnership Agreements specifically. She added that there are mixed messages about economic partnership agreements. Many have good things to say and many critique and criticize the impact of agreements on indigenous groups.

 

Edwin Laurent- Director of the Ramphal institute

Mr. Laurent excavated particular trade agreement policies. He considered the changes that the UK will need to make in order to mirror existing EPA policies and he suggested implications that African countries need to consider in light of Brexit’s inevitable changes to European and UK trade agreements. The UK will be stretched and under tremendous pressure to negotiate and conclude many complex trade deals in a very short time, and countries whose volume of trade is small might not be seen as priorities. But for small African exporters, this trade could be of vital economic importance. These countries would hope that their trade will not be a victim (albeit unintended) of Brexit, but will be able to flourish in the post-Brexit era.

 

The APPG’s work on EPAs and their impact on Africa’s industrialisation is of particular importance and fundamental to African countries’ ability to move up from the bottom of global value chains where so many languish, producing and supplying raw-materials with minimal processing and transformation. Progressing up the chain is essential if they are to expand income and employment so as to reduce poverty and improve livelihoods. The EPA was intended as the vehicle for supporting that transition.

 

The EPA is not an investment agreement, but several African countries have investment agreements with European countries. The EPA provides duty-free quota free access to a major high income market and complementary financial, technical and policy support to help the partner countries develop and improve economic management and enhance their capacity to produce and export internationally competitive goods and services.

 

The EPA is a comprehensive reciprocal agreement that sets a framework for trade, investment and economic cooperation providing duty and quota free entry to the EU market for African signatories. This mechanism is, in many cases essential for African suppliers to be able to sell on a competitive basis in the UK and the rest of the EU.

 

Whilst the UK is a signatory to the EPA, upon leaving the EU it would automatically cease to be a member of the Agreement. The consequence is that the trade that might have been facilitated or made possible by the EPA preferences could be jeopardised unless adequate substitute arrangements are put in place. African countries would hope that this is what would happen eventually.

 

Policy Considerations

Generalised Scheme of Preferences (GSP) and Everything But Arms (EBA)- The prospects here are much brighter. Both of these are in keeping with WTO rules/exhortations. It is my understanding that the UK is free to continue to provide eligible countries with preferential market access under these two arrangements.

 

WTO rules- African exports to the UK that do not qualify under a preferential arrangement are subject to standard WTO tariffs. Brexit will give the UK the ability to negotiate its tariffs on its own rather than as part of the EU. The rates that it negotiates/settles on will be crucial, not just in terms of providing protection for its domestic production, but also a preferential margin for imports from Africa under the GSP, EBA or any UK successor to the EPA. To use some examples, permitting duty free entry of sugar from Swaziland or Mauritius, or bananas from Ghana or Cameroon would not do much to safeguard their export production aimed at the UK market if the MFN tariffs paid by Brazil or Ecuador are eliminated or overly reduced.

 

Consequences of Brexit

UK withdrawal from EPA: given the uncertainty over any replacement for EPA and also that formal talks will not be able to begin until after Article 50 has been triggered, the uncertainly can affect confidence and dampen the enthusiasm of investors, both local and foreign whose production is geared for the UK since they would have no assurance of ongoing satisfactory market access. This cutback in investment can itself impose a pre-Brexit cost on the African countries affected and even result in the long term loss of market presence.

 

The EPA itself with the remaining 27 can continue unchanged legally. However, since it will no longer provide the vehicle for access to the UK, such a major and important market, particularly for countries with longstanding Commonwealth ties, its value from a commercial standpoint could be diminished. In this regard one might recall that last week after 14 years of negotiating an EPA with the East Africa Community (EAC), Tanzania announced that it would not be proceeding. The signing of the Agreement was to have taken place on Monday this week and has now been called off.

 

EBA and GSP preferences are in line with UK commitments made within the WTO framework so EBA and GSP imports should not be affected.

 

Development finance: The UK’s voluntary contribution to the European Development Fund (EDF) has been considerable. Brexit will mean that it is no longer available and so the EDF that has benefited African countries would be expected to be cut back (unless as is most unlikely the remaining 27 agree to make up the shortfall). The UK can decide to channel the same volume of aid directly or through other intermediaries. Brexit can offer an opportunity for the UK engage more directly and constructively with development partners to ensure that financial assistance makes a fuller contribution to sustainable development and transformation.

 

There will be the loss of the valuable, progressive and pro-development voice and perspective of the UK in framing EU development policy.

 

 

How can the UK safeguard Africa’s exports post Brexit?

  1. Continue to provide EBA and GSP trade benefits

 

  1. Conclude duty-free and quota free market access arrangements at least with the non-LDCs in particular those that have longstanding trading links.

 

  1. Most importantly maintain Most Favoured Nation (MFN) tariffs on sensitive products of particular importance to African countries and exclude them from preferential trading arrangements with other regions that are low cost competitors for instance in South and Central America and South and South East Asia.

 

 

Dr. Eka Ikpe- African Leadership Centre, Kings College London

 

Regionalism has been an important basis upon which the EPAs have been consolidated, with regional bloc representation for West Africa, Southern Africa, Eastern and Southern Africa and Central Africa. An arrangement on the basis of regionalism strengthens Africa’s stance as regional collaboration can serve to strengthen its production base and thus its export base; there is opportunity for wider developmental benefits through building frameworks for transnational public goods; there is potentially a larger destination market for FDI and this can be a more attractive prospect for foreign investors among other factors.

 

Reciprocity has been central and a very contentious element of the EPAs. This is because in principle they expose prematurely African markets to European goods that may be be produced more competitively (although there are current provisions intended to manage these dynamics; many argue they are insufficient). The risk then is that they lock African economies into their static comparative advantage of primary exports (mineral resources and agricultural goods) thus undermining the current commitments and efforts towards structural transformation. The risks of such a situation are evident in the current challenges that many including the the largest African economies are facing as result of the downturn in commodity prices (Nigeria and Angola in particular). 

 

Another important factor is the impact that Europe/UK trade agreements have on trade relationships that Africa has especially intra-African trade and economic integration more widely and trade with emerging partners such as the BRICs.

 

Further, we need to consider the importance of trade taxes to fiscal revenue in many African economies as result of the historical reliance (from colonial times) on this mechanism for the generation of public revenue. This is something that needs consideration given the requirement to remove tariff barriers to trade. 

 

 

Dr. Kaire Mbuende- Ambassador fo the Republic of Nambia to the European Union

We want to attract investment. Namibia doesn’t qualify for other partnerships and that’s why EPA is really important to us. We have nothing else to fall back on. That’s why we were against Brexit. The EPA provides a broader market then just bilateral and not knowing whats going to happen is the most worrying

 

The UK is an important contributor to development finance/ foreign aid which has been instrumental in facilitating certain phases of development. The UK is third largest contributor to development funds. The UK leaving may have an impact on the amount of funds contributed to development through the European developing funds, we have access to some funds as an upper-middle income country. However, 40% of poorest of the poor are in middle-income countries. That’s why they also need help.

 

Liz May- Head of Policy at Traidcraft

 

As the UK starts to negotiate FTAs with third countries, Africa will be affected, but African countries are unlikely to be amongst the first priorities for those FTAs and this is OK.

It looks politically (and possibly legally) unlikely that the UK will be able to negotiate access to the EU’s existing FTAs including EPAs, but also agreements such as South Korea. Suggestions that the UK could simply replicate the EU’s FTAs, look similarly fraught.

The best guesses I have heard so far suggest that it would be simplest and therefore quite likely that we would choose as a starting point to base our tariff schedule on the one we currently implement i.e. the EU’s, perhaps with some tweaks. This would then need to be bound at the WTO with the UK as an independent member and this would then form the basis of our negotiations with third parties.

So who are the priorities for the new International Trade Department? Countries we already know are the United States, Australia, China, Canada, Japan, UAE, South Korea, India, Indonesia.

The important thing here is to note that SS African countries are unlikely to be on the UK’s priority list, but that they will be impacted by these other FTAs, in particular they will likely face preference erosion of the UK manages to strike a deal with some large competitive agriculture exporters. So these need to be watched closely.

Answering what will happen to the EU’s existing FTAs (including EPAs) is a lot harder to predict as it depends on the EU-UK negotiations. The UK might try and negotiate some kind of continued application of those existing EU FTAs at least for a temporary period of time, perhaps through a legal protocol. It is hard to imagine the EU agreeing to this option as it is very like having your cake and eating it.

Access to the EU market for African countries under the EPAs have been bought at the price of reciprocal market opening and in some cases regional fragmentation. So we see Tanzania pulling out of the East African EPA because as Aziz Mlima said “Our experts have analysed the pact and established that it will not be to our local industry’s benefit. Signing this pact at the moment would expose young EAC countries to harsh economic conditions in post-Brexit Europe……..”

Given these uncertainties and the urgent need to send a signal to business and investors that market access will not be disrupted, we think the UK has an opportunity to develop a preference scheme that builds on and improves existing schemes, that is specifically designed to support regional integration and is genuinely pro-development.

The UK has the chance to demonstrate its commitment to open and fair trade by designing an innovative, pro-development preference scheme that builds on existing good practice, is WTO compatible, does not require complicated and time consuming negotiations and crucially provides developing country exporters with the certainty they need – at least as an interim measure.

 

Such a scheme could:

·         Be more generous than existing EU schemes, in terms of the products and countries covered.

·         Be designed explicitly to support regional integration in particular through having regional accumulation in the rules of origin.

·         Be granted for a sufficient time period to provide stability and further legal certainty could be provided by having the scheme bound under article 2 of the GATT

·         And for some regions, it could provide a stepping stone towards more comprehensive FTA negotiations at a later date, as and when regions are ready.

 

Other options:

·         the Norway model and be part of the EEA, but this would mean accepting the free movement of people

·         we could join EFTA, but not the EEA as the Swiss have done

·         or we could negotiate a very comprehensive FTA as the Canadians have done

·         we may also try negotiate a bespoke membership of the EEA, perhaps without joining EFTA

 

Now for regions like the Caribbean this might not be too far off, in the case of Africa this scheme could be designed to fall away once progress towards the continent wide FTA is sufficiently embedded.

 

Questions and Contributions

·         Effect of Brexit on Commonwealth?

o   Edwin: Good idea but not something that can be easily arranged. Commonwealth is a political rather then economic partnership

o   Kaire: Commonwealth does play a big role.

 

·         Level of African—UK trade and FDI. How can we ensure that Africa is on the “agenda”?

o   Chi: encouraged interested participants to suggest parliamentray dedicating questions and debates to ensure this dicussion is on the agenda.

o   Liz: Africa shouldn’t be at the front of FTA. We need to think about how we can incorporate Africa into the FTA agreements.

o   Kaire: if the UK doesn’t prioritize Africa then it’s the UK’s loss. Africa is too important to be left to Europeans. Now, they are saying that African is too important to be left to China alone. The state of development might not attract development but it should be able to make a case for itself.

o   Eka: UK needs to have a more interconnected thinking about Africa. Think about development and security issues and the economic implications. Look at the complex interconnections.