Features

Unpacking Brexit: What Next For St. Lucia?

By Edwin Laurent
Image of Theresa May

FOR the last two years, Brexit has been dominating the headlines. But what will the UK’s leaving the EU mean for St. Lucia? Will it cause problems; maybe offer new trading opportunities or instead make no difference?

The press has been focussing very much on the politics: migration, jobs, whether the UK should go for a hard or a soft Brexit, etc. This is not surprising; after all, the British voted to leave the European Union (EU) on the basis of what they wanted for their country. But their decision will have economic consequences way beyond Britain’s shores.

To understand why and how Brexit will affect us, even if we are so far away, we need first to understand how it will change the way that Britain trades with us and the rest of the world.

Making Sense of Brexit
The 2016 referendum was fought to “take back control” with the focus on migration. But restoring the UK’s ability to make and manage its own external trade policy has been a key political aim.

As a member of the EU, the UK is not free to set customs duties and negotiate trade on its own in the WTO, etc. Instead, it works within a single EU framework and is bound by and applies the same international trade agreements and treaties as the other member states. They collectively draw up the common trade policy which is overseen by the EU’s institutions, in particular, the Commission.

The day after Brexit, the UK will no longer be party to EU treaties, whose rights and obligations will automatically cease to apply to it, or be applied by it, unless all sides agree otherwise.

The economic “rationale” for Brexit is that the UK will be able to independently devise and operate its international commercial policy and directly negotiate and conclude trade agreements to advance its own rather than common EU-wide interests. This it cannot do whilst it is still in the EU.

The value of that new power will depend on the UK securing new deals that provide it with greater overall trade and economic benefit than it now receives as an EU member.

But that is not a question for this article. Instead, the concern is whether the changes could jeopardise our exports.

Importance of the UK Market
Ever since colonial times, the UK has been our major export market. In the Caribbean, St. Lucia is relatively the most dependent on the UK market which received €7.8 million or 77.8% of total exports to the EU. The largest Caribbean exporter is Trinidad and Tobago, which in 2015 exported €156.8 million to the UK, or 12.6% of its total €1.243 billion in sales to the EU.

These figures underline the importance of our trade with the UK. But when one looks at particular products, like sugar, bananas or rum, we find that dependence on the UK market is even higher.

These exports are possible because under the Economic Partnership Agreements (EPA) with the EU, the region can export duty-free to the UK, whilst lower cost competitors pay high duties.

Brexit’s Headache and the Threat to Trade
It costs us much more to produce and get our goods to overseas markets than the low-cost competitors, often Latin American. This is because we, unlike them, face economic constraints due to small size and other geographic impediments that are beyond our control.

The headache posed by Brexit is that once the UK ceases to apply the EPA after March 29, 2019, the default position is that our exporters will also have to pay full duties. Therefore, unless a solution can be found, our banana and other exports will be priced out of the UK market.

Of course, the UK can replace the EPA with its own trade arrangement to provide adequate preferences; but whilst it is still an EU member, it cannot negotiate and conclude separate trade deals. It has to wait until it leaves next year for formal negotiations to begin. And at that time, it doubtlessly will be fully taken up with trying to secure trade deals with major partners like the EU, the USA, China, Canada, India, and others. Small countries won’t be at the front of the queue!

The last thing we need is a disruption in the duty-free arrangements which could result in an interruption to trade. Even if the exemption from duty is ultimately reinstated, some exporters, in particular banana suppliers, once they have lost their presence on the UK market, could well be forced out of business altogether. Even those that survive could find that they are not able to re-enter and re-establish themselves in this important and lucrative export market.

What Needs to be Done?
A study last year by a team of experts with the London-based Ramphal Institute urged that any hiatus in trade must be avoided. It proposed that the UK safeguards the trading positions of those countries that currently rely on the EPA by confirming that it will continue to grant their exports duty-free entry whilst leaving unchanged the tariffs faced by their competitors. Essentially, the study proposed that the UK continues to offer them preferences and the benefits of the EPA.

Later on, CARICOM Ministers held urgent talks in London with their UK counterparts.

The UK Government’s Plans
On October 9, 2017, the Government put out a White Paper for public consultation. Even before that, the Department for International Trade, headed by the Rt. Hon. Liam Fox, had been consulting with various institutions and experts.

The White Paper recognised the importance of trade preferences in helping the weakest developing countries export, grow their economies, and reduce poverty. It envisages leaving unchanged current duties on imports from developing countries and replicating existing EPAs.

Following the White Paper and the consultations, the Government published on November 21, 2017, a Bill entitled Taxation (Cross-border Trade Bill), which is currently before Parliament. It aims, among other things, to empower government, after Brexit, to establish its stand-alone customs regime and independent international trade policy.

Looking to the Future
Since St. Lucia’s economy has been so entwined with that of the UK, which itself has for close to half a century been part of the EU , Brexit’s consequences will inevitably be far-reaching.

This article considered trade concerns, but Brexit will also affect development aid and various other elements of relations with the UK. How precisely, though, cannot be predicted at this stage, since that will depend on the outcome of negotiations and the political decisions taken.

With the rest of CARICOM, we will need to ensure that the development assistance provided by the EU and the UK is not reduced following Brexit.

Brexit’s consequences for us can be positive, negative or both. The challenge will be to work effectively with the UK to ensure that our region benefits from it rather than becoming its unintended victim.

Whilst welcoming the UK Government’s willingness to safeguard our trade, the Caribbean cannot afford complacency, however. Instead, it needs to be fully engaged in monitoring the negotiations and developments, devising appropriate policy positions and pursuing optimal strategy.

The UK leaving the EU provides an historic opportunity for resetting relations with the Caribbean and building a modern, constructive and mutually-beneficial relationship that safeguards and advances our countries’ trade and development interests.

On 1st January 1973, the UK joined the European Economic Community (EEC), whose remit was expanded and name changed to the European Union (EU), when the Maastricht Treaty took effect on the 1st November 1993.

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