Rough Seas or Smooth Sailing for UK-CARIFORUM Relations in No-Deal Brexit?

By: Nia Marshall

A new Prime Minister is usually synonymous with new beginnings – setting clear economic and social objectives, and then creating a plan for achieving them. But ever since 2016, United Kingdom (UK) politics has been consumed largely with Brexit, leaving little policy space for other issues. Past Prime Minister Theresa May had an ambitious policy agenda that was overtaken by Brexit. Her mantra “Brexit means Brexit” was a misnomer because it failed to capture the complexities of detangling forty-five years of close ties to the European Union (EU). Prime Minister May’s departure created an opportunity for the current Prime Minister, Boris Johnson, a pro-Brexiter, to “have a go” at resolving Brexit. He is adamant that the UK will leave the EU on October 31st, 2019 with or without a deal. Given the time constraints and the barriers to agreeing and ratifying a deal by that deadline, a ‘no-deal’ Brexit seems increasingly likely. Whatever happens, the effects will surely be felt by other trade partners, including those in the Caribbean.

This SRC Trading Thoughts column will examine the current relationship between the UK and the EU, and the UK’s future trading agreement with CARIFORUM countries in light of the CARIFORUM-UK Roll-Over Agreement.  It is a sequel to a previous SRC Trading Thoughts entitled ‘Can CARIFORUM-UK Trading Relations Survive the Clouds of Uncertainty Hanging over UK-EU Relations?’

The UK-EU Relationship

If the UK leaves the EU without a trade agreement, its trading relationship with the EU-27 would revert to World Trade Organization (WTO) Most Favoured Nation (MFN) Status. So would its relationships with other third countries with which it had trade agreements as an EU Member.  MFN is a cornerstone principle of the WTO according to which all WTO Members should be accorded the same treatment given to one Member.   In certain circumstances, however – such as when it is a party to a customs union or a free trade agreement (FTA) – a WTO Member can provide better, more preferential treatment, that goes beyond MFN treatment to certain WTO Members. Continuing to provide such preferential “MFN-plus” treatment to the EU or other FTA partners requires the UK itself to have in place special arrangements that are compatible with the WTO.  It is therefore in the UK’s best interest to strike a deal with the EU by October 31st, 2019 to soften the impact of any disruption in its trading relations.

Questions loom on what type of relationship the UK will conclude with the EU under Prime Minister Johnson.   Reportedly,  he wants the UK’s trading relationship with the EU to mirror the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada which eliminates tariffs on Canadian and EU goods. A free trade agreement with the EU would give the UK the benefit of preferential access to the EU-27, but with the freedom to determine its own commercial policy. However, a proposed CETA-like agreement will not solve the contentious question of how to tackle the Irish border. Northern Ireland is the only nation in the UK that shares a land border with the EU and negotiations on how to deal with the border once the UK exits the EU still need to be conducted.

UK Trade Relations with Third Parties including CARIFORUM

Prime Minister Johnson must also ensure that, with any Brexit, UK trade with third countries is not disrupted. This can be effectively accomplished via Roll-Over Agreements according to which the UK would simply replicate the trading arrangements it benefitted from as a member of the EU. These agreements would ensure that approximately 11% of UK trade is safeguarded by retaining tariff-free access to the markets of existing FTA partners.  Currently, the UK has successfully concluded Roll-Over Agreements with the following countries/groupings: Central America, Andean countries, Norway and Iceland, certain Caribbean countries (CARIFORUM), Pacific Islands, Liechtenstein, Israel, Palestinian Authority, Eastern and South Africa and Chile, and shortly with South Korea.

The UK-CARIFORUM Economic Partnership Agreement was ratified by the majority of the parties – comprising CARICOM and the Dominican Republic, as CARIFORUM on the one hand, and the UK, on the other hand – on March 22nd, 2019. The CARIFORUM-EU EPA provides for the grant of preferential access by both parties to each other’s markets. This trading arrangement involves trade in goods and services, investment, trade-related issues and development cooperation. An analysis of current trade flows from 2013-2016 demonstrates that CARIFORUM has maintained a trade deficit with the UK and EU under that arrangement. A recalibration of the trading relationship between the UK and CARIFORUM may have presented a good opportunity to remedy the deficit. In order to evaluate whether the region has lost a key opportunity to renegotiate the terms of this agreement with the UK, it is necessary to analyse the UK EPA against the background of the CARIFORUM-EU EPA.

The analysis begins with the services sector. Trade in services has proven to be very important to Caribbean economies. For example, trade statistics in 2018 between CARIFORUM and the UK demonstrate that the Caribbean region gains more revenue from trade in services than trade in goods. The UK imported £0.4 billion in goods in comparison to £1.2 billion in services.  Therefore, it is evident that the service sector is increasingly becoming one of the main contributors to economic growth throughout the region.

In order to facilitate trade in services, Article 85 of the CARIFORUM-EPA addresses mutual recognition of services provided by citizens of each partner country. In reality, this is not functioning effectively. The ability of Caribbean service providers to capitalise on market access openings has been hindered because the technical framework encompassing mutual recognition of services provided for under the CARIFORUM-EU EPA has not materialised as yet. The EPA Secretariat has highlighted that the only sector where discussions of this nature have commenced is architecture. Despite the CARIFORUM-EU Trade and Development Committee suggesting that closer cooperation and engagement is necessary as regards trade in services, particularly in tourism and travel-related services, CARIFORUM service suppliers continue to struggle to gain meaningful access to the EU market. Moreover, service sectors like tourism, accounting and engineering have failed to recognise the qualifications, skills and licenses from these professionals. This continues to hinder the movement of skilled persons and consequently hinders trade in services.

The Roll-Over Agreement could have focused on reducing barriers to service trade by incorporating Mutual Recognition Agreements (MRAs) as an integral part of the new agreement.  Some argue that MRAs should have been drafted into the Roll-Over agreement and fast-tracked. Additionally, a comprehensive analysis should have been undertaken to assess the regulatory environment for key service sectors which would have facilitated cross-border provision of services and the temporary presence of business-people executing their service. Moreover, it would have facilitated free movement for those delivering trade in services without the imposition of excessive immigration and border control policies.

Furthermore, it can be argued that we lost an opportunity to improve trade in goods. The main alteration in the agreement is the facilitation of EU content within products and processing in the UK and CARIFORUM States.  If this was not permitted, both UK and CARIFORUM exporters may have been unable to access preferences granted by the CARIFORUM-EU EPA. While this is important, negotiations could have also highlighted market access challenges that CARIFORUM goods face relating to product labelling, rules of origin and packaging standards. Less taxing mechanisms could have been implemented to facilitate seamless trade.

Finally, it can also be said that perhaps the region lost a vital opportunity to evaluate new areas of trade and negotiate rules that are responsive to Caribbean trade. This could have potentially remedied the trade imbalance and opened up new avenues for trading opportunities between the two sets of countries.

In conclusion, with an imminent ‘no-deal’ Brexit on the horizon, CARIFORUM placed itself in the best possible position to continue trade with the UK by ratifying a Roll-Over agreement. However, successful navigation through potentially choppy waters that will come required alterations to the CARIFORUM-EU agreement. While the new agreement with the UK is likely enough to guarantee survival in the short term, an improved vessel will likely be needed to remedy the trade imbalance in the future.

Nia Marshall is a Barbadian law student at the University of Newcastle-upon-Tyne and was a summer intern at the Shridath Ramphal Centre for International Trade Law, Policy & Services (SRC) of The University of the West Indies, Cave Hill.