World economy

Consequences for international trade and impact on developing countries

In the scope of the World Trade Organization (WTO), of which the UK would be a simple member following scenario 1 type of EU-withdrawal, there are clear regulations binding the country in its dealings with other trading partners. Favoured trading conditions afforded to one party must also be granted to all others, with exceptions for developing countries, regional free-trade areas and customs unions. Under WTO rules, a privilege granted by one party only extends to other states who reciprocate that privilege, while in a multilateral reciprocal relationship the same preference would be extended to the group that negotiated a particular privilege. The divorce agreement to be negotiated between the EU and UK could limit the leeway available to London when offering trade preferences - with uncertain consequences for developing economies. In addition, such WTO renegotiations are highly complex and involve a large number of other actors. The requirement for unanimity of all 164 WTO members could result in other positions and claims being put on the table, which would entail a long drawn out process.

It is therefore important for the UK to gain the support of the Least Developed Countries (LDCs) and work towards achieving a consensus. Following withdrawal, agreements under community law will lose their validity for the UK. For treaties only signed by the EU, it will be sufficient to notify third parties that from Brexit-day onwards there will be 27 instead of 28 states to which this treaty is applicable. So, while the LDCs will continue to enjoy preferential access to the European single market, this will have to be regulated for trade with Britain, with competition for the "best deals" and the risk of a new era of reciprocal trade concessions cannot be ruled out. The departure from the customs union in scenario 1 also affects legal certainty in trade with other developing countries and places the UK in the position of requiring new bilateral agreements to be signed with third-countries after withdrawal. The necessary negotiation of such agreements and their implementation would themselves represent a major administrative burden for the partner countries. One factor of uncertainty is therefore whether the UK will at least temporarily adopt the EU framework or look to achieve its own - which would create non-tariff trade barriers for developing countries. Regional integration, for instance in West Africa, could suffer from such bilateral negotiations and the priority expected to be given to the Commonwealth nations. There is also the fact that British imports from developing countries are relatively low, at around 39 billion euros a year, compared to total imports to the UK, at around 641 billion euros. There is a real danger here that development interests could lose out against those of companies and consumers and certainly negotiating a free trade agreement with the US or other powerful economies will be afforded considerably more attention and resources.21 The example of EU-US negotiations on a Transatlantic Trade and Investment Partnership (TTIP), which at present are frozen, teaches how time consuming, demanding and controversial such a process is likely to become (Siles-Brügge and DeVille 2016).Under scenario 2 (intermediary) and 3 (maximalist engagement), Brexit-opportunities include the possibility that the UK could lead the way to the next generation of trade deals, introducing a new, generous preference scheme for all LDCs (or a newly-defined, expanded LDC group), possibly more balanced than the "everything but arms" approach of the EU and therefore one that EU DC could learn from. The swift drafting of adequate rules of origin for products from developing countries and the complex terms regarding value chains is particularly significant here. similar question concerns the UK’s approach to product standards, particularly phyto-sanitary standards. If a new framework is established, third-countries could face the difficulty of having to adjust to two different sets of rules for exporting to Europe, representing a significant additional hurdle for these states, having already invested heavily in building capacity to respect EU regulations and fulfil technical requirements. In the medium term, the UK is to continue applying the EU laws in a "Great Repeal Bill" until separate British regulations can be drawn up.

Also, new regulations will also be required for EPAs. In addition to the question of validity and applicability of the agreements, the unilateral withdrawal of a EU member state also gives rise to very specific problems, particularly as regards the import of agricultural produce: for example, how should the scheduled concessions in the form of import quotas be treated where the withdrawal of the UK means that approximately 15% of goods destined for that country no longer have a market. These product-specific quotas have to be renegotiated for all countries and each of the concessions. The question of whether the remaining EU 27 simply “inherit” the concession certificates under the common trade policy of the former EU 28 on a one-to-one basis or call for partition with the UK is also significant with regard to imports from Commonwealth states: major exports for these include tea and cut flowers (Kenya) and the textile sector (Bangladesh). Belize, Mauritius, Fiji, Gambia and Sri Lanka are also all strongly dependent on the British market.