Trade and investment Between Africa and the UK by the Africa All-Party Parliamentary Group
Africa APPG together with RAS arranged a panel meeting in Parliament. This discussion represented the occasion to gather 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 speaker managed to introduce a unique perspective to the dialogue resulting in a rich and multi-dimensional analysis of the economic, political and social consequences that Brexit may have on Africa-EU EPAs.
The APPG’s work on EPAs and their impact on Africa’s industrialisation is of particular importance and fundamental to African countries’ ability to rise step-by-step from the bottom of the global economy where so many languish, producing and supplying raw-materials with minimal processing and transformation. This process is the only path if they intend to expand income and employment so as to reduce poverty and improve livelihoods and set themselves free from the chains of the underdevelopment. The EPA was intended as the vehicle for supporting that transition.
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 others criticize the impact of agreements on indigenous groups.
EPA: a system which needs to be re-built
Mr. Edwin Laurent, Director of the Ramphlal institute, excavated particular trade agreement policies. He focused on 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: anyway, this new situation brings either uncertainties or hopes for a new successful future of commercial alliance between the two sides. The UK will be under tremendous pressure because of the urgent need of negotiating and concluding many complex trade deals in a very short time; this means that countries whose volume of trade is small may not be seen as priorities and even ignored as potential commercial partners. But on the other hand, for small African exporters, this trade could be of vital economic importance. These countries would hope that Brexit could constitute an enormous opportunity to increase their commercial relationship with UK and provoke notable improvements in their economic conditions as well.
The EPA is not an investment agreement, but several African countries have investment agreements with European countries. The EPA just provides a sort of free and eased access to a major high income market and complementary financial, technical and policy support to help the partner countries develop and their capacity to produce and export internationally competitive goods and services. It is a sort of 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 results fundamental in order to sell African products into EU markets basing on competitive prices that make the affordable and for the common European consumer: now this system, that allows to both sides to take advantages of their mutual commercial deals, could quickly collapse and for a very simple reason.
Consequences of Brexit
Since the UK is a signatory to the EPA, now that the population has voted to leave EU perennially and the process is actually in progress, it would automatically cease to be a member of the Agreement. The only way to avoid this danger and all the negative consequences connected to it would be to create ex-novo a new deal between UK and African countries, a deal containing all the elements of the previous one: this represents exactly what African countries hope that would happen eventually.
Obviously UK withdrawal from EPA and its formal talks will not begin until after Article 50 has been triggered, but the uncertainty can affect the confidence and the enthusiasm of investors, both local and foreign: in their opinion, their business deals would risk to be compromised, due to the new economic situation in which UK is being involved and which has its main centre in the not being able to make long-term plans for what is going to happen in the future. This cutback in investment can itself impose a pre-Brexit cost on the African countries affected and damage their presence in the international market even before the beginning of the Brexit’s process.
The EPA itself with the remaining 27 can continue playing its role without any significant changes. However, since it will no longer the chance to access to the UK’s market, that would mean a diminished value for the whole commercial deal, which will find itself deprived of one of the greatest economies of the entire world, with whom many African countries had even close links because of their British Commonwealth former membership.
The potential advantages of the Brexit
Generalised Scheme of Preferences (GSP) and Everything But Arms (EBA): both of these are in keeping with WTO rules/exhortations and the UK is free to continue to provide eligible countries with preferential market access under these two arrangements. EBA and GSP preferences are in line with UK commitments made within the WTO framework so EBA and GSP imports should not be affected.
Brexit will offer 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 and help it, but also in terms of complete freedom and autonomy to establish what to import from Africa and in which quantity, according to the rules of 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.
If then we talk about the UK’s voluntary contribution to the European Development Fund (EDF), which has been considerable a very similar problem emerges: Brexit will mean that this financial sustainment is no longer available and so the EDF that has benefited African countries would be expected to be suddenly cut back (unless as is most unlikely the remaining 27 agree to make up the shortfall). The UK can still decide to channel the same volume of aid directly or through other intermediaries, turning again to the African institution which need of foreign assistance to improve their economy. Brexit can offer an opportunity for the UK: engage more directly and constructively with development partners, avoiding waste of money and time, to ensure that financial efforts cause a fuller contribution to sustainable development and transformation of Africa into an influent financial reality.
According to Mr. Laurent, there are three solutions by which UK can strengthen its commercial links with African States: to continue to provide EBA and GSP trade benefits; to conclude duty-free and quota free market access arrangements at least with the non-LDCs in particular those that have longstanding trading links; to maintain Most Favoured Nation (MFN) tariffs on products of particular importance to African countries and exclude them from trading arrangements with other regions that are low cost competitors and so could represent a risky partner, for instance in South and Central America and South and South East Asia.
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, as declared by Dr. Eka Ikpe, African Leadership Centre in King’s College London.
The meaning of EPA for Africa
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. Such an arrangement is seen as a step forward in the path of the cooperation between African countries belonging to the same bloc and can even strengthen Africa’s stance as regional collaboration in terms of increasing 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 a main element of the EPAs. This is because in principle they expose prematurely African markets to European goods that may be produced more competitively (although there are current provisions intended to manage these dynamics), especially because of the much low salaries that have to be paid to African workers: that means to obtain the same products, quantitatively and qualitatively speaking, with an incredibly-reduced labour cost. The risk then is that African economies get locked into their static comparative advantage of primary exports (mineral resources and agricultural goods) thus undermining the current commitments and efforts towards structural transformation that African governments have been trying to promote for years and that now might be compromised because of the British will of leaving EU. The risks of such a situation are evident in the current challenges that many including the largest African economies are facing as result of the downturn in commodity prices (Nigeria and Angola in particular).
What African institutions worry about?
Preoccupation about all these problems connected to the new scenery which is slowly shaping was expressed by Dr. Kaire Mbuende, Ambassador for the Republic of Namibia to the European Union, who underlined how his country wants to and needs to attract investments and EPA plays a key role in this process: however everything is about to change, perhaps in worse, after the Brexit and the unknown which accompanies it.
The UK is third largest contributor to developments which have been instrumental in facilitating certain phases of economic progress for the countries of African continent which benefit these aids. Only by clarifying such an important aspect everybody is able to realise why and how the UK leaving may have a very relevant impact on the amount of financial contributions to development through the European developing funds. However, 40% of poorest of the poor are in middle-income countries. That is why they also need help and economic rescue.
How is EPA supposed to change?
According to Liz May, Head of Policy at Traidcraft, as the UK starts to negotiate FTA (Free Trade Areas) with third countries, Africa will be affected, but African countries are unlikely to be amongst the first priorities for those FTAs. So for the new International Trade Department the priorities are for sure countries like the United States, Australia, China, Canada, Japan, UAE, South Korea, India, and Indonesia. The important thing to stress here is that SS African countries are unlikely to be on the UK’s priority list: it is almost sure that Africa will not be the first part of the world to which the UK will turn at the moment of starting new negotiations for the future trade routes. It does not mean that they are doomed to irrelevance in the future British commercial relations, but that they will be impacted by these other FTAs whose work of creation results in progress; 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 way EU-UK negotiations proceed. The UK might try and obtain some kind of continued application of those still existing EU FTAs at least for a temporary period of time and just until a more convenient solution is founded and a new trade agreement is with the whole EU or with each State being part of it. To be honest, it is hard to imagine the EU agreeing to this option and extend the same deal Britain has just decided to broke, as it is very like offer a slice of your cake to someone who is not a guest of the party.
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. At the same time, suggestions that the UK could simply replicate the EU’s FTAs look similarly fraught. Suggestions coming from many parts say that it would be simplest and therefore quite likely that the UK would choose as a starting point to base its tariff schedule on the one the UK itself currently implements 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 negotiations with third parties.
The role of the UK in the negotiations
Under the EPAs, access to the EU market for African countries has been bought at the price of reciprocal market opening and in some cases regional fragmentation. Given these uncertainties and the urgent need to send a immediate signal to business and investors that market access will not be destroyed or risk a collapse, UK has to develop a preference scheme that builds on and improves already existing structures, that is specifically designed to support regional integration and is genuinely pro-development, solving once and for all the problems of the past.
The UK has the chance to demonstrate its intention to leave the past behind and its commitment to open and fair trade by designing an innovative, pro-development preference scheme that builds on existing good practice: it does not require complicated and time wasting negotiations and crucially provides developing country exporters with the certainty they need – at least as an interim measure allowing them to orientate in a long period of darkness and to find again their confidence in a future which now seems at risk for everyone.
A few suggestions for the new model to be adopted
Some hypothesis, which obviously need to be demonstrated in order to prove either they are economically sustainable or not, are: adopting more generous policies than existing EU ones, in terms for example of the products and the countries covered; being designed to support regional integration, providing for some regions more comprehensive FTAs negotiations at a later date as well, as and when regions are ready; being 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 (General Agreement of Traffic and Trade).
Furthermore, during the meeting even other options were proposed, following the examples of other countries: adopting the Norway model and be part of the EEA (European Economic Area), but this would mean accepting the free movement of people and that was one of the main reasons which persuaded British people to vote for leaving; joining EFTA (European Free Trade Association), but not the EEA as the Swiss have done; negotiating a very comprehensive FTA as the Canadians have done: trying to negotiate a bespoke membership of the EEA, perhaps without joining EFTA.
Questions and Contributions
Two were the main problems faced during the meeting and which underlined the need of answer for a moment in British and African economic history that is characterised by not having certainties. The first one was the about which will be the effects of the Brexit on the Commonwealth, the system that unites all the UK’s allies and former colonies and which has always seen the United Kingdom itself playing a leading role since the very beginning; in this case it is common opinion that Commonwealth is a political rather than economic partnership, despite of its strong influence in the global events; it means that the leaving process is going to exercise a relatively low for the Commonwealth’s members.
The other recurrent question is about the UK-Africa trade and how to ensure that Africa is involved in future most relevant British trade deals: everybody agrees on the fact that Africa should not be left alone to Chinese interests, which have grown up more and more during the last few years. Not prioritizing the African continent would be a UK’s defeat without any way back: that is the reason why British governments need to have a more interconnected thinking about Africa, reflecting on development and security issues and the economic implications.