Brexit – a nightmare for the Caribbean’s relationship with the EU and Britain

THE 12 ENGLISH-SPEAKING independent countries of the Caribbean Community (CARICOM) have at the most two years to formulate a plan for dealing with the serious consequences of the British Exit (BREXIT) from the European Union (EU).

Indeed, the time may be less if the current mood of the leadership of the EU intensifies, given that they want Britain gone “as soon as possible”. The presidents of the European Council, Commission and Parliament – Donald Tusk, Jean-Claude Juncker and Martin Schulz respectively – and Mark Rutte, the Prime Minister of the Netherlands which holds the EU’s rotating presidency, are reported as saying any delay to Britain’s exit would “unnecessarily prolong uncertainty”.

Once Britain finally leaves, the 12 Caribbean countries will have no structured trade relationship with that country. When Britain joined what was then the European Economic Community in 1973, it transferred all authority for its trade agreements to the Community. Ever since then, the formal trade, aid and investment relations between the 12 Caribbean countries has been with EU.   These relations were formalised successively in the Lome Convention, the Cotonou Agreement and the Economic Partnership Agreement.

“Key to the terms under which the English-speaking Caribbean countries entered – and continued – the relationship with the EU, was Britain, their former colonial ruler.”— Sir Ronald Sanders

Up to the time of British entry to the EU, trade between Britain and the 12 Caribbean countries was conducted under a Commonwealth preferences scheme.  That scheme fell away once Britain joined the EU and negotiated the extension of some of those preferences to the English-speaking Caribbean by the European body.  

In effect, once Britain officially exits the EU, Caribbean countries will have no trade agreement with it. Indeed, Britain will have no formal trade agreements with any country, having subsumed its authority for trade matters to the EU. Its first task will be to negotiate trade terms with the remaining 27 EU members, hitherto its biggest trading partner.

Those negotiations will not be easy. Britain will then have to try to formalise trade agreements with other countries.   The United States will be uppermost in its priorities, but President Obama had warned during the debate on BREXIT, that the UK market of 64 million people would not be high on the US agenda. The EU, with a population of 450 million (without Britain) was a far greater target.

Trade and tourism impact: A trade agreement with the 12 small English-speaking Caribbean countries (total market of approximately 7 million) will also not be high on Britain’s list. 

However, even though these Caribbean countries have been notionally trading with the EU, the majority of their exports has been going to the British market. Now that the EU will no longer be representing Britain, the EPA will not cover trade with Britain. That is an issue, however much on the back burner it will be for Britain, that will be important to the Caribbean – at least for trade in services, particularly tourism. British tourists comprise a significant number of the annual visitors to the region.

Development aid and investment: More worryingly, once Britain leaves the EU, there will be several troubling consequences for the 12 Caribbean countries.  Not only will the British market disappear from the EU, but so too will the British contribution to official aid and investment. It is most unlikely that the 27 EU countries, which had no historical relationship with, or colonial responsibility for, the English-speaking Caribbean, will want to maintain the level of official aid and investment that now exists. 

Importantly, it should be recognised that the EU-EPA is the only such formal comprehensive arrangement that Caribbean countries have with any other country or region of the world. It is vital to maintain as much of it as possible.

False notions of Commonwealth support: There had been some speculation in Britain during the BREXIT debate that Britain could resuscitate trade among the 52 other Commonwealth countries. But, that idea, rooted in Empire, is not only impractical, it would not reap for Britain the trade rewards it derives from the EU. Britain’s earnings from exports to the Commonwealth are not huge, representing only 9.76 per cent of its total exports in 2014, while its merchandise exports to the EU represented a hefty 45 per cent of its total exports.

In any event, total Commonwealth trade in goods has declined over the years. And, even its share of world trade is owed to the trading capacity of only six of the Commonwealth states – Singapore, India, Malaysia, Australia, Britain and Canada. Moreover, that trade is not between themselves.  For instance, China is Australia’s biggest trading partner, and the US and Mexico are Canada’s. In 2014, the six countries accounted for 84 per cent of all Commonwealth exports; 47 countries combined, including South Africa and Nigeria made up only 16 per cent.  Not surprisingly, the 36 Commonwealth small states, including the 12 in the Caribbean, enjoy only a tiny share of Commonwealth exports.

As for the notion that Commonwealth countries could fashion a Commonwealth Free Trade Agreement (FTA) under which they could give preferences to each other to expand intra-Commonwealth trade, while this is technically possible to make it compliant with WTO rules, it is enormously difficult from a legal, administrative and even political standpoint. Certainly, Cyprus and Malta would have to leave the EU customs union.

Other Commonwealth countries would also have to review their commitments to other countries with which they have joined in FTAs to ensure that the effect of Commonwealth preferences does not violate their existing agreements, which, in many cases, it must do to make the Commonwealth FTA beneficial to many of its participants.

Finally, the benefits of improved preferential access to all Commonwealth States within an FTA would be exploited by the major economies such as India, Malaysia and then by the developed Commonwealth countries, Britain, Australia and Canada. The Commonwealth’s 36 small states would not get much of a look-in.

Urgent problems: Other options have to be explored by the Caribbean countries for dealing with the twin-problem of no formal trade relationship with Britain, and an existing EPA with the EU that is now skewered and ripe with problems.

The Caribbean has known for over a year that the referendum on BREXIT was coming.  The result could only have been one of two things – either Britain would stay within the EU in which case it would be business as usual, or Britain would leave. In the latter case, the scenario described above would be the reality with which the Caribbean would be faced. Plans for dealing with it should, therefore, have already been thought through. 

If not, the Caribbean has at most two years, and the clock is ticking.