My Lords, from the Prime Minister’s 12 point plan, the clear intention is that the UK should be destined to leave the single market and the EU customs union. It does not require too much scrutiny to work that out. That is in order to pursue bilateral trade agreements with faster growing economies outside the EU. In considering this Bill, it is not therefore unreasonable to consider the impact on the economies of the countries with whom we trade within the Africa, Caribbean and Pacific groups and beyond.
In the Prime Minister’s 12 point plan, point 8 refers to the establishment of free trade into the European market through a free trade agreement, and point 9 is about concluding new agreements with other countries. It is blindingly obvious that this means that the UK will leave the EU customs union and the single market, while assuming it can establish a free trade agreement with the EU that is unlike any existing agreement.
I was fortunate to secure a debate on Africa and the EU economic partnership agreements—the EPAs—on
“the world’s most generous package of market opening for developing countries”,
of which, 44 are in Africa, in which I have a special interest.
With Brexit, the Minister stressed that, while the UK remains part of the EU,
“we … remain governed by the EPA arrangements”,
“all rights and obligations will apply, including our commitments to developing countries through the EPAs”.
He said that we enjoy,
“strong trading relationships with many developing countries, and we will look to strengthen those ties in future. That will be part of the negotiation package as we move forward”.
“That will be part of the negotiation package, as we move forward”.—[Official Report, 17/11/16; col. 1642-44.]
At the same time, the Government have set as a priority a target of increasing trade and investment with the Commonwealth, estimating that Commonwealth trade will surpass $1 trillion by 2020. However, until Brexit is completed, the UK is bound by EU regulations, which forbid members from negotiating trade agreements with others, including the Commonwealth nations. That is, of course, where the dichotomy lies—between ambition and reality, emphasising clearly why the outcome of these negotiations must be sanctioned by Parliament before any deal is ratified.
In its paper for the Commonwealth secretariat, well-known economists Mohammad Razzaque and Brendan Vickers confirm that,
“Once the UK has formally exited the EU, however, all rights and obligations under these various agreements will cease to apply”.
They also point out that, between 2000 and 2015, sub-Saharan Africa merchandise trade with the UK increased from $6.5 billion to $12 billion. Significantly, the same countries achieved far greater expansion in trade into the rest of the EU over the same period, with their exports far more than doubling—from just over $30 billion to $71 billion over the same period. Despite its relatively low market share of EU trade with Africa overall, the UK remains an important destination for countries such as Botswana—we take 40% of its exports here in the UK—while for Kenya we take 29% and for South Africa 26%. The impact of Brexit is bound to include a decline in exports to the EU from these and other African countries if the EPAs exclude the UK in the future.
Furthermore, any erosion of preferences in the UK market for the many current value-added products could have an adverse impact on the continent’s plans for structural economic transformation, as set out in the African Union’s development plan, Agenda 2063. More than 20 ACP countries face most favoured nation tariff increases on the value of their total exports to the UK, amounting to some $250 million. South Africa would have to pay the largest import duties, of about $80 million, while its neighbours Swaziland and Namibia would face a potential tax bill of 8% of the value of their exports.
As Razzaque and Vickers point out, there are a number of policy options that the Government could pursue for EPA countries. For the least developed countries, or LDCs, the UK could devise its own generalised system of preferences, or GSP, building on and improving arrangements for the world’s poorest countries. The UK could also reduce non-tariff barriers and introduce more relaxed and more generous rules of origin. It could follow the Australian and Canadian models, which require recipient countries to add only 25% to the local value for goods to qualify for duty-free access. A UK offer of trade preferences could extend to services in line with the agreed least developed countries waiver under the World Trade Organization, or WTO.
A key issue is whether the UK can accede separately to existing EPAs or whether it can install replicas for ACP countries that have signed the deals with the EU. The Government will have to consider not only whether the replication of EPAs is possible but whether it is worth pursuing at all.
As we can see, Brexit will have a profound and far-reaching impact on our trade with African countries, in or out of the Commonwealth. I look forward to the Government’s response in terms of negotiating Brexit with the EU prior to further deliberation by Parliament and before asking the people to endorse that decision.