Deal or No Deal? – ACP Countries and the Brexit

By Bernhard Tröster

Brexit is still in limbo ahead of the upcoming UK elections in December 2019. The answer to the ‘Deal or No Deal’ question has important implications not only for the UK and the EU, but also for the 79 African, Caribbean and Pacific (ACP) countries. Brexit creates much uncertainty and reduces opportunities for ACP countries. However, these risks come primarily from potential shifts in development cooperation and not so much from sudden changes in trade flows.

The EU negotiators have sought a clear Brexit process:  First a withdrawal agreement on urgent and outstanding issues such as civil rights, financial obligations and the Irish border, followed by a second round of negotiations on the future relations. According to the latest deal and arrangements, the second phase could start on 1 February 2020, before the UK leaves the EU ultimately by the end of 2020.

The Brexit deal includes and affects issues that are highly relevant for ACP countries. Firstly, it ensures that the UK’s substantial contributions to EU development aid budgets (around 15%) continue until the end of the transition period. Secondly, an orderly Brexit process allows for better coordination with the UK in the ongoing and complex negotiations on a Post-Cotonou arrangement between the ACP countries and the EU. Thirdly, the UK remains a partner in all EU trade agreements until the end of the transition period to avoid sudden changes in trade flows. In a no-deal scenario, such processes to facilitate the relational adjustment would be disrupted and ACP countries would face various challenges, which, contrary to popular belief, are not related to trade disruptions.

Measures against a hard Brexit trade chaos

In a hard Brexit scenario, current imports and exports between the ACP countries and the UK would hardly be affected because of safeguards and the structure of trade flows. The UK would continue to grant non-reciprocal market access to developing countries (Cross-Border Trade Act). Thus, Least Developed Countries (LDCs) would experience no changes under the UK’s Everything-But-Arms scheme. Further, the UK government has initiated post-Brexit deals to rollover reciprocal preferences laid down in EU-trade agreements in the event of a ‘hard Brexit’. Recently, South Africa (33% of UK-ACP trade in 2018) and neighbouring SADC (Southern African Development Community) countries, as well as two other regions of ACP countries, have signed such agreements.

Even though other ACP countries such as Nigeria (15% UK-ACP trade), Kenya and Ghana (both 5%) would still face tariffs, their trade structure with the UK limits potential disruptions. On the one hand, the UK has lost its importance as a source of imports and a destination for exports. On the other hand, these countries still largely export primary commodities to the UK, which are typically not subject to tariffs. Therefore, a ‘hard Brexit’ trade shock is of little concern for all ACP countries, but provides the opportunity to arrange new trade relations with the UK.

Going global with the UK?

The prospects promised by British government officials for ACP countries to strike new trade deals with the UK appear attractive at first sight. However, ACP countries must bear in mind that the UK’s ability to offer enhanced market access to third parties is strictly linked to the nature of its future trade relationship with the EU. Maintaining close relations with the EU constrains the UK’s policy options for third-party deals, as the EU and UK regulatory frameworks will be closely aligned. Alternatively, loosening links with the EU, offer more policy space for the UK in dealing with other countries, but imply substantial economic risks, given the UK’s close economic integration with the EU. In any case, it is possible – and advisable – to wait and see how the new EU-UK relation will develop in the coming years.

Charting unknown terrain in development cooperation

Contrary to trade policies, the conclusion of a Brexit deal does play a role when it comes to development cooperation and the adjustment of political and financial ties of ACP countries with the EU, the UK and the cooperation among themselves.

As a major aid donor, the UK contributes 1.5 billion British Pounds to EU official development assistance (ODA) per year, of which two-thirds go to the official EU budget and one-third to the European Development Fund (EDF). The withdrawal agreement would ensure the continuation of payments during the transition period, i.e. for at least another year. More importantly, a transition period would leave some room for coordinating new institutional arrangements, before both the UK and the EU adjust their development policies and financial contributions after 2020.

In the UK, a reduction of the ODA level cannot be ruled out, particularly, if a Brexit generates adverse economic effects. At least a re-direction of British ODA funds towards strategic partner countries and objectives that serve the UK’s geopolitical and economic interests is likely. In the EU, discussions on the new budgetary framework could adjust focal regions and topics in development cooperation. In the EU-ACP relations, this could lead to future imbalances with French-dominated West and Northern Africa, also linked to security and migration issues, and with countries with strong historical ties to the UK, such as Eastern and Southern Africa as well as Caribbean and Pacific countries. These tensions are already apparent in the negotiations on a successor agreement to the Cotonou Agreement.

ACP countries should have a vital interest in an orderly Brexit

The separation of the UK from the EU creates uncertainty for ACP countries, in particular in the case of a ‘hard Brexit’. ACP countries should have a vital interest in an orderly Brexit with a withdrawal agreement. During the consequent transition period in 2020, ACP countries could bring their concerns to the official negotiation tables. Potential risks are not so much related to trade effects, as ACP countries will experience little change in their market access after Brexit, but linked to possible changes in development cooperation. Here, the UK and the EU might shift the strategic orientations of their development agendas without much coordination, with adverse effects in particular for ‘non-strategic’ ACP countries or regions. This also calls for a close coordination of strategic priorities among the ACP countries.

Bernhard Tröster is an economist and researcher at the Austrian Foundation for Development Research (ÖFSE). His work primarily centres on international trade relations, commodities and development as well as global value chains. This post is based on a ÖFSE policy note first published here. Email him at: b.troester@oefse.at

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