27 June 2017
Dr Peter Holmes Reader in Economics at the University of Sussex and Fellow of the UKTPO
The UK government’s new approach to trade policy towards developing countries has just been released in a DFID document that has been widely commented on. The government’s proposals are welcome, but yet they are not quite as generous as they may seem.
A Bloomberg piece says, optimistically: “The government promises improved access to U.K. markets for the world’s poorest countries”. However the only concrete promise is that
“ around 48 countries across the globe, from Bangladesh to Sierra Leone, Haiti and Ethiopia will continue to benefit from duty-free exports into the UK on all goods other than arms and ammunition, known as ‘everything but arms.”
In other words, the UK pledges to maintain existing arrangements for the poorest countries currently benefiting from the EU’s Everything but Arms deal (EBA). This amounts to simply maintaining the status quo for this group and is not actually an improvement.
As for other countries, it only says
“On leaving the EU, the UK Government will also explore options to expand on relationships with developing countries such as Jamaica, Pakistan and Ghana”.
Pakistan in particular benefits from the EU’s GSP+ arrangement under which many of its most important exports come into the EU duty-free. Since the UK is its largest EU trade partner it matters a lot to Pakistan to keep this access. The EU scheme makes the duty free access conditional on Pakistan’s compliance with a number of key international conventions on labour and environmental standards, human rights and good governance. In fact, the government of Pakistan recognises the principles behind these conventions as being in line with their own constitution and it does not object to the incentive to implement them. There is every reason for the UK to keep these conditions.
However, there is one reason why two separate GSP+ schemes (EU and UK) are less good than a single scheme. There is a significant potential for restrictive Rules of Origin to make it harder for goods, including materials from the UK, getting duty free into the EU and vice versa without a comprehensive UK-EU deal.
Finally, the DFID statement does not specifically say what happens to goods that are coming in under the Economic Partnership Agreements (EPAs). These are essentially free trade agreements with partners, including Ghana and Jamaica – and other Caribbean countries, which allow most goods to come in tariff-free from the partners. But while GSP(+) and EBA are preferences that the UK can unilaterally maintain, the EPAs are negotiated agreements – and Rules of Origin are highly relevant in cases where for example goods are produced in developing countries and then sent for processing partly in the EU and partly in the UK.
A final point to note is that the statement does not mention non-tariff barriers, which is fair enough given that its subject was tariffs, but this will need to be addressed in future.
So this is definitely a welcome step but needs more development. In ‘A new UK trade policy towards developing countries: what sort of transition?’ Jim Rollo has put forward valuable suggestions. The trouble is that whilst in Professor Rollo’s paper and in David Davis’s speech it is firmly asserted that Britain must “put its faith in free trade”, the actual politics of supporting farmers and other vested interests may make this politically challenging.
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Interesting that Jamaica is listed above as a developing country with which the UK will explore expanding relationships. Within about an hour of the Brexit vote I had a worried e-mail from a Jamaica colleague asking how I thought Brexit would affect UK-Jamaica trade. The problem is that Jamaica is currently our trade partner through the EU-CARIFORUM EPA which grants duty-free access to the UK market for Jamaican exports. Within this EPA, the largest component of Jamaica’s trade is that with the UK, hence it makes sense for Jamaica to worry over what the trading conditions will be once we leave the EU and are therefore no longer a party to the EPA. Will we offer tariff-free access, and if we do what rules of origin will apply? Has anyone really thought about such detailed matters yet? If not, they certainly should, since it is surely in the UK’s interests so to manage its future trade relations that we do not alienate partner countries who have hitherto been good friends.