The prospect of the UK formulating its own trade policy following Brexit is likely to have implications for the existing Economic Partnership Agreements (EPAs) between the European Union (EU) and some African, Caribbean and Pacific (ACP) countries, and the UK’s future trading arrangements with the ACP.

The latter will be determined by the nature of the UK’s trade deal with the EU post Brexit and the trading regime it sets up with those ACP countries that have an EPA. ACP countries receive duty-free and quota-free (DFQF) market access into the EU for all goods (except arms and ammunition) under the EPAs, while the same treatment is offered by the EU to least-developed countries (LDCs) through the Everything-but-Arms (EBA) scheme. In the absence of equivalent market access, these countries may face higher most-favoured nation (MFN) tariffs in the UK market. In the short-term, the challenge for the UK is to ensure trade continuity on terms that are at least as favourable as those provided under the EPAs.

This issue of Commonwealth Trade Hot Topics examines the implications of Brexit for existing EPAs, and options for trade arrangements that could avoid possible trade disruptions arising as a result of post-Brexit policy shifts.

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EU, UK and sub-Saharan Africa EPAs

The EU, including the UK, remains a major trade, investment and development cooperation partner for many sub-Saharan African countries. These countries almost doubled their merchandise exports to the UK over the period 2000-2015, from US$6.5 billion to about US$12 billion (Figure 2), while overall exports from sub-Saharan Africa to the EU have grown from just over US$30 billion to US$71 billion. Despite its relatively low market share compared with the overall EU market, the UK is an important export destination for several sub-Saharan African countries. More than 40 per cent of exports from Botswana and Seychelles to the EU are destined for the UK, while another five countries send more than 20 per cent of their EU exports to the UK: The Gambia (32.5 per cent), Equatorial Guinea (32.4 per cent), Mauritius (29.3 per cent), Kenya (28.7 per cent) and South Africa (26.3 per cent). Several countries also depend heavily on the UK market for exports of particular products to the EU, such as tea (Kenya and Malawi), fresh vegetables (Kenya), processed fish products (Ghana, Mauritius and Seychelles), fresh or frozen beef (Botswana and Namibia), gold products (South Africa) and diamonds (Botswana and Zambia). Southern African citrus producers sell about 10 per cent of their overall exports to the UK.

In 2014, the EU concluded three regional EPAs with the Southern African Development Community (SADC), the East African Community (EAC) and West Africa. The EU set a deadline of 1 October 2016 to sign and ratify these agreements, after which the EU would revert to higher Generalised System of Preferences (GSP) duties for non-LDC African countries.

All SACU parties to the SADC EPA have ratified the agreement and it was provisionally implemented on 10 October 2016. In West Africa, Heads of State from the Economic Community of West African States (ECOWAS) endorsed the EPA for signature, but The Gambia, Mauritania and Nigeria have not yet signed, amid concerns that the EPA will harm their industrialisation. To avoid higher GSP duties, Côte d’Ivoire and Ghana ratified the 2007 Interim EPAs. In future, this may have implications for the ECOWAS common external tariff.

The EAC EPA is a full ‘regional’ EPA, which means that all five EAC members must collectively sign the agreement before it can be implemented. Kenya has ratified and Rwanda has signed the agreement, while Tanzania has declared it will not do so, fearing the consequences for its revenues and domestic producers and industries. A Summit of EAC Heads of State on 8 September 2016 requested a three-month extension to clarify some of the members’ concerns and called on the EU not to penalise Kenya. Although the European Parliament extended the deadline for Kenya to ratify the EAC EPA to 2 February 2017, the agreement was ratified on 20 September 2016.

But Brexit may complicate things still further for Kenya. In 2015, the UK received 16.5 per cent of total EU imports from the five EAC members (US$2.6 billion) and about 28 per cent of all EU imports from Kenya. Kenya’s most important exports to the EU are black tea (with about 80 per cent of its exports going to the UK), fresh or chilled beans (58 per cent), fresh cut roses and buds (16.5 per cent) and other fresh or chilled vegetables (80 per cent). Because the UK absorbs just under 30 per cent of Kenya’s exports to the EU (and this includes the bulk of its major exports to Europe), Kenya’s overall exports to the EU are bound to decline post-Brexit. This may upset the balance of liberalisation commitments in the EAC EPA if the UK is no longer a party to the agreement.

Given the possibility of a ‘smaller’ EU Single Market and related trade flows, several other EPA signatories with strong export exposure to the UK may have similar concerns if EPAs exclude the UK in the future. For example, 241 South African products are imported only into the EU by the UK, including about 98 per cent of its largest single export to the EU, namely gold products, including gold plated with platinum (CN71081310). Kenya has 213 products and Nigeria, yet to sign an EPA, 203 products destined only for the UK market in Europe.

Most exports from sub-Saharan Africa to the EU currently receive DFQF market access under the EPAs, where these have been signed, or the EBA scheme for LDCs. In the absence of similar treatment post-Brexit, a range of products could face higher MFN duties in the UK market, as well as competition from non-ACP developing countries. At a broad level, the products most vulnerable to higher average EU/UK MFN duties, as listed below, include:

• fish and seafood products (11.21 per cent)

• floricultural products (5.94 per cent)

• edible vegetables (7 per cent)

• meat, fish and seafood prepared food products (13.83 per cent)

• vegetable, fruit and nut prepared food products (13.4 per cent)

• tobacco and tobacco products (21.46 per cent)

• carpets (7.38 per cent)

• clothing (11.6 per cent)

• footwear (9.95 per cent)

• aluminium (6.45 per cent)

• vehicles (6.37 per cent)

Any erosion of preferences in the UK market for many of these value-added products could have an adverse impact on the continent’s plans for structural economic transformation, as outlined in the African Union’s development plan, Agenda 2063.

The potential impact on ACP exports

The UK is an important export destination for some ACP countries. As noted earlier, in the absence of equivalent market access as the EPAs post Brexit, many of these countries may face higher MFN duties and competitive pressures in the UK market. Based on average annual EU imports in 2013- 2015, 22 ACP countries, excluding the LDCs, face a potential calculable MFN tariff hike equivalent to more than 1 per cent of their total exports to the UK. In effect, these countries could face a ‘new tax’ of about US$250 million. In absolute terms, South Africa may have to pay the largest import duties (about US$80 million). Although they export considerably less than South Africa, two fellow SADC EPA states, Swaziland and Namibia, would also be impacted, facing a potential ‘tax bill’ equal to 8 per cent or more of their exports to the UK. However, proportional to current exports, two ESA EPA members would be the worst affected: Seychelles, followed by Mauritius.

UK policy options for EPA countries

There are various ways to frame and shape the UK’s future trading arrangements with the ACP to avoid such adverse outcomes. For the LDCs, perhaps the best option would be for the UK to devise its own GSP that builds upon and improves current arrangements for the world’s poorest countries, such as the EU’s EBA scheme. Post-Brexit, the UK Government should at least maintain this level of market access for LDCs. However, it could go further by introducing relaxed and more generous rules of origin (e.g. Australia and Canada require recipient countries to add only 25 per cent local value for goods to qualify for duty-free access) and reducing non-tariff barriers. The UK’s offer of trade preferences should be extended to services, in line with the agreed LDC Waiver under the World Trade Organization (WTO).

One key issue is whether the UK can accede separately to existing EPAs or install EPA-replicas for ACP countries that have signed the deals with the EU. While the existing EPAs could provide readily available frameworks, this would re-open negotiations on many contentious issues, as – given the market size – the UK would not have the same bargaining position as the EU, and the process could drag on for years. Some have also argued that rather than strengthening regional integration in Africa, the EPAs have actually fragmented the existing Regional Economic Communities by establishing five different reciprocal trading regimes with Europe. The UK will have to consider not only whether the replication of EPAs is possible, but whether it should be pursued.

To avoid any immediate adverse outcomes, the UK could explore offering temporary, unilateral preferential access to developing countries that currently have access to the UK market through FTAs and EPAs. Even though this violates WTO rules, the EU has used various Market Access Regulations to provide such access for some ACP countries since 2007, pending the signing and ratification of EPAs. A more WTO-consistent approach would be for the UK to request waivers to grant non-reciprocal preferences to ACP developing countries. There are precedents for such arrangements: the USA has WTO waivers for its trade preference initiatives with the Caribbean (i.e. the Caribbean Basin Initiative) and Africa (i.e. the African Growth and Opportunity Act, AGOA). This option would avoid the need for difficult negotiations with ACP countries at this stage, while ensuring the continuity of their preferential treatment.

Once the short- to medium-term transitory measures are in place to provide policy continuity and avoid trade disruptions, one medium- to longer-term option for the UK could be to negotiate development-friendly and WTO-compatible trade agreements with ACP regions. Under the African Union’s formal integration plan, member states aim to launch an African Customs Union by 2019. While this is an extremely ambitious target with many challenges, such a customs arrangement could provide an opportunity for post-Brexit UK and Africa to negotiate a single Free Trade Agreement (FTA) in goods that will also reinforce African continental integration. This agreement could also frame the UK’s approach to overall Aid for Trade to help African countries build and diversify their productive and supply capacities. The USA also envisages greater reciprocity in its trading relations with sub-Saharan African countries when AGOA IV expires in 2025. However, given the continent’s ambition for structural transformation and the concerns raised by LDCs about reciprocity, it is unclear whether African countries would be willing to negotiate an agreement that liberalises all trade substantially, as required by the WTO. On the UK’s side, it is unclear whether a trade agreement that excludes services and investment would satisfy the commercial interests of post-Brexit Britain.

One key challenge for many ACP exporters is compliance with the high standards and regulations required for access to the EU market. In the interim, the UK could retain most of the EU’s current body of trade-related standards. However, ACP suppliers feel that some of these regulations are unnecessarily onerous and even protectionist, and should be reviewed or rescinded. For example, citrus exports from South Africa and Swaziland to the EU have been impaired by stringent sanitary and phytosanitary (SPS) standards for citrus black spot, losing market share to Spain as a result.

Post-Brexit, the UK would have the autonomy to develop its own set of agricultural regulations based on internationally recognised science and in accordance with the WTO. Since the UK is not a citrus producer and relies on food imports, there may be a case for greater flexibility and for rescinding some EU measures regarded as unfair or protectionist by ACP producers, if this does not jeopardise plant health and food safety. For other goods imports, the UK and the EU could consider mutual recognition of standards, which would reduce ACP trade costs by requiring ‘one-time only’ compliance and certification.