Brexit: $395 million in trade deals with developing countries in limbo

Tea harvesting in Kenya. (Credit: Kamweti Mutu/flickr)

As the U.K. prepares to leave the European Union it is reworking trade deals to try to ensure a smooth transition. On the sidelines are developing countries putting some $395 million in annual trade at risk, according to the Overseas Development Institute (ODI). The London-based think tank warned that neglecting the preferential deals could hurt the countries that rely on the U.K. as a trading partner.

“The U.K. has paid no attention to its trade relationships with the poorest developing countries, which have been absent from the discussions, speeches and debates,” according to a new report from ODI. “This has happened despite the risk that they could be significantly harmed by the U.K.’s departure from the EU, with a number of important win-win opportunities missed in the process.”

The proposed ‘win-win’ targets a government that is keen to expand trade as opposed to aid in developing countries. The current Secretary of State for International Development Priti Patel is a critic of U.K. foreign aid. She said in 2013 that trade should become the focus of partnerships with developing countries. Trade was again a leading concern for Patel soon after she assumed leadership of the development office in July 2016. She vowed to “turbo charge” the Department for International Development’s work on trade.

“The way to end poverty is wealth creation, not aid dependency; that wealth is ultimately created by people, not by the state; that poor countries need more investment and trade, not less; and that we need to empower the poorest to work and trade their way out of poverty, not treat them as passive recipients of our support,” Patel told the Daily Mail.

Patel campaigned in support of the Brexit effort. ODI warned shortly after the vote that the devaluation of the English pound cost developing countries $3.8 billion in aid, trade and remittances. Currency improvements helped wipe away some of the losses, but the concern now is that broken deals could harm countries further.

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The new report’s authors say the U.K. has a “responsibility” to at least maintain the status quo. Preferential deals open up the opportunity for goods produced in developing countries to be sold in the U.K.

“Our research shows that while trade with the U.K. is vitally important for many of the world’s poorest countries, it also brings major benefits to the U.K. economy, for example through cheaper clothing or agricultural products,” Maximiliano Mendez-Parra, ODI senior research fellow, said in a statement.

Bangladesh, for example, exports garments to the U.K. duty-free under its preferential status. The partnership accounts for 9 percent of the country’s total exports. The tea, flowers, fruit and vegetables sent from Kenya to the U.K. account for roughly 8 percent of its exports. Like Bangladesh, current trade deals significantly reduce or eliminate taxes on the imported goods. It is a similar deal for Pakistan and Malawi.

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Eliminating the current deals could lead to significant tax rate increases that would raise the cost of the goods and potentially reduce sales in the U.K.

“As the U.K. now attempts to become a leader in the global economy post-Brexit, it is important that it does not harm the poorest countries in the process,” said Mendez-Parra. “In fact, any new trade agreements should go much further by extending the measures in place which already support trade between the U.K. and developing country partners.”

To solve this problem, the U.K. should roll over existing free trade and economic partnership agreements with developing countries, the report suggests. The authors said there is a mutually beneficial relationship to nurture by providing aid and opening up trade opportunities with developing countries. The sales of goods through trade deals and assistance that comes from foreign aid improve developing countries. Improving developing countries also means more opportunities to sell U.K.-produced goods.

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.