Summary
With the ending of the two year notification period set out under Article 50 of the EU Treaty and the House of Commons having rejected the Withdrawal Agreement for a 3rd time, the Brexit process is on borrowed time. The UK government will now have to submit an alternative way forward in the Brexit process if a no deal Brexit is to be avoided on the 12th April 2019. While this may include a longer extension of the Article 50 period beyond the 2 weeks the EU Council has currently granted, the prospect of a no-deal Brexit on 12th April cannot be ruled out, despite a huge 240 Parliamentary majority against the UK leaving the EU without a deal. Against this background, after providing an update on the Brexit process in the UK, this article reviews the situation of ACP countries and regions which currently trade with the UK under an EU EPA.
April 2019: The State of Play in the Brexit Process
On the date the UK was scheduled to leave the EU, 29th March 2019, a third vote took place in the House of Commons on the EU/UK Withdrawal Agreement. It was defeated by 344 votes to 286, a majority of 58 against the Withdrawal Agreement (1). This leaves the British government needing to advance an alternative way forward before the 12th April if a no deal Brexit is to be avoided on this date. However any alternative put forward by the UK government will need to be acceptable to the EU.
The EU Council is scheduled to meet in emergency session on 10th April 2019 to respond to any proposals which the British government may table on an alternative way forward. The EU Council has made it clear it will not reopen the Withdrawal Agreement and that any supplementary agreements must be ‘compatible with the letter and the spirit of the Withdrawal Agreement’. On this condition the EU Council is open to alternative ways forward, but this will require the British government to shift its ‘red lines’, or set out a credible process for breaking the Parliamentary deadlock (2).
If the British government shifts its ‘red lines’, or sets out a credible process for breaking the Parliamentary deadlock (e.g. via second referendum or a general election) then the EU Council will be likely to grant a longer extension to the article 50 process, until, for example, the end of 2019 or beyond. However, this would require the UK to participate in the European Parliament elections scheduled for the last week in May 2019 (3).
Immediate political analysis carried by the BBC following the House of Commons vote on the Withdrawal Agreement was that it was now likely Prime Minister May would seek a longer extension given the firm opposition of the House of Commons to a ‘no deal’ Brexit (240 vote majority against a ‘no-deal’ Brexit).
However, any request for a longer extension to the Article 50 process could see further resignations from Prime Minister May’s Cabinet. It could even see moves to push Prime Minister May out of office. Prime Minister May had earlier offered to resign before the start of the second phase of negotiations with the EU if the Withdrawal Agreement was approved. This has brought into the open a host of Prime Ministerial contenders and saw both former Foreign Secretary Boris Johnson and former Brexit Secretary Dominic Raab voting in favour of approval of the Withdrawal Agreement.
April 1st will see a further series of indicative votes in the House of Commons to finally find a position on the UK’s withdrawal from the EU around which a majority of the House of Commons can coalesce. However the government of Prime Minister May will not be bound by any majority vote which emerges from the House of Commons.
Considerable uncertainty therefore remains, with less than two weeks to go before the UK’s newly scheduled withdrawal date of 12th April. This creates a situation where a no-deal exit ‘by accident’ is a realistic possibility. Against this background the question arises: which ACP countries are most vulnerable to a no-deal Brexit?
Kenya: Very Exposed
Currently the position of Kenyan exporters to the UK looks the most precarious of all African Caribbean and Pacific exporters. Given the uncertain status in regard to the EU-EAC EPA, the UK government it is in no position to simply ‘roll-over’ (in the form of a Continuity Agreement) the existing interim EPA which Kenya has in place with the EU. The UK government see’s little value in rolling over an existing EU agreement which cannot legally enter into force until all EAC members have signed and ratified the agreement. This reflects the long standing position that the UK government is willing to roll over in the form of Continuity Agreements, all EU trade agreements which are in force at the time of the UK’s departure from the EU.
The UK government is reportedly looking at contingency measure to provide a bridge between the complete lapsing of the current duty free-quota free access enjoyed by Kenyan exporters under the EU-EAC interim-EPA and a longer term UK-Kenya/EAC Continuity Agreement. This could consist of a temporary non-reciprocal legal instrument.
This approach has not yet been ruled out and is still under consideration. However if such a legal instrument were to be set in place for Kenya, other UK trade partners in Africa and beyond would be likely to seek equivalent treatment if they otherwise faced the prospect of a lose preferential access to the UK market under a no-deal Brexit. If this equivalent treatment were not forthcoming the UK could face legal challenges in the WTO over a discriminatory UK trade policy measure.
To avoid this outcome UK trade officials are exploring how a UK-only GSP scheme could be structured to provide Kenyan exporters with broadly the same level of duty free-quota free access as they currently enjoy.
The situation for Kenyan exporters is thus very uncertain and a matter of considerable concern.
Ghana, Cameroon and Cote d’Ivoire Exposed
The consensus of opinion among UK trade officials is that it will not be possible to sign a UK-Ghana or UK-Cameroon Continuity Agreement before the 12 April. With regard to a UK-Cote d’Ivoire Continuity Agreement the consensus of opinion among UK trade officials is it should be possible to conclude an agreement before 12th April, since a text has been finalised.
Against this background it would appear important for the Governments of Ghana and Cameroon to accord a high priority to finalising the text of a Continuity Agreement with the UK. All outstanding issues of concern could then be set out in an ‘Annex of Concerns’ which would need to be addressed between the signing and ratification of the Continuity Agreements concluded between the UK and Ghana and Cameroon respectively. Under such an arrangement while the obligations entered into by the UK government in regard to ensuring continuity of duty free-quota free access to the UK market would enter into effect immediately, the reciprocal obligations in regard to tariff phase down for UK exporters would only enter into effect once the concerns raised in the ‘Annex of Concerns’ have been fully addressed.
This would have little effect on UK exports to Ghana in the short term, since Ghana’s tariff elimination schedule towards EU exports is still being updated. As a result the process of reducing tariffs on imports of EU products into Ghana has not yet commenced (see companion epamonitoring.net article ‘Ghana: EPA Implementation in the Context of EU’s West Africa EPA Strategy’, 17 January 2019).
The situation in regard to Cameroon is somewhat different. According to the EC the implementation of the EU-Cameroon agreement ‘has now reached cruising speed’ (see companion epamonitoring.net article ‘The EU Central Africa EPA Where Cameroon Stands Alone’, 10 January 2019). As a consequence UK exporters could face some loss of preferential access compared to EU27 exporters. However the extent of this loss of preferential tariff margins should not be over-stated. The tariff reduction process remains at an early stage with the most significant tariff reductions being back-loaded. This needs to be seen in a context where according to the UK governments’ own assessments total exports to Cameroon in 2017 amounted to only £53 million.
A similar ‘Annex of Concerns’ approach could usefully be adopted by the Government of Cote d’Ivoire.
SADC EPA Certainties: Substantive Issues remain to Be Resolved
While extensive negotiations have been ongoing for some time there remain substantive issues of concern which need to be addressed under a potential UK-SADC EPA configuration Continuity Agreement (which includes South Africa, Botswana, Eswatini, Lesotho, Namibia and Mozambique). The most prominent of these issues relates to: the rules of origin to be applied to both UK exports to the SADC EPA region and SADC EPA region exports to the UK; the UK’s future phytosanitary and animal health control regime; and the future access for South African exports to the UK which are currently governed of EU28 wide TRQ arrangements.
Given the advanced stage of these negotiations it would appear sensible to also apply the ‘Annex of Concerns’ approach, with this requiring the listed annex of concerns to be addressed before reciprocal obligations re-establishing preferences for UK exporters would enter into effect. These issues should be addressed between the signing and ratification of the Continuity Agreement in SADC EPA countries, but with the UK’s obligations entering into effect immediately upon the signing of the agreement. This needs to be seen in context where the principal changes brought about by a no-deal Brexit relate to access to the UK market and the rules of origin basis for UK exports.
However such an arrangement would impact on UK exporters given the commitments on tariff reductions and the elimination of non-tariff barriers on EU exports under the EU-SADC EPA have been fully implemented. These commitments built on the early EU-South Africa Trade Development and Cooperation Agreement, which entered into effect in 2000 and was fully in force by the end of 2012 (see companion epamonitoring.net article ‘Putting the Implementation of the SADC-EU EPA in Context Factoring in the Earlier EU-South Africa TDCA’, 17 December 2018).
Such an approach would therefore impact on those products among the £2,358 million of UK exports to South Africa which benefited from tariff preferences under the EU-SADC EPA in 2017 (4).
Continuity Agreement Signatories
While ESA, Caribbean and Pacific EPA signatories have all signed Continuity Agreements with the UK, securing the rolling over of current duty free quota free access, a host of additional issues will need to be addressed if continuity in trade flows and continuity in the value of rolled over tariff preferences is to be ensured. This includes:
- Short Term Trade Administration Issues:
Notably ensuring valid EORI registration and BTI and BOI decisions are in place, given the changed context created by the UK’s departure from the EU; ensuring continued access to EU trade administration systems; and ensuring continued recognition of EU SPS and food safety certifications for an extended transitional period; - The Rules of Origin Applicable to Exports to the UK:
Linked to the scope for rules of origin improvements arising from the UK’s departure from the EU; - The Future Value of Rolled Over DFQF Access:
Linked to uncertainties over the UK’s future long term MFN tariff policy in areas where Continuity Agreement signatories have major export interests. (e.g. bananas, sugar, rice, citrus fruit etc); - The post Brexit UK Only SPS Import Control Policy:
Specifically the nature of UK phytosanitary controls to be applied in areas of export interest to ACP exporters nased solely on the agro-climatic conditions in the UK, rather than agro-climatic conditions in any production zone of the EU, in a context where increasingly strict EU SPS controls are coming to constitute a barrier to trade; - Maintaining the Smooth Functioning of Triangular Supply Chains:
By ensuring the UK and EU jointly agree to take all necessary steps to establish appropriate customs and border clearance arrangements to facilitate onward trade between the EU and UK, where ACP products enjoy the same terms and conditions of access to both the EU and UK markets; - Addressing Import Surges in the Interpretation and Application of Trade Agreements:
By ensuring the inclusion in all UK Continuity Agreements of provisions allowing the application of special safeguard measures against sudden import surges which could arise under a no-deal Brexit scenario, where such import surges could seriously undermine domestic ACP production or intra-regional trade flows, with this extending, where necessary, to the application of quantitative restrictions on imports from the UK. - Addressing Unfair Trading Practices along Agro-food Supply Chains:
By ensuring the UK government extends the remit of the Groceries Supply Code and Groceries Code Adjudicator to cover the elimination of unfair trading practices along agro-food supply chains serving the UK market under UK Continuity Agreements and establishes a special initiative to monitor the distribution of Brexit related additional costs and losses along supply chains operating under UK-ACP Continuity Agreements. (see companion epamonitoring.net articles ‘Calls for Stricter EU Measures Against UTPs’, 1 November 2018, ’UK Government Fails to Extend Scope of Groceries Code’, 26 April 2018 and ‘EC Proposes New UTP Regulations Should Cover Sourcing from Developing Country Suppliers’, 23 April 2018).
Sources
(1) Guardian, ‘Third vote on May deal exposes splits among Tory Brexiters’, 29 March 2019
https://www.theguardian.com/politics/2019/mar/29/third-vote-on-may-deal-exposes-splits-among-tory-brexiters
(2) EU Council Conclusions 21 March 2019
https://www.consilium.europa.eu/media/38744/21-euco-art50-conclusions-en.pdf
(3) Remarks by President Donald Tusk after the European Council meeting (Art. 50), 21 March 2019
https://www.consilium.europa.eu/en/press/press-releases/2019/03/21/remarks-by-president-donald-tusk-after-the-european-council-meeting-art-50/
(4) Guardian, ‘UK has rolled over just £16bn out of £117bn trade deals’, 13 February 2019
https://www.theguardian.com/business/2019/feb/13/brexit-uk-trade-deals-eu