A New UK Policy on Trade and Development Post-Brexit: A Good First Step

Britain just announced a new policy for trading with developing countries after Brexit. It maintains the current framework of duty free, quota free access to British markets for least developed countries. It is a good basis for the further steps we’d like to see Britain take.

There’s a tedious old fallacy that developing countries need “trade not aid.” The fallacy is that these are alternatives, when in fact we can, and should, do both, as we at CGD have argued for the last 15 years. No country has ever developed without trade. We should provide opportunities for developing countries to trade with us and provide aid which can help them to use those opportunities. Aid also helps many of the world’s poorest people over and above the benefits their country might get from exporting more to us.

Enabling poor countries to trade is an excellent way to help the poorest countries to attract investment, create jobs and provide incomes for their people. Trade preferences mean far more to investors than aid subsidies. And they are good for British consumers too—market access is one of those win-win policies which helps developing countries and helps us too by keeping prices down and so enabling hard-pressed consumers make their money go further.

That’s why we welcome Britain’s announcement on Saturday that Britain will give duty free quota free access to least developed countries after Brexit—which continues the arrangements now in place under EU rules. This is an indefinite commitment which applies to everything other than arms.

The British Government also intends to maintain existing preferences for other developing countries (not just the least developed countries) but as they rightly say under international trade rules this has to be part of a reciprocal agreement so they can’t announce this unilaterally. These countries, like Kenya and Ghana, are still desperately poor (with national income per head around $1,500 a year) but they are the ones that are most likely to be able to take advantage of trading opportunities in the near future. Maintaining market access for these countries is critical to helping these countries and regions grow and create more jobs and income—making transition arrangements for these existing EU agreements should be a major priority for the Government in the next twelve months.

But we can do even better for the world’s poorest and help our own people too. Here are some ways we would like to see the British government build on this welcome first step.

Simplify red tape.

The EU rules aimed at preventing abuse of the scheme—the so called “rules of origin” to demonstrate produce originated in the exporting country—still make it hard for developing country exporters to take advantage of the market access we claim to be offering. Canada does this better and outside the EU, Britain can learn from the Canadians, and consider developing countries own proposals for these rules. Britain can also help smaller consignments of imports by increasing the very low EU minimum threshold (of 22 euros) for paying VAT—a figure so low, it is unlikely to justify the bureaucracy of collecting it.

Extending trade preferences to other developing countries.

Britain has announced a firm commitment that least developed countries will maintain their current preferences (which Britain can implement unilaterally) as well as the intention to maintain existing arrangements for other developing countries (which requires agreements that legally must wait until after Brexit). As well as all these welcome commitments to maintain existing access, the UK after Brexit can, and should, go further by offering duty free, quota free access to all low income and lower-middle income countries. This would address the substantial risk to developing countries that the EU’s existing deals, which cover 52 countries, are not replicated quickly by Britain. This would be good for the world’s poorest countries and good for British consumers too.

Improve trade facilitation.

There are a host of other mutually beneficial ways to make it frictionless for poor countries to sell to British consumers. For example, we could make it easier to obtain necessary certifications (e.g., organic, food safety, etc.) without undue cost and delay. We can improve access to trade credit (including ensuring that capital adequacy rules do not choke it off). We can facilitate links into retail supply chains. We can make business visas easier, which are vital to lubricate trade. An important first step would be much more extensive consulting with developing country governments and business representatives to find out where the most salient obstacles currently lie. 

Stop undermining developing country exporters with unfair competition.

Developing countries face competition from subsidised British farmers—in UK markets, in their own countries, and in third countries where we compete. It doesn’t make sense for us to be subsidising our farmers to compete with exports from developing countries to which we are also providing much-needed aid. Efforts have been made to reduce the trade distortions caused by agricultural subsidies, but there is further to go—and doing so is another example of a policy that is good for Britain and good for development.

So, as a first step, let’s toast the welcome announcement made by the UK government, but let’s not forget there are many more steps to take to enable the poorest countries to trade their way out of poverty.