WITH THE DUST now settled following the referendum held on June 23 in the United Kingdom, the group of English-speaking independent countries of the Caribbean Community (CARICOM) is now faced with the dilemma of a Brexit.
CARICOM is now faced with the responsibility to craft a strategy to mitigate against the negative impacts of Britain’s formal exit from the European Union (EU) over the next two years.
When Britain joined what was then the European Economic Community in 1973, it transferred all authority for its trade agreements to CARICOM. Since this agreement came into being, it has served as the platform for all formal trade agreements, provision of financial aid, and investment relations between CARICOM and the EU. These relations were officially legally binding after signing at the Lome Convention, the Cotonou Agreement and the Economic Partnership Agreement (EPA).
A key underlying factor for which many English- speaking Caribbean countries entered and continued its relationship with the EU, was due to Britain’s presence given its colonial history.
In the context for the Caribbean, a Brexit will adversely affect many; from trade relations to immigration, tourism to financial relations, and cultural engagements to foreign policy. The decision by UK voters to leave the EU will significantly dampen the tourism industry throughout the Caribbean, given that visitors from the UK, were always seen as a potential growth segment especially in Jamaica and Barbados.
The UK serves as an important target market of tourism to the Caribbean, and British travel abroad is expected to be impacted both by reduced consumer confidence on the back of increased uncertainty, as well as rising costs due to sterling depreciation.
The UK will also have to reconsider whether it would rejoin the European Customs Union which determines Europe’s common external tariff and common external trade policy or as some in the “leave” camp suggests, will operate its own external trade policy.
This will have implications for the UK’s trading partners. If the leave campaign has its way, and the UK were to leave the EU customs union, it would mean that Britain would have to renegotiate almost all of the international trade arrangements it has previously with other EU states been a co-signatory to. Of particular interest, the legitimacy of the CARIFOEUM EPA, and the association agreements with Central and South America, will now come into question. Having to renegotiate its trading agreements globally, where the UK will prioritise the Caribbean is uncertain.
The CARIFORUM-EPA came about as a vehicle to build trade relations with the aim of increasing competitiveness, economic growth and development and participation in the world trading system. The group of participating Caribbean nations currently consists of 15 inclusive of countries outside of the CARICOM members.
Article 244 of the EPA binds all of its signatory member countries, including the UK, until a member country denounces it. According to the executive director of the Caribbean Council with responsibility for CARIFORUM-EPA affairs, the Caribbean will be affected in a number of ways by the UK’s exit from the EU.
These include: possible negative impact on trade and development flows, decrease in the region’s ability to influence thinking on its policy concerns in Europe, a specific range of problems for the UK’s overseas territories in the region and a long period of uncertainty as Britain’s foreign, trade and development policy is reoriented.
Caribbean economies may also face significant risk from a Brexit, as a result of British overseas territories (BOTs) suffering a loss of EU structural funds. While BOTs are not technically part of the EU, a Brexit will likely pave the way for a renegotiation of trade ties, as most currently enjoy preferential trade partner status.
In addition, BOTs have few travel restrictions with the EU and in some cases receive direct funding from the union – for example, Anguilla, Montserrat, the Falkland Islands and Turks and Caicos. Failure to secure additional funds from the UK would pose risks to their fiscal positions and potentially undermine long-term growth.
The vote to leave in the June referendum will no doubt now have a durable drag on economic growth, with the short-term impact being more severe.
Given the Brexit vote would now be followed by a two-year window of negotiations over the future of UK-EU relations, heightened uncertainty would remain in play for some time, to the detriment of investments, trade and capital flows, remittances, job creation, and household spending throughout the Caribbean region.
Clarity over the future of UK-EU relations would take time to emerge, and it will be in the EU’s interest to drive a hard bargain, so as to not encourage other countries to pursue a similar course.
In the end, we must have a united CARICOM position on how best to exploit future relations with Britain and now the restructured grouping of the European Union given the rippling effects that it can have if the situation is not addressed adequately and in a timely manner.
Research analyst Trevis Gangaya produced this report for his employer First Citizens Investment Services Limited, a subsidiary of First Citizens Bank Limited.
