On June 23, 2016 the British public by a 52 to 48% margin voted for the United Kingdom (UK) to leave the European Union (EU). Although the UK has not yet triggered Article 50 of the Treaty of European Union (Treaty of Lisbon), there is understandable concern among Caribbean countries about what implications the UK’s possible exit from the EU (Brexit) will have for their relationships with both the UK and EU. While I believe that Brexit will pose challenges to Barbados, we need to think strategically and carefully about how we will turn this Brexit lemon into lemonade for Barbados in its relations with both trading partners.
Barbados and the UK have a longstanding relationship. The island was under continuous British rule from 1627 until gaining its independence in 1966 and retains strong diplomatic, historical and cultural bonds which will not necessarily change due to Brexit. Commercial bonds exist as well. The UK accounts for almost 40% of Barbados tourist arrivals and is our largest export market in Europe. According to data retrieved from ITC Trade Map, Barbados exported US $13,879,000 worth of goods to the UK in 2015 but imported US$68,198,000 from that country in the same year, reflecting a merchandise trade deficit in the UK’s favour of US$54,319,000.
One of the early impacts of Brexit is the depreciation of Sterling against the world’s major currencies, including the US dollar to which the Barbados dollar is pegged. Weaker Sterling would make UK goods and services cheaper for Barbadian importers. The increase in the importation of British goods would likely widen the island’s trade deficit with the UK. However, it will also provide cost savings for local businesses which import frequently from that country and for Barbadian consumers of UK services (e.g: education, travel) in all four modes of services supply. Although Barbados goods and services exports will be more expensive and less competitive to UK importers, one way Barbadian exporters could possibly mitigate this is by quoting their British buyers in British pounds. This would eliminate the currency risk for the British importer. The Barbadian exporter could build a small buffer into their pricing to mitigate some of the currency risk on their own end.
Most international law experts opine that once the UK has concluded its withdrawal from the EU it will cease to be a party to any EU trade treaties, including the CARIFORUM-EC Economic Partnership Agreement. The EPA, which was signed in 2008, provides CARIFORUM countries (CARICOM plus the Dominican Republic) with duty-free, quota-free access to the EU market on the basis of asymmetrical reciprocity – reciprocity which takes into account differences in size between the EU and CARIFORUM. A major value added of the EPA, besides its development component, is the market access concessions it provides for CARIFORUM service providers, particularly under Mode 4 (presence of natural persons), the most restricted mode of services supply.
Until a withdrawal agreement with the EU has been finalised, the UK will continue to be bound by its obligations under the EPA. However, to safeguard its trade interests within the post-Brexit UK market, Barbados, as part of CARICOM or CARIFORUM, should be proactive not only in monitoring the negotiations between the UK and the EU but also in lobbying for the negotiation of a new trade arrangement with the UK post-Brexit. Australia has already indicated its interest in negotiating a post-Brexit trade agreement with the UK. Although it is conceded that the Caribbean will unlikely be among those priority countries with which the UK seeks to secure new trade deals, other interim arrangements could be found.
Barbados’ existing DTA and BIT with the UK also provide further opportunities to enhance investment promotion efforts in the UK, particularly targeting those UK companies which may be seeking to re-domicile post-Brexit. Barbados has many factors which would make it attractive to British companies as a domicile of choice for international business, including a common language (English), the common law legal system, political stability, a well-educated labour force and excellent professional services firms. Barbados should continue to not only promote its attractiveness as a domicile of choice but continue to make reforms which will improve the ease of doing business. There is also the opportunity for the private sector to forge closer links with businesses and private sector organisations in the UK and seek out new business opportunities. In this vein, the Barbadian diaspora living in the UK, while an important source of remittance inflows, is a still largely undertapped resource as an export market and source of foreign direct investment.
Like most Commonwealth Caribbean territories, Barbados does not have traditionally close relationships with most other EU countries. This is the opportunity to expand our level of trade and investment flows with continental Europe under the EPA, as well as continue to widen our DTA and BIT network with these countries. The consensus so far is that nearly 10 years after the signing of the EPA, most CARIFORUM countries have not realised the benefits expected. Simply put, market access does not guarantee market penetration. Sound market research will be needed to identify specific niches within the EU market which Barbadian goods and services providers could tap into. Business support organisations will continue to play an important role in assisting Barbadian exporters in their preparedness to enter the EU market.
By no means is this article meant to downplay the serious implications that Brexit could have for Barbados nor does it aim to present an exhaustive list of the opportunities available. What it does argue that is that although Brexit does pose challenges for Barbados, we should use it as a catalyst and impetus not only strengthen the already strong bonds we have with the UK, but to expand and deepen our trade and diplomatic engagement with the remaining 27 EU countries with which we are yoked via the EPA.