Tag Archives: UK

PM May calls snap election: Pros and Cons

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Alicia Nicholls

United Kingdom (UK) Prime Minister, Theresa May, has today ‘reluctantly’ announced that Britons could be going to the polls in a general election on June 8, 2017, three years shy of the due date of May 2020.

The UK has a parliamentary system of government. Since 2011, parliamentary elections are fixed for every five years pursuant to the Fixed-Term Parliaments Act. However, early general parliamentary elections may be called before the five year period, inter alia, where two-thirds of the House of Commons (including vacant seats) vote in favour of same. In the UK parliamentary system (also known as the ‘Westminster System’) and in most British-inherited parliamentary systems like those in the Caribbean, the Prime Minister is not directly elected. In practice, though, it is the person who leads the party which wins the majority of seats in the House of Commons who becomes the Prime Minister.

The announcement of an early poll is surprising for two main reasons (1) it comes after months of denials by Mrs. May that she would be calling an early election, and (2) it also comes less than a month after the May Government made the UK’s notification under Article 50 of the Treaty on European Union (Lisbon Treaty) of its intention to withdraw from the EU.

Pros

So what are the upsides? Firstly, it is likely that in light of the disarray of the Jeremy Corbyn-led Labour Party, the Prime Minister is anticipating a stronger Conservative working majority in Parliament, reducing the likelihood of the final Brexit deal being voted against.

The Tories currently have a 17-seat working government majority in the House of Commons following the 2015 poll, which is a slim majority when one considers that there is a total of 650 seats in the House of Commons. After all, what Prime Minister would not want a more comfortable majority at home when facing difficult negotiations with the EU for the next (at least) two years? Prime Minister May said as much in her statement when she noted that “Division in Westminster will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country”, and warned that “If we do not hold a general election now, [Opposition Party] political game-playing will continue.”

Polls already show a Tory sweep, but let us also remember polls had predicted a “No” win in the Brexit referendum.

Secondly, it should be recalled that Mrs. May became Prime Minister in July 2016 not through leading the party in a general election, but after then Prime Minister David Cameron resigned following his Brexit defeat.  If Mrs May leads the Conservative Party to victory in the June 8, 2017 poll, she would have:

(i) won a ‘direct mandate’ from the British people to pursue her own domestic agenda, which frees her from pursuing some of the policies promised by the then Cameron-led government.

(ii) This mandate, she would hope, would help quell the dissenting factions in her own party who disagree with her handling of Brexit thus far.

(ii) She would not be legally required to call another general election until June 2022, by which time the messiness of Brexit would be largely past (hopefully). Recall that Brexit negotiations could be extended up to 4 years, at which time the May Government would not wish to negotiating a final deal with the EU-27 while having to worry about an election at home which could be lost due to an unpopular final deal.

A third pro is likely economic. Although predictions of a British recession following the Brexit vote have not come to past, there is no telling what would happen to the British economy once the Brexit negotiations are underway. It makes more sense for Mrs. May to seek an election now than wait until things take a turn for the negative.

Cons

Firstly, on the flipside, calling a snap election after having made the Brexit notification and ahead of the negotiations with the Europeans risks adding even more uncertainty to an already uncertain political climate.

Secondly, although polls favour a Tory win, what happens if the polls are wrong and the Tories lose to an anti-Brexit Labour?  Or what if Labour and the Liberal Democrats expand their number of seats, further reducing the already slim Tory majority?

Thirdly, she risks dealing with ‘voter fatigue’.

Calling the election at this time is a risky move but one, which like all high risks, could have big rewards if the May-led Tories win and expand their mandate. In anticipation of a Tory win, markets took the news of the snap election quite enthusiastically. Sterling appreciated  against the US dollar to 1.26. However, it is also potentially a big gamble and the decision to hold the poll after triggering Article 50 is curious. It will be up to British voters to decide whether to reward or reject the gamble.

What is next?

When the House of Commons meets, they will need to deliberate and vote (as required under the Fixed-Term Parliaments Act) on whether they are in favour of an early election. A two-thirds majority will be needed. For his part, Labour leader Mr. Corbyn has supported the decision to go to the polls in his statement released on his official Facebook page following the Prime Minister’s announcement.

For Prime Minister May’s full statement, please see here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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Pound Sterling slips to 3 year low: What implications for Caribbean Countries?

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Alicia Nicholls

Two main statements enunciated by UK policy makers in the past few days have sent Sterling plunging to a three-year low. The first was Prime Minister Theresa May’s revelation after weeks of speculation that Brexit negotiations will begin in early March 2017. The second is statements by UK Trade Secretary Liam Fox which many have interpreted to show a preference for a “hard brexit”, that is, leaving the EU single market altogether and trading with the EU under WTO  rules.

Investors were not too happy with these developments. According to CNBC, the pound dropped to a low of 1 GBP to 1.2818 USD on Monday, almost as low as the 31-year low set in the days following the Brexit result of June 23rd. In the weeks following its Brexit low, the pound had regained some ground and appeared to stabilise somewhat around 1 GBP to 1.32 USD. The chart below from MoneyAM shows the 6-month performance of the GBP/USD.

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Source: MoneyAM.com

So what does this new slump in the pound mean for UK-Caribbean trade? The majority of Commonwealth Caribbean countries have fixed currencies which are pegged to the US dollar. The Barbados dollar, for instance, has been pegged BBD$2 to US$1 since 1975. The Eastern Caribbean dollar is pegged at 1 USD to EC $2.70. This means that any depreciation of sterling against the US dollar also strengthens US-pegged Caribbean currencies against sterling.

The positives

There are both positives and negatives to this development. Let us start with the positives. As I had indicated in an earlier article, this latest drop makes British goods and services cheaper  for Caribbean importers and consumers of UK products. Some of the major beneficiaries of this are students studying in the UK or doing online courses at UK educational institutions who would find their tuition is cheaper. For Caribbean persons who have been longing for that UK trip, now is the time to book your ticket!

Another upside is that a lower pound increases the competitiveness of UK exports which, ceteris paribus, bodes well for the UK economy, and by extension, those Caribbean countries like Barbados for which the UK is the main source market for tourist arrivals and a  major source of foreign direct investment.

The Negatives

The severity of the impact will depend on the level of risk exposure Caribbean economies have to the UK economy and by extension to the fluctuation of sterling. There are several channels through which Caribbean countries can be affected economically.

Caribbean merchandise and services exports will be more expensive for UK buyers and importers. Although the US and in recent years China have replaced the UK as the top trade partners for many Caribbean countries, the UK is Commonwealth Caribbean countries’ top market in Europe.  One way for Caribbean exporters to the UK to mitigate this might be to quote their UK buyers in pounds to eliminate currency risk for the buyer. The Brexit-related uncertainty could also dampen UK foreign direct investment in the region as investors adopt a “wait and see” approach.

In Barbados, British tourists comprise nearly 40% of tourist arrivals and are a major source of visitor expenditure. As this report by Deutsche Welle suggests, it is likely that Britons may choose to spend their vacations closer to home to cut down on costs. Those who do travel to the Caribbean may cut back their length of stay and/or expenditure. Recent media reports in Barbados seem to indicate that British tourists to the island are spending less.

Remittance data is quite limited. However, for countries like Jamaica and Barbados with sizable diasporas in the UK, it is not surprising that the UK is one of their major sources of remittances inflows. According to data published by the World Bank’s Bilateral Remittance Matrix, of the US$108 million in recorded remittances Barbados received in 2015, US$21 million (or a roughly a quarter) were from the UK, making the former Mother Country the island’s second largest source of remittances after the US. In Jamaica, which has a higher dependence on remittances than Barbados, $US 292 million out of the total of $2338 million that island received were from the UK. Unlike foreign direct investment, remittances tend to be counter-cyclical. However, it will now be more expensive for Caribbean-UK residents to repatriate remittances and the spending power of the money they send will be less.

The bottom line

Despite what appeared to be “buyers’ remorse” on the part of the British public in the days and weeks following the Brexit vote, Prime Minister May has indicated that “Brexit means Brexit”. Her unequivocal announcement  of a firm timeline for the UK’s Article 50 notification shows that there will be no reneging on the will of the British people who voted 52 to 48% to leave.

Although several international agencies, including the International Monetary Fund (IMF) in its latest Economic Outlook, have downgraded their growth forecasts for the UK economy, the latest post-Brexit vote economic data released by the Office of National Statistics (ONS) has shown no major negative impact on the UK economy thus far. However, with fears of a hard Brexit spooking investors, my hunch is that we have not seen the last of sterling’s roller coaster ride which may intensify as trigger day draws near. Caribbean economies need to brace themselves for the continued volatility come what may.

 Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

 

BREXIT fuelling British demand for alternative citizenship?

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Alicia Nicholls

Nearly two weeks after the British people by a narrow margin voted in favour of the United Kingdom (UK) leaving the 28-member European Union (EU), it seems that the historic BREXIT vote may be having yet another impact.  Although the UK has not yet notified its intention to leave the EU under Article 50 of the Treaty of Lisbon, various news reports have reported an increase in enquiries and applications by Britons for alternative EU citizenship.

Russian media house RT reports “an explosion” of Belgian citizenship requests from British expatriates living in that European country. Bear in mind that Brussels, as one of the “three capitals of the EU”, is home to a large expatriate community, including bureaucrats and consultants working in EU organs and EU-related organisations. According to Sveriges Radio (Radio Sweden), in the immediate days following BREXIT, over 100 Britons applied for Swedish citizenship compared to 440 applications last year.

There is a good reason why some Britons are seeking to ensure that they keep an EU passport neatly tucked away for a rainy day. Article 20(1) of the Treaty on the Functioning of the European Union (TFEU) confers EU citizenship on every citizen of an EU country.  EU citizenship is additional to and does not replace citizenship of the member state. Currently, British nationals, as EU nationals, have the same rights to “move and reside freely within the territory of the Member States” per Article 20(2)(a) of the TFEU as the nationals of any other EU state.

There are possible economic reasons as well. The Office for National Statistics reports that in June 2016, the UK’s unemployment rate was just 5% and the number of unemployed fell during the first few months of the year. Despite this, unemployment could rise should the uncertainty from BREXIT lead to a slowdown in the UK’s growth and an exodus of businesses from the UK as some predict. An EU passport would give those Britons the right to look for work in the remaining EU countries should this occur.

While a contentious issue and believed to be one of the driving factors which influenced the “leave” vote, freedom of movement within the EU single market has benefited many young Britons who currently work and live in other EU member states, as well as British investors who have established businesses in other EU countries. For the reported 1.3 million UK nationals who currently live and work freely in other EU countries, this may change when the UK eventually leaves the EU should freedom of movement concessions not be part of the negotiated agreement. German Vice-Chancellor Sigmar Gabriel has been quoted directly in this article as suggesting that young Britons who live in Germany, France and Italy should be offered EU citizenship.

Dual Nationality

According to this report in the Irish Newspaper, The Journal, there has been an 80% increase in applications for Irish birth certificates since the referendum, as well as an increase in enquiries and applications for Irish passports at UK post offices. Under Irish law, a person with at least one parent who was an Irish citizen at the time of the person’s birth is entitled to Irish citizenship by descent. Those Britons who qualify for dual citizenship of another EU country, whether due to descent or marriage, are more likely to file applications for citizenship now that their rights to work and live in remaining EU countries are uncertain.

Citizenship by Investment

Current drivers of demand for citizenship under CBI programmes include the desire of high net worth individuals, particularly in emerging economies, for passports with greater mobility or to flee instability in their home countries, as well as nationality-based taxation and the reporting requirements the Foreign Account Tax Compliance Act (FATCA) in the case of Americans. However, it seems that there may be greater demand for EU citizenship by investment programmes like Malta’s and Cyprus’ in the wake of BREXIT. Golden Visas notes that “[their] website has seen a surge in enquiries of over 40%”. This is not unexpected as any person who is willing and able to make a qualifying investment (plus meeting the residency requirement) in one of these programmes is able to acquire an EU passport/nationality without much fuss.

Strength of UK passport

BREXIT may not only be fuelling demand by Britons for alternative EU citizenship but may impact on the strength of the UK passport. The president of one of the top global firms assisting clients in obtaining alternative citizenship has posited in this CNN Money article that BREXIT may reduce the power of the British passport which currently ranks among the top most powerful passports in the world.

As this very useful BBC article explains, there are five main models which could be the basis for the negotiated agreement between the EU and the UK. Only two of which I will briefly discuss as these involve freedom of movement. Like non-EU members Norway, Liechtenstein and Iceland, the UK could become a member of the European Free Trade Area (EFTA) and still be a part of the EU’s internal market via the European Economic Area (EEA) which provides for free movement of goods, services, people and capital. Alternatively, it could follow the model of Switzerland, also a member of the EFTA, but is not a part of the EEA. Its access to the EU single market is framed by several bilateral agreements. However, it is unclear which or whether any of these models will frame future EU-UK relations.

In a time of uncertainty like this where it is unknown what rights UK nationals will have in the EU once the UK and EU have negotiated the UK’s withdrawal, it seems that applying for second EU citizenship, whether through descent, naturalisation or by investment, is a source of comfort or an insurance policy for Britons should the worst happen .Nonetheless, for those many Britons who are currently living and earning a living in other EU countries, and do not qualify for alternative citizenship under any of these avenues, BREXIT brings much uncertainty and angst.

It is hoped that the negotiated outcome will permit British nationals to still enjoy some of the same rights to work and live in EU countries as they currently do. It should be noted though that the remaining 27 EU countries are unlikely not to demand reciprocity on the part of the UK in regards to any such freedom of movement concessions, which is quite ironic given that immigration concerns were part of the reason many Britons voted to leave the EU in the first place!

Turning to the Caribbean, it will be interesting to see what impact, if any, this development may have on the citizenship by investment programmes being offered by some Caribbean countries.  Will BREXIT lead to greater demand for EU based programmes like Malta’s and Cyprus at the expense of Caribbean programmes which (due to visa waivers) only give access to the Schengen area but not the right to live and work in the EU? Very little data is available on these programmes and their client bases but given that it would appear from reports that wealthy Chinese, Russians and Middle Easterners are among the main investors in Caribbean CBI programmes, it is unlikely that they will receive any major fallout from BREXIT. However, only time will tell. Suffice it to say, these are interesting times.

 Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Brexit wins: What possible implications for the Caribbean?

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Alicia Nicholls

Last week while I was climbing the Mayan ruins in the beautiful Central American/Caribbean country of Belize, the British people were casting their vote on one of the most important questions regarding the future of their country’s involvement in the global economy. In response to the simple referendum question, “Should the United Kingdom remain a member of the European Union or leave the European Union”, British voters decided that the UK was better off outside of the 28-member bloc. Although I, like many others, expressed doubt that the Leave vote would have been triumphant, the British people by a 52 to 48% margin have decided that leaving the EU is in their best interest.

In a previous article on this matter, I noted the possible ramifications of this then hypothetical outcome for tourism dependent economies like Barbados which are highly reliant on the British market for tourist arrivals and for real estate investment. The current situation is uncharted territory.

In the wake of the Brexit vote, financial markets reacted violently while Sterling lost 10% of its value on currency markets within the days following Brexit, the lowest rate since 1985. Bear in mind that most Caribbean countries’ currencies are pegged to the US dollar and any depreciation of Sterling against the dollar makes the region less price competitive to British travellers. The increased volatility in the value of sterling and any slowdown in the British economy could dampen British demand for travel to the region and or reduce their level of spending during trips. It is a situation which tourism officials across the region have been closely monitoring. Moreover, the political uncertainty as Prime Minister Cameron prepares to demit office in October, the possibility of Scottish demands for another independence referendum, as well as the uncertainty over what impact Brexit will have on the UK economy will result in a wait and see approach by investors, which could impact private British investment in the region.

Against this background of uncertainty and messiness, what we in the Caribbean need to consider is what implication will the UK’s departure from the EU possibly have on our future trade and foreign relations with both the UK and the EU? Of crucial importance will be the possible impact it will have on the CARIFORUM-EU Economic Partnership Agreement, bearing in mind that once the UK officially is no longer a part of the EU CARIFORUM will no longer have preferential access to the UK market.

The truth is that although the EPA has not yet achieved the potential that it has been hoped to achieve, the EU is second only to the US in terms of its importance as a trading partner for the Caribbean. The main source market in the EU for Caribbean countries is the UK market. Once the UK is no longer part of the EU, Caribbean countries will no longer have preferential access to the UK market for their goods and services. Moreover, market access openings for services trade, particularly under Mode 4 (presence of natural persons) which is currently the most restricted mode, will have to renegotiated as part of any new trading arrangement which the UK decides to establish with Caribbean countries. As the UK sets about negotiating its own trade agreements with major partners, the Caribbean is unlikely to be anywhere near the top of the UK’s list of priorities. All that while, Caribbean exporters will face uncertainty in the UK market.

Prime Minister Cameron has already decided that it will be up to his successor, whomever he or she maybe, to invoke Article 50 of the Treaty of Lisbon which formally commences the UK’s secession from the EU. Until such time as a withdrawal agreement is negotiated and agreed to, or after the lapse of two years after the invocation of Article 50, the UK remains part of the EU and bound by its regulations and rules. However, during this time there will be great uncertainty as to what kind of relationship the UK will negotiate with the EU and what will be the impact of Brexit on the UK economy. British companies, services providers and traders need certainty of access to the EU single market. For this reason, it is clear that at the very least the UK will want an agreement which allows the same level of access to the EU single market. Whether the eventual withdrawal agreement involves the adoption of a Norwegian-like model, a free trade agreement, customs union or simply trade under WTO rules will not be known for some time. The EU leaders have already indicated their unwillingness to engage in any informal talks and the EU Parliament passed a resolution urging  the UK to invoke Article 50.

Colonial and historical ties and a shared language have made the UK our main ally in Europe. The UK will no longer be at the EU table once the withdrawal agreement is finalised which means the region will lose a powerful voice and ally in the grouping. This comes at a time when a confluence of important issues with severe development consequences requires the Caribbean to have as many allies in the room as possible. One of these issues is the whole problem of de-risking practices by international banks, a topic on which I spoke in Belize during my stay there last week.

Although it has been primarily US banks which have ended or restricted correspondent banking relations with local banks, some European banks have also done so. Another, and not entirely unrelated issue, is the whole matter of blacklists. One would recall that last year the EU compiled and released a list of all of its countries’ blacklists which included some Caribbean offshore financial centres, despite the fact that all of our countries have been given a clean bill of health by the OECD. Thirdly, the EU is currently in the process of redefining its relationship with the countries of the Africa, Caribbean and Pacific (ACP) group. Fourthly, there are important issues which need to be sorted out in regards to the EPA. One of these is the issue of the octroi de mer (dock dues) which serve as barriers to trade between the Caribbean and French West Indies.

An important issue is the whole matter of the European Development Fund (EDF), the main instrument through which the EU provides development aid to ACP countries and an important source of development funding for Caribbean countries. EU members directly contribute to the EDF based on contribution keys. Germany, France and the UK account for almost half of the contributions under the 11th EDF. This could result in the CARIFORUM countries receiving a smaller share of aid under EDF. On the bright side, the UK is one of the largest bilateral aid donors to the Caribbean and may decide to increase its aid in light of its withdrawal from the EU. However, more “well-off” countries like Barbados, the Bahamas and Trinidad & Tobago have often been excluded from some of this bilateral aid because of their relatively high GDP per capita, another issue which Caribbean countries have been fighting.

Another impact of Brexit is that it is refocusing the microscope on the future of the Caribbean’s own main integration project, the Caribbean Community (CARICOM).  There are already rumblings by some for there to be a similar referendum on CARICOM. Any such referendum now would be a bad idea. Recall the referendum which Jamaica did on September 19, 1961 which led it to leave the West Indies Federation. At a time when Caribbean countries are facing a wide range of global challenges, the region needs solidarity and unity now more than ever.

As I had concluded in my previous article, Brexit does have serious implications for future Caribbean-EU and UK trade and foreign relations. The depth and scope of the impact will depend on the length of time of uncertainty, the impact on the UK economy and the kind of trading relationship which the UK eventually negotiates with the EU. However, there are two things that must be emphasised. Firstly, the UK and the Caribbean share strong historical ties which the region should continue to strengthen even more so now that the UK is going solo. I have heard suggestions that the UK may decide to deepen its relationship with the Commonwealth. Secondly, this is an opportunity for the Caribbean to strengthen its ties with the rest of Europe now that the UK will no longer be at the table.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Is Brexit a risk for the Caribbean?

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Alicia Nicholls

In a few weeks’ time, June 23rd to be exact, the British people will vote in a referendum to determine the future of the United Kingdom of Great Britain and Northern Ireland’s 40-plus year formal relationship with continental Europe. The possibility of a UK vote for an EU exit, poignantly termed “Brexit” in popular parlance, was identified by the International Monetary Fund (IMF) in its recently released World Economic Outlook Update Report as a major risk to the global economy.

The fear of a negative impact of Brexit on the UK and global economy has been echoed off the walls of practically every major economic and political forum within the last few months, with the recently concluded IMF/World Bank Group Spring Meetings  being the latest example.

Though the US, Canada, and in some respects China, have surpassed the UK’s economic importance to the Caribbean region as a destination for Caribbean exports and as a source of foreign direct investment (FDI), the UK remains an important source market for tourist arrivals.  It is also the region’s closest ally in the EU and a partner in helping to ensure the region’s concerns are raised and considered. Therefore, there are possible economic and foreign policy implications for the Caribbean if the UK severs its ties with the EU.

Background

The UK joined the European Economic Community (EEC), the predecessor to the EU, in 1973 but has never joined the eurozone, opting instead to retain the Pound Sterling as its currency and set its own monetary policy. While it is outside the scope of this article to delve into the merits and demerits of either position or to render an opinion on such, those who support the “Vote Leave” cite immigration from poorer EU countries and the perceived impact on UK social services, as well as the loss of British sovereignty as the EU looks to create an “ever closer union”. They see the costs of EU membership (both financial and figurative) outweighing the benefits and point to Switzerland and Norway as examples of European countries successfully striving outside of the EU.

Those in favour of the “Stay vote” highlight the EU as a final destination for nearly half of all British exports and the hypothetical havoc that would be inflicted on the UK economy should the UK cease to be a member of the single market.According to data published by the UK Office of National Statistics, the EU in 2014 accounted for 44.6% of UK exports of goods and services, and 53.2% of UK imports of goods and services.

While Article 50 of the Treaty on the European Union (TEU) provides for withdrawal from the EU by any member state, the current UK situation is untested waters. In 1975 British voters opted to remain in the EEC. Although Greenland left the EEC in 1985 following a referendum, no state has ever left the EU.  Therefore, there is uncertainty about the impact of a potential Brexit on the EU and the global economy considering that the UK is the EU’s 2nd largest member by GDP and 3rd largest by population.

 A “leave” vote will not automatically mean the UK is out of the EU and there is a process to be followed which Article 50 of the TEU outlines once the UK notifies its intention to withdraw pursuant to Article 50(2). This includes negotiation and conclusion of a withdrawal agreement in accordance with Article 218(3) of the Treaty on the Functioning of the European Union (TFEU). Unless the European Council and the UK decide an extension, EU treaties would cease to be applicable to the UK once the withdrawal agreement enters into force or, failing that, two years after the UK has notified its intention to leave.

Caribbean Implications – Trade, Tourism & Investment

The UK still ranks as a major partner for many Caribbean countries’ exports and imports. For commodities-exporting economies like Guyana, Belize, Suriname, the UK is within their top 5 export markets.

The UK is more importantly a main source of tourist arrivals for many Caribbean countries. Some 1.1 million UK tourists visited the Caribbean in 2015, according to the Caribbean Tourism Organisation’s State of the Industry Report in February this year. For those tourism-dependent countries in the Caribbean for which the UK is the major source market, their economic fortunes are tied to the health of the UK economy and strength of Sterling. This was clearly illustrated by the slowdown many tourism-dependent economies in the region suffered while the US and UK economies were in recession during the global economic and financial crisis and during the height of the Air Passenger Duty (APD) saga when British demand for travel to the region fell..

Studies on the impact of Brexit on the UK economy are inconclusive and range the gamut from positive to disastrous. However, the IMF position is clear as seen in its most recent WEO Update Report where it cut its growth projections for the UK from 2.2% to 1.9% in 2016, representing a projected slowdown from the  2.3% growth the UK economy realised in 2015.

In Barbados, British nationals are also an important source of real estate FDI. It was recently reported by local real estate agents in a news broadcast that the softening  in the  value of the Great Britain Pound has dampened demand for Barbadian luxury real estate by British second home buyers and affected the tenuous recovery the island’s second home market was experiencing.

Trade Agreements

There is some disagreement among academics as to the continuity of the UK’s participation in treaties which it signed as part of the EU with third states. These include the Economic Partnership Agreement signed with CARIFORUM states, which is considered a “mixed” treaty under EU law, that is, a treaty under which both the EU and its member states exercised competencies and thus  is concluded by both the EU and its member states. Some posit that the UK can avail itself of the principle of continuity of treaties, which is more likely in a “mixed” treaty than an “exclusive” scenario where the EU has exclusive competence.

However, the principle of continuity actually applies in the context of state continuity and succession and there is no precedent of a scenario like this where a state ceased to be a member of a trading bloc in which capacity it had concluded a treaty. Even if the continuity principle applies, the UK would have to enter into some kind of negotiations with these states if it is to continue to benefit from treaties it signed as part of the EU which still means there will be uncertainty for CARIFORUM exporters and investors. In the worst case scenario, CARICOM or CARIFORUM would have to negotiate a separate agreement with the UK to maintain the level of preferences to the UK market to what they have with the EU under the EPA. As the EU treaties and directives would no longer apply to the UK after the date of entry of the withdrawal agreement, the UK would have the regulatory freedom to set its own standards, such as technical standards and sanitary and phytosanitary standards, which may or may not be as onerous as the EU’s.

Foreign Policy Implications

The UK is most Commonwealth Caribbean countries’ closest ally in Brussels. A British exit would mean the UK no longer has the power to directly influence EU policy and the Caribbean region would lose an important voice to raise and articulate its concerns in regards to the future of EU foreign policy. It is particularly critical now as the EU is contemplating its position on the future framework for cooperation with the countries of the African, Caribbean & Pacific (ACP) Group once the Cotonou Partnership Agreement expires in 2020.

The situation becomes more complicated for UK dependencies in the Caribbean which are not officially a part of the EU but benefit from EU funding and preferences because of their relationship with their mother country, the United Kingdom. A “yes vote” would raise questions about what future relationship they have with the EU.

According to this news report, a  poll by YouGov released on Friday “found support for “In” stood at 40 percent, while 39 percent intended to vote “Out”, 16 percent were undecided and 5 percent did not intend to vote”. Similar to the Scottish independence referendum where polls were close and ultimately the status quo prevailed, my personal view is that despite the growing anti-EU sentiment in the UK, the British people will not vote to leave the EU. Besides the uncertainty a Brexit would portend for the British economy and business, Prime Minister David Cameron was able to secure several sweeping changes from Brussels after two days of negotiations in February and which would go into effect if the “stay vote” wins. 

However, in the event that the “out vote” prevails, it is likely that the UK will negotiate some kind of preferential arrangement, similar to what obtains between the EU and Turkey, given the strong trade and investment ties to the continent. This would ensure UK businesses and exporters are not disadvantaged and still have favourable access to the EU single market once the transition period ends.

The Bottom Line

Brexit would be a risk to Caribbean economies. The nature of the risk would depend on several factors, including the type of withdrawal arrangement the UK negotiates with the EU and the impact on the British economy during the period of transition.

The uncertainty in the UK economy during the post-exit phase could have strong implications for countries like Barbados whose economic fortunes are closely tied to the strength of the UK economy, something which we are already seeing happening to some extent as uncertainty among investors has led to the weakening of Sterling in recent months.  Furthermore, the UK’s exit from the EU would mean uncertainty for Caribbean exporters in the UK market and the loss of the region’s closest ally within the trade bloc at a time when the EU is reconsidering its foreign policy and its post-Cotonou cooperative framework with ACP countries. As such, the Region must brace itself for whatever happens on June 23rd.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.