Brexit will harm trade with the poorest countries, research shows

LONDON — The world’s poorest countries are set to lose out from post-Brexit trading arrangements despite a government promise it would improve their export access to the U.K., according to an analysis from three leading think tanks.

Researchers from the UK Trade Policy Observatory, the Overseas Development Institute, and the Center for Global Development warned that charges for higher-income countries under the new UK Global Tariff will be reduced from the current levels tied to European Union rules. Some lower-middle-income countries could benefit.

But tariffs on lower-income nations — many of which are exempt from export tariffs into the U.K. — will remain unchanged after the U.K. fully leaves the European Union.

This would cause a trading disadvantage and reduce trade by $3 million with the 41 poorest countries in the world, according to the researchers. “Countries that currently face no tariffs – the poorest ones and those with deep trade agreements with the EU – can only lose from the changes,” the report said. “In terms of tariffs, access will not improve for the vast majority of [95] developing countries though neither are their exports materially damaged.”

The current tariff exemptions for poor nations give them “a competitive advantage relative to other countries,” said Mattia Di Ubaldo, a fellow at the UK Trade Policy Observatory. “Lowering the tariffs which these other countries face reduces this advantage and so reduces the poorest nations’ exports.”

The researchers also warned that lower-income countries exporting to the U.K. through the EU would face additional costs, placing them at further economic disadvantage. The EU has economic partnership agreements with 33 lower-income countries, which could collectively lose $19 million in exports amid increasingly competitive trade.

Economic development, particularly through trade, has been an increasingly important aspect of U.K. aid policy in recent years, with projects like the Prosperity Fund seeing increasing funding. In 2017, a year after the UK voted to leave the EU, the government committed to “help improve access to UK markets for world’s poorest countries post-Brexit” and “protect current trading relationships, keep prices in check and help build our trading partners of the future.”

“Trade is crucial to development, as China and South Korea have shown to the benefit of U.K. consumers,” said Ian Mitchell, senior policy fellow at CGD. He added: “Despite the U.K. government’s 3-year-old pledge to improve trade access for the poorest countries post-Brexit, those countries will instead face additional challenges from January. The U.K. is not keeping its promise.”

Meanwhile, higher-income countries and some middle-income countries are predicted to benefit from the new rules, importing more to the U.K. and collectively earning an extra $1.9 billion.

The post-Brexit landscape may also affect critical trade deal renewals. Cameroon, Côte d’Ivoire, Ghana, and Kenya have trade agreements with the U.K. giving them exemptions from taxes on exports, but these have not yet been renewed, according to the research. If they cannot be renewed after Brexit — a possibility given the lack of clarity surrounding the terms of future trade deals — those countries would face “a considerable increase in tariffs,” damaging their exports market.

The report suggests that the U.K. follow a simpler long-term trade strategy with lower-income countries, in which commerce and development are complementary. It made a number of recommendations, including reducing the tariffs paid by lower-middle-income countries on exports that are not supplied by the poorest countries, and identified tariffs that could be reduced at little disadvantage to the U.K.

“The U.K. government has tailored its new tariff to try to avoid harming lower-income countries’ exports, but it cannot achieve this perfectly if it wants to lower tariffs in general,” said L. Alan Winters, founding director of the UK Trade Policy Observatory. “Countries that pay no tariffs at present have nothing to gain from tariff reforms, so to help them you need to look at other dimensions.”