The March deadline is looming, and there’s still an extraordinary uncertainty around what Brexit will mean for basically everything.
But while all eyes are on how Brexit will impact the UK and European economies, a new study has raised a question that’s being forgotten in many mainstream conversations: how could Brexit make life worse for people in developing countries?
And, the study warns, there’s a risk that Brexit could be about to push hundreds of thousands of people around the world into extreme poverty — with developing countries that have the closest ties with the UK set to be hit the hardest.
The German Development Institute, which is responsible for the study published this month, ran different “microsimulations” to try to work out exactly how Brexit would impact on poverty in the least developed countries.
“Brexit poses an extraordinary challenge to the global community as such high-level economic disintegration is unprecedented,” reads the report.
One of the main challenges in predicting what the future will bring is the “considerable political uncertainty” about the final EU-UK deal, according to the report.
But, however it ends up, Brexit “implies fundamental changes in the British trade regime concerning third countries.”
Particularly troubling is what could happen in the case of a “no-deal” — which would see Britain automatically fall back on “World Trade Organization (WTO) rules.”
Countries trade under “WTO rules” if they don’t have free trade agreements with each other.
Bear with us, this is where it gets interesting.
Right now, because of the EU, the UK is part of what’s called the Everything But Arms (EBA) agreement, meaning that 49 of the world’s least developed countries are able to export to the European Union without paying tariffs.
(It’s called Everything But Arms because it applies to 99% of all products; basically, everything but weapons.)
Being able to trade with other countries tariff-free is important because it means more money goes to the producer that, in turn, helps build stronger economies in developing countries.
Back in 2017, the government pledged that it would maintain the free trade deals with developing countries.
International Trade Secretary Liam Fox said at the time: “Free and fair trade has been the greatest liberator of the world’s poor, and today’s announcement shows our commitment to helping developing countries grow their economies and reduce poverty through trade.”
His announcement came after 38,000 of you signed Global Citizen’s joint petition with the Fair-trade Foundation and Traidcraft, calling on the UK government to make sure that Brexit doesn’t come at the expense of the world’s most vulnerable people.
Global Citizens also sent thousands of emails and tweets to Fox, to ensure that developing countries would still have the right to trade with the UK tariff-free.
In the event of a “no-deal”, as we said, Britain returns to WTO rules and developing countries would no longer be able to trade tariff-free with the UK.
“Many of these vulnerable LDCs still suffer from supply-side constraints and are in the process of fully integrating into the global economy,” continues the German Development Institute’s report. “Moreover many of them represent former British colonies with traditionally close ties to the UK, including language, diaspora, and business networks.”
“Thus,” it adds, “an investigation of the Brexit impact on these countries is of great importance.”
According to its findings, countries that would be particularly hard hit are Cambodia and Ethiopia. But the main reasons for this are a bit different for each country.
In Cambodia, it would be because of what the report calls a “relatively high loss of welfare.” Cambodia relies the most on the UK market, sending nearly 8% of its total exports to the UK.
Meanwhile in Ethiopia, it would be because of “an increase in food relative to non-food prices. Such changes in relative prices strongly affect the Ethiopian poor, who tend to dedicate a larger share of their budget to food items.”
The report warned that the developing countries included in the Everything But Arms agreement could be facing a fall in their gross domestic product (GDP) of between 0.01% and 1.08%.
From that, the institute estimated that some 1.7 million people could be pushed into extreme poverty across these countries. Extreme poverty means living on less than $1.90.
The report also highlights that “these estimated negative effects result only from changes in the UK’s trade regime and therefore underestimate the overall impact” — which could also be further affected by things like depreciation, and reduced aid funding.
So, according to the report, the UK government needs to act to stop Brexit hitting economically-vulnerable countries the hardest.
The study includes possible action such as:
- Replicating existing EU treaties that grant preferential access to goods from LDCs
- Creating a more development-friendly UK trade policy with preferential access to services imports and cumulative rules of origin
- Offering better-targeted aid for trade initiatives.
The new “global Britain” could reach trade agreements with all 49 developing nations counted under the Everything But Arms agreement but, according to the report, it’s unlikely these agreements would happen on time “given the short notice.”
Meanwhile, the EU could also support LDCs, the report says, by “implementing liberal cumulative rules of origin and applying its preferential treatment partly to goods with a low value-added content from considered countries.”
It also suggests that “developing countries should diversify their export destinations and industries as well as engage in economic transformation that makes them less dependent on UK trade, aid, and foreign direct investment.”