Five win-win ways to ensure the UK’s new trade policy works for developing countries

4 October 2016
Comment

Over the past week we learned a little more about what type of trade policy the UK government would like to pursue after Brexit.

The Prime Minister confirmed the timeframe and sincerity of pursuing Brexit, suggesting more strongly that the UK might leave both the single market and the customs union.

The Secretary of State for International Development, Priti Patel, also spoke about the principles of growth, trade and investment as the surest way out of poverty in her speech at the Conservative Party Conference.

But we have not yet had any detailed discussion of how the UK will be working with developing countries on trade.

Secretary of State for International Trade Liam Fox has highlighted the importance of free trade and he got closest to discussing trade policy vis-a-vis developing countries when he said:

‘As a newly independent WTO member outside the EU, we will continue to fight for trade liberalisation as well as potentially helping developing markets trade their way out of poverty by giving them preferential access to our markets.’

Alongside its negotiation with the EU, the UK also has the opportunity to announce a series of win-win trade options in the mutual interest of the UK and the (poorest) developing countries, and this doesn’t have to wait until Brexit negotiations have concluded.

Here are five win-wins that I presented at an ODI event at the Conservative Party Conference:
 

1. Offer UK trade preferences to exports of goods from Least Developed Counties (LDCs) to the UK to replace the preferential terms LDCs currently receive in the UK under the EU’s Everything but Arms initiative.

Without this, LDCs face £323 million annually in additional tariffs to the UK market. Cheaper UK imports and more LDC exports are in the interest of both. These preferences should then be extended in two ways:

First, improve UK import policy by moving preferences beyond tariff-free access for goods from LDCs: use more liberal rules of origin (e.g. more liberal cumulation across the Commonwealth or Africa as well as LDCs); streamline standards; offer services preferences; and refrain from starting anti-dumping procedures on LDC exports.

Second, offer better trade access to a wider set of countries beyond LDCs: design a UK General System of Preferences (GSP) with appropriate graduation criteria and seek transitional arrangements and/or waivers for GSP/Free Trade Agreement (FTA)-like arrangements with non-LDC African Caribbean and Pacific (ACP) countries who would stand to lose £172 million annually if they don’t keep free access to the EU.
 

2. Allow immigration to obtain economic benefits but control it better.

How? Offer access to temporary movement of natural persons, using transparent economic needs tests (depending on sectors and labour market tests, possibly to be done annually), and guaranteed by UK business. This can already be done by the UK as part of the General Agreement on Trade in Services (GATS), including through the services waiver for LDCs. Or FTAs, e.g. a UK business travel card.
 

3. Carry out impact assessments of proposed trade policy changes.

Identify gainers and losers in the UK and poor countries, and identify and design compensation and control mechanisms. People are less likely to vote against welfare enhancing measures if they have control over how the benefits are distributed.
 

4. Reduce agricultural subsidies . Much of the EU’s budget (40%) is spent on the Common Agricultural Policy, which still affects developing countries.

The UK could start anew and remove such subsidies which are economically and financially harmful, tend to benefit larger landowners and promote environmentally harmful intensified production. And food security is much better achieved through investing in globally efficient solutions such as roads to raise agricultural productively.
 

5. Increase Aid for Trade. Some say trade not aid is the answer for development. But trade and effective aid delivers the most benefits, and this includes Aid for Trade, which is in the mutual interest of developing countries and UK.

It can help everyone to gain from free trade, including vulnerable groups in middle-income countries and LDCs. This is not to suggest return to tied aid which reduced the value of aid to developing countries considerably, but a way in which aid providers gain indirectly through increased growth and imports in developing countries.
 

In addition to these five measures, the UK should agree transitional agreements with countries that already have Free Trade Agreements with the EU, and negotiate new FTAs with other developing countries (including safeguards to protect excluded poor countries from negative spillovers).

The gains would be significant – according to ODI analysis, the UK could benefit by up to £5.5 billion by negotiating free trade agreements with major emerging markets to which the EU has not so far negotiated free market access. But this will be a very long journey, and there are questions about the chances of actually concluding deals with countries such as China and Brazil.

Liam Fox also announced this week he would join Priti Patel on a visit to Africa. Truly joined up thinking should lead them to offer a combined package of trade and aid measures to the poorest economies, well ahead of triggering Article 50 in March 2017, that can deliver for both the UK and its developing country partners.
 

These suggestions are based in part on a set of essays jointly edited with Max Mendez-Parra and Alan Winters.