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Brexit and the Caribbean entrepreneurial environment

By Jessie Dirpaul and Dav-Ernan Kowlessar

Preamble: Most of us have been bombarded with discussions and perspectives on Brexit since the period leading up to the referendum, and of course the post-Brexit decision to leave the European Union. The CAIC Secretariat team is beginning this dialogue to look at the opportunities created by this impending move and offers the following as a baseline discussion platform; which we will be building on over the next few weeks, then facilitating action over the ensuing period…….This is also timely as the CAIC also sits on the Consultative Committee of the Cariforum-European Union Economic Partnership Agreement (EPA) and as Vice Chair of the Cariforum side, we want to build on the synergies you can create as we look at the markets in the Eastern Hemisphere….

Background

On Thursday June 23rd, 2016 the British public voted against remaining in the European Union (EU) by a slim margin of 3.8 per cent. The following day, the pound sterling lost 10 per cent of its value, falling to its lowest since 1985. The British Prime Minister, David Cameron, who offered the referendum to the public during his 2013 electoral campaign, and who was on the side of “Bremain” announced his intention to resign following the outcome of the vote. Britain, now captained by Theresa May, who remained neutral throughout the referendum, has made it clear that the UK will exit the EU.

While the EU parliament awaits the invoking of Article 50 of the Lisbon Treaty to begin the negotiations of Britain’s exit, and which may take up to two years, the rest of the world is left to make assumptions on the impact that Brexit will have. Given the Caribbean’s history and the preferential access to the EU, this position paper begins with a dialogue on the challenges and opportunities Brexit may have on trade, development and immigration for the Caribbean entrepreneur.

The Caribbean context

The Caribbean has a strong relationship with the EU as evidenced by the CARIFORUM-EU EPA, although there are many challenges on both sides with its implementation. The EPA, which is the only fully comprehensive EPA negotiated to date, was signed in October 2008. It is a trade and development accord between the CARIFORUM States, and the EU and its member states with the reciprocal grant of preferences by both sides.

Trade

The Caribbean, has a tumultuous history with Britain, beginning with its colonialization in the 18th Century. While there were Spanish, French, and Dutch influences, the Caribbean has had closer ties with the UK, trading in goods (and services) which later became subsumed when Britain joined the EU in 1973. The CARIFORUM-EU EPA, opened up new trading opportunities for CARICOM states and the Dominican Republic, apart from those that existed with the UK.

The Commonwealth, which is comprised of 53 member states, chiefly former territories of the British Empire, has as one of its objectives; free trade amongst its members. Prior to joining the EU, a Commonwealth multilateral trade agreement was being proposed but due to the weakened state of Britain following World War II, it was abandoned.

For the Caribbean, the export of goods to the UK has always been easier given the historical exports of sugar, rum, and bananas. Over the years, goods have declined as cheaper alternatives were found, particularly for sugar and bananas, with the Caribbean losing ground for its chief exports. Trade in Services on the other hand have had a much rougher landing in the UK, particularly in part due to the immigration restrictions, the lack of mutual recognition agreements and an all too new trading structure that has not stood the test of time.

The main exports from the Caribbean to the EU are in fuel and mining products, bananas, sugar and rum, minerals and fertilisers. In the last three years, exports to the EU have declined marginally while the imports from the EU have increased. While the EU may be one of the largest markets in the world, it is also a declining trade bloc. The Caribbean, though smaller in size, due to its economic, societal and environmental challenges is at the mercy of imports from foreign markets.

The decline in exports from the Caribbean show that commodities are declining while service exports are increasing. Despite this upward trend, movement of services from the Caribbean to the EU encounters challenges to enter the market. We can assume that Brexit will not change what currently exists for entry of services into the UK market given the tight restrictions of the UK Border Control and requirements for a work visa, and the growing anti-immigrant sentiment settling in.

Nevertheless, the Caribbean should not have difficulty with trade in goods as the Caribbean community comprises of five per cent of the UK population, hailing primarily from Jamaica, Trinidad and Tobago, Guyana and Barbados. Goods from the Caribbean would be in demand to at least satisfy this UK minority.

There is a major effect to be felt from foreign exchange derived through tourism. The traditional UVP of the Caribbean is sun, sand, sea, we have moved beyond this to create experiences in our tourism offering as the Mediterranean and outlying regions compete with the Caribbean for majestic beaches, and sunshine.

However, we can posit that, as a bloc, exports to the rest of the EU would decline on the basis of the UK being removed as the chief importer in the EU. This in turn creates an opportunity for the Caribbean to re-engage and renegotiate the UK to increase Caribbean imports to satisfy their market, whilst capitalising on the EU minus Britain market.

Development

The EPA has a development component that would see aid come from the EU to improve the developing countries of CARIFORUM. Again this has been in part due to the UK and their contribution to the EU. Despite the fears surrounding a reduction of aid for development, the Commonwealth objectives once more come to the forefront as it relates to the UK, which is aimed at improving the conditions of the member states of the Commonwealth. While the EPA has a part to play, the collective of the United Nations should not be discounted as a generous portion is doled out to the region in achieving sustainable development, of which countries like Jamaica, Barbados and Guyana have accessed.

While the British brand has taken a knock from Brexit, seeing its currency reach a 31-year low, and their judgement questioned, it is still one of the more developed nations, having been the centre of a vast empire some 200 years ago. Following Brexit, Britain will have to renew confidence in its brand and as for aid in development, it is difficult to determine whether the aid outlined in the EPA will come to pass especially since the agreement was signed in 2008 and eight years later there has not been much progress made, except for signing of multimillion Euro projects that have yet to be implemented.

Whilst waiting for aid to come from the EU and to see what aid can be negotiated from the UK, the Caribbean entrepreneur is meant to utilise the implemented agreements to expand his global brand. Agencies have been created to filter down the funds received from the EU to enhance MSMEs who are at a greater disadvantage. While there are success stories, they are few and far between. If this is the aid we are expecting to develop our businesses and enter new markets, it is best we forge ahead with the aid of our government agencies and private sector organisations.

Immigration

The relationship with the EU and UK is one where the Caribbean is the beneficiary. The British passport is considered to be one of the more powerful passports in the world, giving the traveller visa-free access to 157 borders. On the other side, travel from the Caribbean into Europe has its restrictions. In 2015 there was a waiver of visa for short-term travel in the Schengen area. Some Caribbean nations require visas to travel to UK, while others have agreements for visa-free travel such as Guyana and Russia.

It is expected that Brexit will not hinder travel to the Schengen area since the UK is not one of the 26 countries in the Schengen area. The stance of pro-Brexit supporters to immigrants, was that Britain should have better control over who they allow into the country. While this was related mostly to the movement of persons between the UK and mainland Europe, approximately 50.5 per cent of immigrants are from outside of the EU. One of the pillars of the EU is the free movement of labour, which is also a fundamental of CARICOM except that it was indeed free movement in the case of the EU. CARICOM on the other hand has many immigration challenges to contend with before free movement of labour can be realised.

As far as immigration between the Caribbean and the UK are concerned, for personal travel the situation will not be greatly affected as strict conditions exist in the points-based system for obtaining a British visa. The Caribbean entrepreneur will also be subjected to utilise the points-based system to access the market for business whether it be trade in goods or services. With a move to more service-oriented businesses attempting to access the European market, conditions will remain the same as the Caribbean region has not been invited to engage in free movement of labour, although the EU did cater in the EPA for movement of natural persons.

While Britain is expected to look to other powers such as the US and Canada, with the Caribbean lower on their agenda whilst establishing relations with the other 27 member states of the EU, Article 50 of the Lisbon Treaty allows Britain two years in which to hammer out the terms of their departure. This means that the forecasted period in which Britain would pay attention to the Caribbean, is actually shorter. While Britain would now be free to, and would need to establish trade agreements with the rest of the world, the Caribbean perceived value may feature higher than predicted on Britain’s agenda.

The facts already exist, we cannot do much with them; analysis, opinions and predictions will continue to be manufactured but it is time to move beyond that and stop waiting to see what will become fact. Whether Britain does manage to untangle itself and get out of the EU with more than just pride inside is not something we should concern ourselves in the Caribbean with, since history had already cast its future as we quote Winston Churchill "If Britain must choose between Europe and the open sea, she must always choose the open sea”

The business environment is not the same as the political will, in a recent statement Alphabet Executive Chairman said that it does not mean a change (in job placements at least) for Google in Continental Europe. However, business is as well about predictions on the future, how customers will behave and what are the emerging opportunities for entrepreneurs.

 

Sources

http://ec.europa.eu/trade/policy/countries-and-regions/regions/caribbean/

http://edition.cnn.com/2016/06/16/europe/brexit-britain-immigration-referendum/

http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/dcp171776_407038.pdf

http://www.telegraph.co.uk/news/newstopics/eureferendum/12193101/Brexit-will-allow-Britain-to-embrace-the-Commonwealth.html

http://www.jamaicaobserver.com/columns/Brexit-creates-EU-Britain-nightmare-for-the-Caribbean_65093

http://www.telegraph.co.uk/news/2016/06/20/what-is-the-eu-why-was-it-created-and-when-was-it-formed1/

http://www.economist.com/blogs/buttonwood/2016/06/markets-after-referendum

http://www.economist.com/blogs/democracyinamerica/2016/06/brexit-and-trade

http://www.economist.com/Brexit

http://www.bbc.com/news/uk-politics-32810887

https://www.theguardian.com/commentisfree/2016/jul/11/in-us-brexit-shorthand-for-sorry-your-country-failed-eu-referendum

http://www.populus.co.uk/2016/05/brexit-index-whos-remain-leave-supporters/

http://caricom.org/the-cariforum-eu-epa-in-context

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