Saint Lucia and the BREXIT fallout: Challenges and Opportunities

The decision by the British electorate to sever the longstanding relationship between the United Kingdom and the European Union will undoubtedly pose challenges to Saint Lucia. Indeed, Brexit will disrupt not only the relationship between the UK and the EU, but also their relationships with third parties. Nonetheless, the new paradigm might well bring with it new opportunities to reshape and re-prioritize our relationship with the UK, by far our most important trading partner and donor within Europe.

The departure of the UK will undoubtedly cast a shadow of uncertainty over what was generally considered to be a predictable and stable economic relationship between the EU and the countries of CARIFORUM (comprising CARICOM countries and the Dominican Republic). In the immediate term, Brexit is almost certain to have negative economic impacts, including lower visitor arrivals and investment from the UK. The medium to longer-term impacts on Saint Lucia will likely depend on the terms of any new trade, investment and economic arrangements between our region and the UK following Brexit.

Head of the European Union (EU) Delegation to Barbados and the Eastern Caribbean Ambassador Mikael Barfod says there was no need for alarm following Brexit.

Head of the European Union (EU) Delegation to Barbados and the Eastern Caribbean
Ambassador Mikael Barfod says there was no need for alarm following Brexit.

Saint Lucia and other members of CARIFORUM are currently engaged in trading relationships with the UK and EU through membership in the World Trade Organization (WTO) as well as bilaterally through the CARIFORUM – EU Economic Partnership Agreement (CF – EPA). However, much of the trade and economic exchange between the UK and Saint Lucia is governed by CF – EPA – an agreement that reflects the maturing of a 30-year-old trade and development partnership between the EU and the former colonies of some of its Members. Under the CF – EPA, Saint Lucia and CARIFORUM countries benefit from preferential access to the EU market, access that need not be extended to other members of the WTO. A unique feature of the CF – EPA is a development dimension which provides resources to support the implementation of that agreement, as well as economic and social transformation of beneficiary countries. In exchange for these benefits, CARIFORUM members, including Saint Lucia, have agreed to open our markets to the EU, albeit in a phased and structured manner, over a 30-year timeframe.

Hence, the ability of our farmers, manufacturers and service suppliers to gain special access to the UK has been governed by an agreement that is administered not by the UK, but by the EU in Brussels. This will change after the UK exits the EU, as the UK will assume full responsibility for its own trade and investment policy. While it is unclear what agreement will replace the existing relationship between the EU and the UK, changes to that regime will likely require the UK to negotiate new arrangements with its trading partners, including with Caribbean countries. Against the backdrop of a UK outside of the EU, our region will likely not be a top priority for a UK in search of continuity in its trade and economic relations with its major trading partners. This means that the long-standing and predictable relationship that we now enjoy with the UK may not be regularised for a number of years to come, creating uncertainty in the trade and investment relationship between the UK and Saint Lucia and further complicating private sector and investment decision-making.

Beyond the trade and investment spheres, Brexit will likely affect inflows of development assistance and support from the EU. A significant quantum of UK development assistance to Saint Lucia is channeled through National and Regional Indicative Programmes financed by the European Development Fund (EDF). For example, under the 10th EDF (2008 – 2013), 165 million was allocated to CARIFORUM under the Regional Indicative Programme to support regional integration and the implementation of the EPA, while a further 736 million was earmarked for national programmes under the National Indicative Programme. Under the 11th EDF, 30 billion has been allocated for the period 2014 – 2020 for all ACP countries, of which the UK has agreed to contribute 14.68 percent or 4.478.

EU support through the EDF has helped fund multiple initiatives in a variety of sectors in Saint Lucia, from: primary healthcare, (including the new Owen King – EU National Hospital) to rural development and support for the revitalisation of the agricultural sector (including 10.4 million to the banana sector).

It remains unclear whether existing UK commitments under the current 11th EDF will be fulfilled and, more importantly, what impact any break in UK support to the Fund would have on current or future commitments to the region. While Brexit may well allow the UK to create more direct channels to deliver development assistance to Saint Lucia, any such facility is likely to take a considerable length of time to implement.

Saint Lucia, and the rest of CARIFORUM, must also begin to set the groundwork for negotiations with a European Union that excludes the UK. The UK has long been a strategic ally of Saint Lucia and CARICOM within the EU and has allowed our region to exert some influence on EU decisions relevant to the region. It was the UK that was our closest ally in negotiations with the EU Commission and other third parties during the bananas saga at the WTO. In this context, it was the UK that pushed the EU Commission not to agree to reduce tariffs on Latin American bananas in a manner that would further harm banana exports from African Caribbean and Pacific (ACP) countries, including Saint Lucia. Without this support from the UK, Latin American banana suppliers may have received duty free access to the EU market, which would have completely destroyed any hope of ACP countries continuing to export into the EU. The UK also assisted the region in negotiating a settlement on bananas, including through its support for the Banana Adjustment Measures (BAM) from which ACP banana producers are benefiting. With the impending departure of the region’s most significant ally within the EU, it is uncertain whether the region, and by extension Saint Lucia, will remain a high priority for the remaining 27 EU members.

That said, there are opportunities that the region can explore in the context of a UK outside of the EU. The exit of the UK from the EU allows us an opportunity to focus minds and resources on our trade with the UK, which is by far our most important market in Europe. Available data indicates that over 90 percent of Saint Lucia’s exports to the UK are composed of food (including bananas and other fruit) and alcoholic beverages. For Saint Lucia, the UK is a significant export market absorbing approximately 15 percent of total exports.

Another tantalizing possibility that may yet emerge from Brexit is to gain better market access for our agricultural products. The EU Common Agriculture Policy (CAP) has long been a source of concern for many ACP exporters. The high level of subsidies historically associated with the CAP has made it challenging for ACP agricultural suppliers to access the EU market on commercially viable terms. Indeed, the UK has long been a proponent of greater liberalization in the agricultural sector but those efforts have been frustrated particularly by France which remains a significant proponent of the CAP and its attendant subsidies. Brexit may provide another opportunity for Saint Lucia to gain direct access to the UK market for our farmers, this time on more viable commercial terms.

Beyond agriculture, there are opportunities for Saint Lucia to negotiate more directly with the UK to improve trade in specific service sectors such as: business services (including back-office services), entertainment, maritime and tourism, areas already identified as crucial to Saint Lucia’s economic development.

Thus, despite the challenges, there may well be a silver lining to the Brexit cloud that hovers. Many within CARICOM have complained that both the trade and development dimension of the EPA have not yielded the expected outcomes. Indeed, the trade performance of CARICOM eight years after the signing of the EPA remains anemic at best. Brexit presents an opportunity for policy makers within the new administration, along with the business community and civil society, to consider how a future trade and development framework with the UK can better support the development goals of our people. Saint Lucian authorities, as well as the regional governments, must begin the process of reflecting on our priorities and identifying areas that can be built upon during the next phase of our relationship with the EU, and a separate UK.

Stephen Fevrier LL.M, LL.B, BA (Hons.) is an International Trade Policy Expert. Jan Yves Remy PhD is an International Trade Lawyer in the law firm, Sidley Austin, Washington DC/Geneva.

By: Stephen Fevrier and Jan Yves Remy

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