31st January, 2020 was dubbed Brexit day – the day that officially marked the United Kingdom’s long-awaited withdrawal from the European Union (EU). Brexit, an abbreviation for ‘British exit’ from the EU, has dominated global affairs over the last four years. This is on the back of a monumental decision made in the United Kingdom (UK) on 23rd June 2016 that saw nearly 52% of 30 million plus Britons, vote to leave the EU in a referendum. Although the motivation for Brexit remains a debatable subject, a poll conducted by the Centre for Social Investigation in 2018 revealed two primary reasons for the majority vote to leave the EU; immigration concerns and a quest for sovereignty.
Initially, the UK had been due to leave the EU on 29th March, 2019 subject to reaching a withdrawal agreement with the EU. But, in what has been a trail of twists and turns, and a couple of extensions, Brexit was finally extended to 31st January, 2020 and the UK has now left the EU with a deal. As Brexit negotiations unfolded, questions regarding the likely impact of Brexit on trade relations between the UK and the rest of the world including least developed countries (LDCs) such as Zambia, started to emerge. And for good reason. Thus far, Zambia’s trade with the UK has been determined collectively under the framework of the EU’s Everything But Arms (EBA) trade agreement which offers duty-free and quota-free access to the EU market for LDCs. The EBAs however are not perfect and are known for having stringent rules of origin which deter trade. Notably, as the UK ceases to be a member of the EU, so too ceases its participation in the EBA.
From the beginning, there have been two possible Brexit scenarios; a ‘deal’ and a ‘no-deal’ Brexit. Under a ‘deal’ scenario, the UK remains a part of the EU customs union and during a transitional period presumed to now be 11 months, continues to trade with non-EU countries under the EU trade frameworks while negotiating a new partnership agreement with the EU. For Zambian firms exporting to the UK, this means that trade would continue as usual, at least for the duration of the transition period. Following which, trade between Zambia and the UK will have to be under World Trade Organisation (WTO) Most Favoured Nation (MFN) rules, or new UK unilateral trade agreements with LDCs. On the other hand, a ‘no-deal’ Brexit’ would have entailed the UK’s instantaneous exit from the EU, its customs union as well as the single market. Zambia’s trade with the UK would have reverted to WTO MFN rules immediately, unless the UK offered preferential market access to LDCs similar to the EBA prior to its exit. Ultimately, both scenarios would have led to the same trade outcome for LDCs, but a no-deal scenario would have expedited this.
But how significant is Zambia’s trade with the UK anyway? Is there a basis for concern or is Brexit really much ado about nothing for Zambia-UK trade relations? Trade data reveals that as a single trade partner, the UK is not significant, accounting for a mere 2.4% of Zambia’s total exports over the period 2014 to 2018. At face value, it appears as though Brexit is of no concern. However, when we further decompose what is being exported, Zambia’s top 10 exports to the UK reveals among others, unused postage stamps, unrefined copper, refined copper, and other key products such as fresh or chilled vegetables, fresh cut roses and bubs, peas and natural honey. Moreover, in the EU trading bloc, the UK emerges as the most important export destination for Zambia. Notwithstanding the small share of exports to the UK, the UK remains a critical market destination for niche products such as honey, cut flowers, peas, etc. which are relatively labour intensive and can bolster Zambia’s export diversification drive, employment creation and forex earnings.
Developments around Brexit are consequently of concern but mostly regarding exports since imports from the UK do not receive preferential market access and thus are not likely to be impacted. Then again, neither are exports. So far, all indications are that the UK Government has replicated existing trade agreements with LDCs. According to the UK Government, the UK will continue to provide duty-free and quota-free market access to developing countries such as Zambia under a replica agreement of the EU-EBA. This implies that Brexit is not likely to negatively impact Zambia’s exports to the UK in any significant way. Trade adjustment costs, if any, will be minimal and mainly as a result of information asymmetry and uncertainty on how trade will continue post-Brexit.
In concluding, Zambia’s trade with the UK is likely to remain the same under a similar version of the EBA post-Brexit. And as the UK offers a replica EBA, Zambia should seize this opportunity to engage the UK on developing more flexible rules of origin. This will make exports to the UK easier for businesses particularly MSMEs and help the country maximise this trade relationship.
By: Shimukunku Manchishi and Mwanda Phiri
The authors are researchers at the Zambia Institute for Policy Analysis and Research (ZIPAR). For details contact: The Executive Director, ZIPAR, MNDP Complex, Cnr John Mbita & Nationalist Roads, P.O. Box 50782, Lusaka. Telephone: +260 211 252559. Email: email@example.com