title: How Brexit affects Least Developed Countries
Creators: name: Olekseyuk, Zoryana
name: Rodarte, Israel Osorio
Publisher: name: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
publisherIdentifier: https://ror.org/01t3zke88
publisherIdentifierScheme: ROR
Year: 2019
Subjects: subject: Handel
subject: Investition
subject: Governance
subject: Afrika
subject: Südasien
subject: Ostasien
subject: Europa
subject: Trade
subject: Investment
subject: Africa
subject: South Asia
subject: East Asia
subject: Europe

description: Following the decision of the British referendum on 23 June 2016, the United Kingdom
 (UK) plans to exit the European Union (EU). Article 50 of the Lisbon Treaty was invoked at
 the end of March 2017 and the UK will officially leave the single market and customs union
 in March 2019. Brexit negotiations have proven difficult due to diverging positions of the
 two partners on many issues, such as freedom of movement, financial contributions and the
 potential re-emergence of a tough border between the Republic of Ireland and Northern
 Ireland. Despite the successfully negotiated Withdrawal Agreement and Political
 Declaration, there is still considerable political uncertainty about the final EU-UK
 deal. <br> Regardless of the final outcome of the negotiations, Brexit implies
 fundamental changes in the British trade regime concerning third countries. This starts
 with a negotiation of national terms of access for World Trade Organization (WTO)
 membership and extends to renegotiation of the numerous EU free trade agreements.
 Moreover, the UK will no longer be part of the European Generalised Scheme of Preferences
 (GSP) or the Everything But Arms (EBA) treaty, which allow vulnerable developing countries
 to pay fewer or no duties on their exports to the EU. The Economic Partnership Agree-ments
 (EPAs) between the EU and African, Caribbean and Pacific countries will not apply to the
 UK either. <br> While the negative effects of Brexit on the UK and EU are in the
 limelight, the implications for third countries receive less attention. This paper puts
 the spotlight on these often-overlooked issues by presenting new findings on Brexit
 implications for Least Developed Countries (LDCs) and discussing policy recommendations.
 <br> Developing countries with close ties to the UK will suffer from Brexit as import
 duties are once again imposed. <br> In particular, 49 of the world’s poorest countries
 presently benefit from preferential treatment that covers 99% of all products under the
 EBA agreement. Although these countries account for only 1.15% of the UK’s imports, the
 share of their exports to the UK exceeds 35% in apparel, 21% in textiles and 9% in sugar
 (calculations based on the UN Comtrade data for 2013-2015). Our findings show that losing
 these preferences together with the UK’s withdrawal from the EU may cause EBA countries’
 GDPs to fall by -0.01% to -1.08%. Our simulations also indicate that the highest losses
 will occur in Cambodia and Malawi, where dependence on the UK market is strong. Moreover,
 Brexit may cause the number of those living in extreme poverty (PPP $1.90 a day) to rise
 by nearly 1.7 million in all EBA countries. These are conservative estimates of Brexit’s
 negative impacts; they do not take into account the additional implications of
 uncertainty, depreciation of the pound sterling, reduced aid spending, remittances and
 investments. <br> The UK must act to mitigate the adverse effects on economically
 vulnerable countries. Such action may include 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, as
 well as offering better-targeted aid for trade initiatives. The EU could also support LDCs
 by implementing liberal cumulative rules of origin and applying its preferential treatment
 partly to goods with a low value-added content from considered countries. <br> In
 addition, 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 (FDI).
description: Briefing Paper, 2/2019