AMCHAM T&T: "BREXIT" Long-Term Impact Still Unclear

MEDIA RELEASE
24/06/2016

As a very open, small island economy, which has deep political and economic ties to the United Kingdom, the results of the UK referendum on that country’s membership in the European Union will undoubtedly have an impact on Trinidad and Tobago and the Caribbean. The real, long-term impact is unlikely to be clear for some time, however.

Nonetheless, with the UK voters casting their ballots in favour of a “Brexit”, and while we await the vote being taken to the Parliament and the UK invoking Article 50 of the Treaty on European Union to allow for that exit, the Caribbean has several things to consider.

The first group of issues surrounds competitiveness. Concomitant with the victory of the “Leave” vote, the British sterling faced a sharp decline, reaching levels that it had not seen since the 1980s. The question of where the pound will settle and how long the volatility will persist is of some concern for several reasons. While a decline in the value of the pound may provide new opportunities for local businesses to source inputs from Britain and elsewhere in the UK, a sustained decline in value may also pose additional challenges as UK exports become cheaper and more price competitive, even in local markets. This will include services exports as the UK is the second largest services export economy globally.

With a decline in the purchasing power of the British Sterling comes an attendant threat to regional tourism as the cost of a Caribbean holiday for UK travelers will increase. This is important because according to data on the Tourism Development Corporation website, the UK is our third largest source of tourists over the past decade. In raw numbers, on average over the past decade, 38,000 UK nationals visited T&T per year. Assuming that this number will fall if the cost of travel increases due to a devaluation of the UK currency, T&T will have to look for alternative markets. We, therefore, suggest that renewed efforts be placed on attracting tourists from near markets in Latin America and new markets in North America. In this regard, establishing Piarco International Airport as a pre-clearance port to the United States would be particularly valuable.

In the medium term, another area of uncertainty for the region is in our trade arrangements. Currently, 15 Caribbean countries are in an Economic Partnership Agreement with the EU, which allows for preferential trade and in some areas asymmetrical benefits (i.e. terms of trade that benefit the CARIFORUM more than the EU). Note here that the Parties to the EPA are 15 individual Caribbean States while on the other side, it is the European Community; and “Contracting parties to the Treaty establishing the European Community and the Treaty on the European Union” (i.e. not individual EU member states). If the UK is no longer a member state of the EU, then the applicability of the agreement to the UK comes into question.

Apart from the EPA, there is no legal framework allowing for preferential treatment between the UK and the English-speaking Caribbean. While we anticipate that the UK, being a longstanding development partner with the region, would not let our relationship wither, a strategy to prevent any negative impact of the Brexit and ensure the continuation of legal (in the context of the WTO) preferential trade, with the necessary certainty and predictability, should be devised quickly. Since CARICOM negotiates international treaties as a bloc, regional governments will need to move quickly to devise and execute a strategy to engage with both the EU and the UK throughout the Brexit process.

For clarity:
Article 233 of the EPA – Definition of the Parties and fulfillment of obligations – states that:

Contracting Parties of this Agreement shall be Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Saint Christopher and Nevis, Surinam, and Trinidad and Tobago, hereinafter referred to as the “CARIFORUM States”, on the one part, and the European Community or its Member States or the European Community and its Member States, within their respective areas of competence as derived from the Treaty establishing the European Community, hereinafter referred to as the “EC Party” on the other part.

Article 245 – This Agreement shall apply, on the one hand, to the territories in which the Treaty establishing the European Community is applied and under the conditions laid down in that Treaty, and on the other hand, to the territories of the Signatory CARIFORUM States. References in this Agreement to ‘territory’ shall be understood in this sense.

END.