Brexit Impact Assessment

In her Lancaster House speech of 17 January 2017, the Prime Minister, Theresa May, announced that she still wished to work closely with the EU on issues such as external affairs and security and defence matters following her country’s withdrawal from the EU. Whether and to what extent this might hold true for European development policy as an integral part of EU external relations remained largely unaddressed. Also, the Brexit White Paper published by the UK Government on 2 February failed to establish clarity over substantial issues, as did the paper on the “Great Repeal Bill”. On 27 March Theresa May reasserted to employees of the Department for International Development (DfID) that Britain did not want to shirk its international responsibility. Her “farewell letter” to the President of the EU Council stated that Great Britain felt committed to shared European values and, henceforth, would remain Europe’s “closest friend and neighbour”.

This article takes stock of the negotiating positions based on factual evidence and attempts to provide a perspective of the possible effects on EU development policy and implications for European external relations.

Added to the challenges that confront the EU and multilateral cooperation, there are short-term issues around existing legal obligations and the safeguarding of business continuity, as well as the longer-term course-setting decisions that will need to follow in answer to Great Britain’s withdrawal. At present, ongoing processes such as the participation in the financing, planning and implementation of programmes and projects, as well as the management of UK’s departure, are occupying significant attention and resources. There is also the question of the legal certainty of international treaties such as trade agreements and membership of organisations; in brief: Great Britain’s legal succession in the context of EU agreements. Quite apart from all the emotions, the settlement of this estate is a highly labour-intensive process that will shape the agendas of the EU and Great Britain for years to come, binding considerable administrative capacity on both sides. The key focus ought to be on shielding development policy as far as possible from the trade-offs of the bargaining poker game and place shared goals and values beyond dispute.

Against this backdrop, the article will first examine how the loss of Great Britain as an EU Member State will affect Europe’s clout and role in the world. It will subsequently scrutinise the level of significance the development agenda will have within British foreign policy. Finally, it will discuss the consequences Brexit may have on the European Union’s trade policy – especially with developing countries.

 

1. Brexit – and the Effects on Europe’s Role in the World

After the constitution of a minority government in London, the EU must commit itself to the withdrawal process of a major Member State under uncertain terms over the course of the negotiations. This process comes at an inopportune time, in a global situation that could hardly be trickier for Europe – not just because of awkward transatlantic relations – and that has shaken the EU to its core. Now, a Union in search of renewal is preparing to enter the ring to face an adversary who, although weakened by the snap elections in June, remains a versatile opponent when it comes to British core concerns.

Since Theresa May’s Lancaster House speech of 17 January 2017, it had at least been clear that the UK is pursuing a “hard” Brexit, with a view to withdrawing from the Common Market and the Customs Union. Following the loss of an absolute majority for the Conservative Government in the parliamentary elections on 8 June, it is, however, no longer as certain that the original negotiation course will be adhered to.

Legally, the withdrawal must be concluded within two years of Article 50 of the EU Treaty being triggered, which would currently mean that an agreement between the EU and Great Britain would need to be signed in April 2019 in order to avoid a disorderly divorce without a treaty, which would be one possible scenario. If the negotiation period is not extended – which would require a unanimous EU-Council decision –, less than two years actually remain since Article 50 was triggered, namely around 18 months. This is because the outcome, the withdrawal agreement, will need to be ratified by the European Parliament and the parliaments of the EU Member States. The reappointment of the House of Commons has further delayed the start of the substantial negotiations and, on account of the verbal escalation during the election campaign, has not contributed to a positive atmosphere for discussions between the EU and Great Britain. It is improbable that, in the remaining time after the official start of the talks on 19 June, it will be possible to negotiate all points comprehensively in a way that is satisfactory to both sides. The overriding concern of the two-step procedure proposed by the Commission is to lay the foundations of a transition agreement first, while, for the remaining bulk of the negotiations – as is frequently the case with large package deals – it may hold true that nothing is agreed before everything is agreed. This process could be protracted over years and conflicts will inevitably occur: while Great Britain wants to start arranging trade deals with other third countries in parallel, this is taboo for Brussels as long as Britain legally holds member status. In the light of these divergences, as well as the scope and complexity of the matter, no one is prepared to predict how long it will take for a trade agreement between Great Britain and the EU to emerge as the core of the separation agreement.

 

According to previous statements, the UK wants to “cut” as many bureaucratic “chains” as possible and avoid all future entanglements in EU law and EU institutions. May simply underscored in her speech that her country wishes to work together with its European partners – or, from now on, “neighbours” – on issues of security policy and fighting terrorism. The fact that foreign policy is generally, and particularly in the case of the “soft power” from Brussels, closely bound up with development cooperation (DC) and multilateral cooperation is not new. Whether and to what extent security issues should be connected with sustainable development policy and, more recently, migration policy, has often proven to be a contentious subject for discussion. It is likely to be the case that the current challenges and their political framing – and therefore the guidelines regarding what the approach to these challenges ought to be, have a tendency to strengthen their interdependence. The effects can be seen in a step change regarding asylum and migration policy, in the securitizisation of border management and the EU Emergency Trust Fund for Africa (EUTF), in the lowered ambitions for democracy promotion, and in the bloodless discourse of resilience. Regardless of hard or soft Brexit, the EU and the UK will still have to cooperate with regard to these same challenges. In pragmatic terms it rather seems advisable that, in the forthcoming negotiations, the chapter of “European development cooperation” is not treated as merely the settling of a legacy, but that efforts are made to actively find a constructive role for Great Britain in international EU cooperation.

Indeed, opinions are divided over the course of globalisation, the necessary regulations for multinational corporations and the finance industry, the value of the free movement of people, as well as over the many differences as regards “burden sharing” for global common good policies, migration, climate change, food security and other externalised costs of our economic system and the resultant structural imbalances. Nevertheless, there is fundamental consensus over the necessity of cooperation, the existence of multilateral obligations, as well as shared goals such as that of sustainability or combating poverty. In these and other areas the EU and Great Britain have very similar areas of priority, as is also the case in the promotion of peace and democracy and in terms of fragile states, crisis management and international security. It therefore appears rather unhelpful when Theresa May in her withdrawal notification linked the exchange of intelligence, security information and police data to access to the Single Market.

The start of official Brexit negotiations is taking place at the same time as a raft of other important political decisions, including the start of the talks on the EU’s multiannual financial framework (2021 to 2027), including the discussions on the reshaping of the development cooperation instruments. In addition, alongside the endnote after the 2030 Agenda there are several external policy goals on the programme, such as the new Neighbourhood Policy, the Juncker plan for external investments in Africa, the evaluation of shared EU border management and an action plan for defence. At the same time the question of the reorientation of EU cooperation policy is emerging in European development cooperation, beginning with the reform of the European Consensus on Development from 2005. It is questionable whether the new Consensus signed in Brussels on 7 June 2017 presents a vision that can unite the EU institutions and the Member States in its wake (and possibly Great Britain, too, as a DC stakeholder), thus creating a new development policy model. Parallel to this, the end of 2016 saw the exploration of the idea of future cooperation with the African, Caribbean and Pacific Group of States (ACP States) and a potential renewal of the Cotonou Agreement, which expires in 2020. The EU’s position in the negotiations over its continuation will be weakened by the departure of Great Britain. 41 of the 53 States of the Commonwealth are ACP States, thus they also represent the majority among the ACP Group, which comprises 78 states. Collaboration with the ACP States is therefore of strategic importance to Great Britain for political and economic reasons, and London might try to keep its foot in the door on this issue. Very tellingly, reported statements by Whitehall officials referring to an “Empire 2.0” in view of former British colonies in the ACP Group and other African states do not inspire trust. In the short term Great Britain could attempt to have a say over remaining British funds, at least regarding allocation decisions, since the ongoing funding period (11ᵗh EEF) only expires in 2020, that is to say after the scheduled Brexit date.

The long shadow of Brexit is already looming over all these processes. Its destabilising effect will be extremely noticeable and will be reflected in a decline of influence and, ultimately, in a curtailed role for both the EU and Great Britain within the world. Besides the tarnished image of the European model, the weakening of the EU’s market power, its foreign policy, humanitarian and military capacity and therefore its negotiating weight are also being felt negatively.

Great Britain is a country that has manifold connections and interests all over the world thanks in part to its past history of empire. The country’s diplomatic and intelligence network, as well as its expertise in terms of development, foreign and security policies, will be sorely missed by the EU when it comes to political influence, access to information, civil and military interventions, crisis management and the planning and implementation of aid programmes. The material losses are also significant: the decrease in population linked with the withdrawal of Great Britain, from approximately 510 to 446 million, and the reduction in Gross National Product (GNP) by 16 per cent will severely diminish Europe’s soft power, which is based not least on the volume of the market as a whole. Furthermore, the drop in the Union’s overall budget from a total of over twelve billion euros annually will be felt by net contributors and net recipients.

 

2. The Importance of International Cooperation in Great Britain

The UK has been a forerunner in the field of official development aid (ODA), though it has enshrined the previously undisputed 0.7 per cent target (ODA as a proportion of GNP) in law for over ten years and reached this target for the first time in 2013. In absolute figures, British DC expenditure almost doubled between 2006 and 2016, from 7.4 billion pounds sterling to 13.6 billion (adjusted for inflation). With its DC budget accounting for a share of 0.71 per cent calculated in terms of the overall budget, Great Britain sits in fourth place among the EU Member States, behind Sweden, Luxembourg and Denmark (fifth place in Europe if we take Norway into account, too).

 

PM May recently defended the 0.7 per cent goal against pressure from right-wingers in her party. It is not yet possible to predict whether this might change against the backdrop of the current political climate. In the field of development policy in particular there is concern that, when it comes to the anticipated wrangling over citizens’ rights of foreign residents, trade, research funding or fisheries and agricultural policy, international development cooperation could suffer from the negotiation gamble and fall victim to a horse-trading situation. In the context of a national political debate in Great Britain, as well, development cooperation is far from being the top priority. The “Economic Development Strategy” presented by the British Department for International Development in January 2017 must accordingly also be seen as an attempt to justify the continued existence

of the Department following Brexit. It maps out a restructuring of the fight against poverty through a stronger weighting towards promoting growth and employment in developing countries. According to a legislative proposal, the Department will invest over seven billion euros (instead of approx. 1.7 billion euros up until now) in African and South-East Asian countries through its development funding instrument (DFI), the CDC Group. Just how easy it is for multilateral cooperation to become collateral damage in the Brexit skirmish can be shown by another sensitive bargaining chip: according to media reports, the UK government could follow the advice of the pro-Brexit association “Lawyers for Britain” and threaten to demand repayment of the British share of the capital of the European Investment Bank (EIB), 10.2 billion euros. This would naturally have a negative effect on the EIB’s external operations – with direct consequences for current programmes, project financing and the EU trust funds.

The Effects of Brexit in the Short and Medium Term

In international and European development cooperation Great Britain was previously considered a crucial donor and linchpin, as well as a central stakeholder and driver of reform. With an annual overall budget of circa GBP eight billion (9.4 billion euros) for international cooperation, the country is responsible for about 15 per cent of Europe’s DC funds. At 4.48 billion euros for the funding period from 2014 to 2020, the contribution to the European Development Fund (EDF) is particularly important. At 14.7 per cent of the overall amount of the 11ᵗh EEF, this is higher than Great Britain’s proportional contribution to the Union’s overall budget, which amounted to 11.7 per cent (2013). The sum of British EU DC payments totals around 1.5 billion euros annually. Although the DfID rates the EU as its most important multilateral partner for British development cooperation in its “Multilateral Development Review”, which was published in November 2016, the Government is looking for opportunities to reallocate these funds to other channels as part of the multilateral programme of cooperation, such as the World Bank, the UN system, GAVI, Global Fund and, not least, the Commonwealth Secretariat.

Presently, UK development funding already incurred a loss, caused by the depreciation of Sterling, which, after the Brexit referendum in June 2016, plummeted internationally by around ten to 15 per cent. The real purchasing power of British development aid funds in third countries is therefore affected and the DfID is confronted with unexpectedly higher expenditure, because the financing is mostly transacted on a dollar or euro basis. In the medium term, the question remains as to whether Great Britain might contribute further financially to European development cooperation in future, i.e. after the end of the current funding period in 2020. The signs of this happening are not especially promising at present, since Downing Street is moving steadily towards the decoupling and disentangling of British and European interests. Given the rising budgetary pressure on the Chancellor of the Exchequer it is likely that, in London, the contribution to EU DC funds will be offset against the open bill of 60 to 100 billion euros that arises from, amongst other things, the payment obligations within the current EU multiannual financial framework. Research published by the European Parliament projects that, in the longer term, the EU’s share of the global development funding could fall by ten to 13 per cent. One option for involving Great Britain would be to place the African Peace Facility (APF) outside the EEF and set it up as an intergovernmental instrument that the United Kingdom could also invest in. Another approach might follow the Norwegian and Swiss model of contributing the substantial resources to the Emergency Trust Fund for Africa. Contributions from non-member countries to other EU trust funds that operate as flexible instruments and enable ad hoc participation are also possible. A further option would be to create an independent DC instrument resourced and steered by the UK in partnership with third countries. Notably, the setup of the EEA and Norway Grants Scheme to back EU cohesion policies could be an organizational model for continued UK engagement in EU DC, in exchange for access to the Single Market.

 

 

3. Collateral Damages for Trade with Developing Countries

With respect to the focus of British development policy, there is speculation as to whether the country in future might turn more in the direction of its colonial history and concentrate more on cooperation with the Commonwealth nations. Prime Minister May highlighted the significance and closeness to these nations several times in her inaugural address. How this relationship will play out in practice is still unclear – and its impact is probably limited: Commerce with the Commonwealth countries merely accounts for nine per cent of UK foreign trade, two per cent thereof is constituted by trade with Australia alone. The interpretation of statements and declarations of intent by British politicians following the Brexit vote clearly demonstrates the contempt for EU cooperation policy, not solely amongst supporters of the withdrawal. Apart from the vague assurance that Great Britain will continue to meet its international obligations, the British government’s white paper offers no further information on this issue. Recently reappointed Secretary of State for International Development Priti Patel clearly articulated her critical stance towards EU development policy, and even called for the abolition of DfID prior to taking office. Because of this type of statements and on the basis of the new development strategy it can be seen that the post-Brexit development policy, like British foreign policy in general, will be more strongly subject to national interests and, in particular, to British commercial interests. Market deregulation, liberalisation and private investments are considered to be the best route for economic development, according to the new doctrine. There is controversy, though, over whether a total liberalisation of trade, as leading Conservative politicians like Liam Fox appear to be pushing for, is the right approach for all developing countries. For several developing countries, full market opening on the basis of reciprocity would still represent enormous challenges. One could therefore assume that there are other reasons, hidden agendas at play behind this radical liberal stance. Mark Langan points out, for instance, how the interests of landowners, the agricultural industry and the finance capital interact in this regard: these three extremely influential groups in economic and political terms are making use of the National Alliance for Food Security and Nutrition (NAFSN) instrument to improve conditions for private foreign investors and reinforce their ownership rights. It is very well documented by reputable sources which perfidious strategies are used to leverage the financial interests of investors within a host of African countries. There are no qualms preventing local subsistence farmers from being driven forcibly from their land, which is why researchers, NGOs and the media openly talk of “land grabbing”. Should this trend be what emerges from the British post-Brexit cooperation policy, we cannot expect that the UK can continue to act as a credible advocate of progressive EU development cooperation. Monitoring this through the European Parliament and civil society actors will then become all the more important.

In the scope of the World Trade Organization (WTO), of which the UK would be a simple member following withdrawal, there are clear regulations binding the country in its dealings with other trading partners. Privileges afforded to one party must also be granted to all others, with exceptions for developing countries, regional free-trade areas and customs unions. Under WTO rules, a privilege granted by one party only extends to other states who reciprocate that privilege, while in a multilateral reciprocal relationship the same privilege would be extended to the group that negotiated a particular privilege. The divorce agreement to be negotiated between the EU and UK could limit the leeway available to London when offering trade preferences – with uncertain consequences for developing economies. In addition, such WTO renegotiations are highly complex and involve a large number of other actors. The requirement for unanimity of all 164 WTO members could result in other positions and claims being put on the table, which would entail a long drawn out process. It is therefore important for Great Britain to have the support of the least developed countries (LDC) and to work with these on a position of consensus.

 

After Great Britain has withdrawn, both Community and mixed agreements will no longer formally apply to it. The LDC will continue to benefit from preferential access to the European market. The regulations will need to be redefined initially for the British market. Due to the withdrawal from the Customs Union, the hard Brexit that has been announced will also affect legal certainty regarding trade with other developing countries and will compel Great Britain to sign new bilateral agreements with third countries after it withdraws. The imports from developing countries, amounting to approximately 39 billion euros annually, are relatively small in relation to British total imports, which are in the region of 641 billion euros. It cannot be ruled out that the interests of the developing countries might be neglected when competing with those of companies and consumers (far greater attention and resources would likely be accorded to a free trade agreement with the USA in particular). On the other hand, Brexit represents an opportunity for Great Britain to introduce a new, generous preferential scheme for all LDC (or a redefined, expanded LDC group) that could be more balanced than the EU’s current everything-but-arms model, and thus present an approach that European development cooperation could learn from. Generous regulations with regard to rules of origin for products from developing countries and the complex provisions regarding value chains also carry particular significance. One element of uncertainty is whether Great Britain will adopt the EU framework or pursue its own regulatory framework – which would create new legal and administrative trade barriers for developing countries.

A similar question concerns the UK’s approachto product standards, particularly phyto-sanitary standards. If a new framework is established, third-countries could face the difficulty of having to adjust to two different sets of rules for exporting to Europe, representing a significant additional hurdle for these states, having already invested heavily in building capacity to respect EU regulations and fulfil technical requirements. In the medium term the UK is to continue applying the EU laws in a “Great Repeal Bill” until separate British regulations can be drawn up. In the subsequent legislative procedure of drafting its own rules, especially those that lead to the definition of new product standards, or also when redefining the rules of origin, particular attention will need to be paid to the situation of partner countries, to avoid creating additional red-tape and trade hurdles, leading to export losses, disruption to value chains, or permanent damage to trade relations.

A new arrangement will also be necessary for the Economic Partnership Agreements, which, as a result of the unilateral withdrawal of a European state, can result in very specific problems for the partner countries besides the issue of the general legal certainty and validity of the treaties, especially in the area of imports on agricultural products: how should, for example, the scheduled concessions in the form of import quotas be treated where the withdrawal of the UK means that approximately 15 per cent of goods destined for that country no longer have a market? These product-specific quotas would need to be renegotiated again for each country and for each of the concessions. Whether the EU-27 simply accept the concession certificates of the common trade policy of the EU-28 on a one-to-one basis or advocate a separation of property with Great Britain, this gives rise to a series of political issues – particularly with regard to the importing of goods from the Commonwealth states. Tea exports and the production of cut flowers for the European market (Kenya), or the textiles sector (Bangladesh), are of key importance for the developing countries. Belize, Mauritius, Fiji, Gambia and Sri Lanka depend heavily on the British market.

 

4. Bottom Line: Damage Control and Ways Out of the Crisis

London has articulated its desire for a “clean break” numerous times. Prime minister Theresa May has announced her intention to negotiate hard, regardless of the election results on 19 June. There is a real danger that this results in international cooperation taking on a rather more subordinate role and turning into a negotiating chip or a footnote in the settlement protocol. From the point of view of development policy, it is therefore advisable for both sides to tackle the pending negotiations expeditiously and to discuss the pressing questions openly and transparently, while bearing in mind continuity, predictability and reliability for third countries, as well as conducting the talks in the spirit of “sincere cooperation” and according to the “do no harm” principle. Otherwise, the damage caused by a “dirty” Brexit to international cooperation could be difficult to repair.

 

In the medium term the EU states need to think deeply about what lessons can be learned from Brexit. How can political coherence and the coordination of Member States be improved in the EU’s external relations? The integration of competences at the European level could lead to a significant increase in effectiveness together with a lever through bundling with other policy areas. Since, in the field of international cooperation, matters of economic development overlap with healthcare policy, environmental and climate protection, gender policy, migration, research and education, with the interests of external policy, commercial policy and, of course, with security policy. In light of the fundame

ntal upheavals that are taking place in and around Europe, the EU will need to forge new alliances. Multilateral and global fora for collaboration, such as the G20 or regional partnerships for instance, are especially suited to this. Germany’s current tenure of the presidency of the G20 gives it the opportunity to emphasise the key points. The German government is using this opportunity to, for example, launch wide-ranging initiatives in the area of sustainable growth by the G20-Compact with Africa for education and employment.

While on the other side of the Atlantic everything points to a new era of unilateralism and isolationism, which has most recently manifested itself in the one-sided termination of the Paris Climate Accord, the question remains whether and how the uncertainties and disruptions caused by Brexit might also paradoxically have a positive effect on the EU and the cohesion between its Member States. The resurgent dynamic of the Franco-German couple after the elections in France gives reason to hope. At present, though, there is not yet any real sense of committed solidarity in Europe in terms of development policy. At the same time, according to a number of different surveys, it seems that the Brexit vote had a positive effect on the acceptance of the EU by its citizens: in autumn 2016, support for the EU rose by around five percentage points on average among Member States in reaction to the vote. For months, pro-European movements such as Pulse of Europe have succeeded in mobilising hundreds of thousands of people to take part in peaceful demonstrations across a multitude of cities and different Member States.A survey commissioned by the Group of the European People’s Party in the European Parliament in April 2017 that surveyed 1,000 citizens in nine Member States found that eight out of ten people surveyed advocated the firm safeguarding of European interests and taking a hardline approach to negotiations with Great Britain. Whether and how the British position and its relationship to Europe will now change due to the government’s unstable majority in parliament remains to be seen.

While the outlook is therefore such that Brexit may strengthen the sense of unity within the (rest of the) Union, there is still no clearly recognisable political will at the leadership level to utilise this pro-EU momentum in the form of progressive, proactive and integrative action strategies, especially as regards EU development cooperation. Brexit should offer a window of opportunity to tackle necessary reforms, drive forward the Europeanisation of cooperation and, through improved coordination between Member States and individual policy areas, reduce the fragmenting of development cooperation and simultaneously increase its coherence and efficiency. In light of global turbulence, humanitarian challenges concomitant with the refugee movements and migration flows, European determination and implementation capabilities in multilateral development cooperation are especially in demand at present, for implementing the UN’s 2030 Agenda, for emergency measures in relation to climate protection and for the continuation of the fight against poverty.

-----

Dr. Thomas Henökl is a political scientist at the German Development Institute, Bonn. He also teaches European Governance and Public Policy as well as International Administrative Sciences at the University of Agder in Kristiansand, Norway.

-----

Choose PDF format for the full version of this article including references.