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As of January 1, 2021, the formal trading relationship between the United Kingdom (UK) and CARIFORUM countries (with the exception of Haiti) is no longer governed by the Economic Partnership Agreement signed between the European Union (EU) and CARIFORUM countries (EU-CARIFORUM EPA) in 2008. Instead, while that agreement continues between the remaining EU-27 and CARIFORUM countries, the new UK-CARIFORUM Economic Partnership Agreement (UK-CARIFORUM EPA) provisionally applies to UK-CARIFORUM trade until ratified by all parties. As with any trade agreement, market access on paper is of little value unless firms can convert it into meaningful market penetration in practice. This article explores how CARIFORUM countries could make this â€˜newâ€™ agreement work for deepening UK-CARIFORUM trade.

UK-CARIFORUM trade

The UK-CARIFORUM EPA provides duty-free and quota-free access for goods, preferential access for services providers and investors, among other things. The novelty of the agreement applies more so to its date of signature than its substance as it merely replicates or â€˜rolls overâ€™, to the extent practicable, the provisions of the EU-CARIFORUM EPA to ensure trade continuity between the UK and CARIFORUM countries once the former had left the EU. As such, the market access conditions CARIFORUM exporters face in the UK market, and vice versa, remain unchanged in substance from what obtained under the EU-CARIFORUM EPA.

Preserving post-Brexit access to the UK market for CARIFORUM exporters was critical for the region as the UK was a major export market within the EU for many CARIFORUM countries and the major destination for certain CARIFORUM exports like rum, bananas and sugar. It is also an export destination for Trinidadâ€™s methanol and liquified natural gas (LNG) exports. The UK-based Caribbean diaspora community is a key demandeur of CARIFORUM products such as rum, sauces, seasonings, biscuits and other â€˜nostalgicâ€™ goods.

The Ex Post Evaluation of the EU-CARIFORUM EPA Report released by the European Commission last year noted that many CARIFORUM producers also used the UK as an entry point into the EU market and identified the Caribbean diaspora in the UK as â€˜a key facilitating factorâ€™. Using the UK as an entry point might no longer be that attractive an option for CARIFORUM firms given that the UK is no longer within the EU single market or customs union.

Overall, however, trade between the UK and CARIFORUM has been on a general decline, according to data from the UK Office of National Statistics. Over the twenty year period between 2000 and 2020, UK imports from CARIFORUM countries declined as a percentage of UK imports, except for a spike to 0.53% in 2009, immediately after the signing of the EU-CARIFORUM EPA. In spite of this, the UK remains a major source market for tourist arrivals to the region, and for some CARIFORUM countries like Barbados, the main source for FDI in the tourism sector and second home market.

Deepening UK-CARIFORUM relations

Export diversification is one of the strategies identified by CARIFORUM countries as part of their post-COVID-19 recovery efforts. In light of the above, there is clearly scope for both expanding and diversifying current UK-CARIFORUM trade away from mostly low-value added products and into higher value manufactured goods and high value-added services. There is scope for encouraging greater UK FDI into the region outside of traditional sectors like tourism and real estate and into renewable energy, education, health and other sectors linked to the UN sustainable development goals (SDGs). The UK-CARIFORUM EPAâ€™s Protocol III on Cultural Cooperation (the Cultural Protocol) which replicates that of the EU-CARIFORUM EPA, can be leveraged to promote greater UK-CARIFORUM trade in the creative industries through, for instance, joint film and music productions.

Deepening UK-CARIFORUM relations appears to be a goal for both regions as evinced by the Action Plan and communique released from the Tenth UK-Caribbean Ministerial Forum held in March 2021. Trade and commercial relations was one of the six substantive areas of joint action identified. Among the goals under that action item are the establishment of a UK-Caribbean Business-to-Business (B2B) Roundtable, commitment to identify opportunities to use the significant capacity available for export credit financing support to the region through UK Export Finance (UKEF), to promote and expand UK-Caribbean trade flows and to further reduce market access barriers for one anotherâ€™s exporters. In addition to this, the UK also expanded its diplomatic footprint in the Caribbean by opening new permanent missions in some CARIFORUM Member States in 2018 and in 2020 appointed a Trade Envoy for the twelve Commonwealth Caribbean countries.

Recommendations

In addition to the commitments made under the Action Plan, there are some concrete ways in which the UK-CARIFORUM EPA can be utilized to deepen post-Brexit UK-CARIFORUM trade and investment. These include the following:

Raise awareness by both CARIFORUM and UK firms of the market access opportunities under the UK-CARIFORUM EPA. Many firms remain unaware of these opportunities;
Accelerate the establishment of the proposed UK-Caribbean B2B Roundtable and set concrete deliverables for what this roundtable will seek to achieve;
Promote greater ties between CARIFORUM-UK businesses to encourage greater information-sharing on market and investment opportunities. This could be done, for example, through the B2B Roundtable, as well as through formalized links between the Chambers of Commerce and industry associations of the region and in the UK;
Make greater use of existing institutions like the Caribbean Chamber of Commerce in Europe, whose remit also extends to the UK, to promote greater links between UK and CARIFORUM-based businesses;
Explore ways in which the region, including regional institutions like Caribbean Export, can work more closely with the the UK Trade Envoy for the Caribbean, the UK missions, UK Export Finance (UKEF) and other trade-related UK agencies to promote greater UK-CARIFORUM trade;
Conduct a study to determine the current barriers impacting CARIFORUM businesses seeking to access the UK market and propose solutions for how these could be overcome to promote greater CARIFORUM-UK trade;
Conduct a study on the ways in which the new EU-UK trading relationship impacts the use of the UK as an entry point to the EU and ways in which this could be mitigated;
Better leverage the UK-based Caribbean diaspora for enhancing UK-CARIFORUM trade and investment. Aside from the usual benefits of remittances and diaspora FDI, the diaspora could also provide market intelligence, business mentoring and coaching for CARIFORUM entrepreneurs interested in trading with UK firms or establishing a presence in the UK;
Make greater use of economic diplomacy by leveraging CARIFORUM countriesâ€™ diplomatic missions in the UK to identify opportunities for UK-CARIFORUM trade and investment;
Accelerate the establishment of the joint institutions provided for under the UK-CARIFORUM EPA.

Internationalization has created an interconnected globalized economy for the trade of goods and services, to customers of varying languages and cultural backgrounds dispersed over large geographical areas.

For small and medium-sized enterprises (SMEs) internationalization provides opportunities to become successful, viable global traders; however, trading outside one’s borders is not without challenges.

This article will discuss what are Technical Barriers to Trade (TBT), with specific focus on standards and regulations, and how these measures hinder trade. The section on ‘Industry Dynamics’ will highlight challenges experienced with TBTs because of the lack of harmonization between countries, and their consequential impact on business operation relative to size, cost, efficiency, and growth. Finally, targeted advice will be given, and official trade support channels provided to aid SMEs in navigating these barriers and make their products export ready.

Small and Medium-Sized Enterprises (SMEs)

The World Trade Organisation classifies SMEs as firms employing between 10-250 people, possessing a strong presence in trade: but representing only a small share in a country’s exports, with a narrow product range and target markets. Due to their narrowness in scope, that is, product portfolio and target market, many trade barriers negatively impact SMEs’ internal operations, ability to expand, and increases their fixed cost. As a result, SMEs experience an erosion of competitiveness because of higher priced goods.

Technical Barriers to Trade (TBT)

According to Business Development Bank of Canada (2020), a Technical Barrier to Trade (TBT) “is any regulation, standard or procedure that could make exporting goods to another country difficult” TBT’s, specifically standards and regulations are the most common, highly frustrating and at times unwieldly barriers experienced by SMEs.

Standards and Regulations

Standards are agreed levels of quality, whereas regulations are directives imposed and maintained by authorities or bodies such as International Trade Organisation. Examples of Standards are labelling, packaging requirements and production standards.

Regulations surround the use of chemicals or additives and general best practices. They are important as they are designed to protect animal and human safety and health. Regulations prevent deceptive practices, ensure quality while protecting the environment, and empowers knowledgeable customers to make proactive choices.

Although these measures are positive and offer a level of safety, some can be used as tools to hinder exports and imports from various countries, cripple economies and stagnate business growth and development.

Tools of Hinderance

The US International Trade Commission cited the disadvantages faced by American agricultural exports to the European Union (EU). Although the issues lie in harmonization of standards, the basis of the challenges faced still surround standards as a technical barrier to trade.

On a worldwide scale, Figure 1. illustrates the global share of goods subject to import regulations and standards. The dark concentration represents the areas with the highest concentration of import goods, which is 75% of global trade, subject to these regulations.

Goods destined for major European markets are predominately identified as those subject to technical regulations. This supports the position of the United States Trade Commission and underscores the need for greater harmonisation of these policies.

Industry Dynamics

Industry research conducted cites various compliance issues incurred by American manufacturing SMEs relating to standards and regulations, the lack of harmonization between nations on testing and the issuance of certification.

One such example is the controversial issue of food additives and Genetically Modified Organisms (GMOs) levels in products for export to EU markets from the United States. The EU through its regulations allows for low level presence of GMOs, however the non-harmonisation of standards and conformity testing practices remains the challenge. The US International Trade Commission confirmed companies which were certified by the American National Standards Institute still encountered problems selling products in the EU market due to discrepancies in standards and testing procedures between the American and European standard bodies. This lack of harmonious cohesion surrounding the preconceived high levels of GMOs in American food products has continued to fuel the debate between the two nations.

A similar situation occurs between the EU and United Kingdom (UK) in the organic food sector where conformity assessment does not start and end with the manufactured final product but extends throughout the food supply chain to the suppliers of raw materials. See the Food Supply Chain chart.

*Source: Kiger, P. May 2020. Supply Chain 101: What happens when our food supply is Disrupted by a Pandemic.*

The US International Trade Commission ranks the UK and the EU as the third and sixth largest target market respectively for organic products. The global shift towards a healthier lifestyle is apparent. This underscores the importance for SMEs to know all elements contributing to a product. These technical distinctions create major export barriers for SMEs if not intimately versed in their suppliers’ practices. The potential result is a higher administrative cost to assess and trace all suppliers within their global food supply chain network.

How can SMEs Navigate TBTs?

A myriad of factors must be considered to competently address and navigate the waters surrounding Technical Barriers to Trade (TBT). The following are key steps companies can take when considering new export jurisdictions:
1. Conduct Market Intelligence on new target market,
2. Identify target market requirements,
3. Determine the type of product to produce,
4. Verify the quality and certification of raw materials sourced as inputs,
5. Identify the production and human resource capacity needed,
6. Acquire the technical knowledge to comply with both local and international standards and regulations,
7. Have a realistic outlook on time, effort and the correlating impact on cost associated with compliance.

Finally, SMEs must ensure to source all information from creditable and reliable sources. Caribbean Export Development Agency website provides videos on Labelling and Packaging requirements, Food, Product and Safety guidelines and many more for regional SMEs considering exporting goods to the European Union.

Size does matter!

It is important to note that the severity of the impact of TBTs on a business is subjective and depends on the firm’s size and scale. Nonetheless for most SMEs the impact hits where it hurts…in the bottom line! The production of most SMEs is narrow in scope. With limited market diversification and restrictive financing. They simply do not possess the flexibility needed to meet such challenges. This inelasticity transcribes into higher priced goods and the loss of market competitiveness. In contrast, larger companies through economies of scale can absorb and spread fixed costs resulting from barriers, over broad sales volumes. They have greater access to funding, can spread risk and ensure consistent revenues through product diversification. This helps to keep the selling price of individual products down which in turn helps to maintain a competitive edge.

SMEs must be cognizant of these variables in their decision-making process.

Trade Support Channels

There are numerous Business Support Organisations (BSOs) and bureaus which facilitate and provide a wide breadth of in-depth information and guidance to assist SMEs around various trade matters especially TBTs such as standards and regulations. Collectively these organisations are supported by regional governing bodies and agencies like the Caribbean Export Development Agency which provides support to SMEs to strengthen their institutional capacity and export competitiveness. This work will contribute to the creation of an ecosystem of export-ready SMEs.

Regardless of the trade challenges faced all is not lost! With the right tools, knowledge, and support, barriers will dissolve into dust and be swept away on the tide of success!

Tagged: trade

Making the UK-CARIFORUM EPA Work for Post-Brexit UK-CARIFORUM Trade