14 February 2019

Opinion: Brexit can re-vitalise Latin America-UK trade

by Daniel Raisbeck

After the Brexit vote, the Latin American press took their cue from the British media to portray the referendum result as an ugly, nativist, anti-globalisation outrage. Similarly, the British media, taking its cue from Latin American intellectuals of Guardianista tendencies, described the Colombian plebiscite of 2016 (then-president Juan Manuel Santos’s supposed peace deal with the FARC guerrillas) as a triumph of senseless, reactionary war-mongerism over decency itself. The plebiscite result was, as the country’s main weekly magazine put it, “the Colombian Brexit.”

The comparison was meant in the worst possible way, but not everyone was fooled. Charles Moore was absolutely right when he wrote in The Spectator that the BBC, amazed that we had rejected an agreement backed by the UN, failed to notice how “the Colombian majority decided that (the Santos-FARC “peace” deal) let the terrorists literally get away with murder.” For my part, I explained to Colombians that Brexit was as much about freeing the UK’s economy from EU protectionism as anything else.

It was fitting that the Brexit referendum and the Colombian plebiscite were held just a few months apart. Two centuries ago, British mercenaries formed the backbone of General Simon Bolivar’s infantry and, as even Karl Marx noted, played a decisive role in the defeat of Spanish forces and in the independence of the Andean nations. Following Brexit, the historic links between Great Britain and Latin America can and should be renewed for mutual benefit, especially when it comes to bilateral trade.

Take, for instance, cane sugar. Colombia exported 2.3 million metric tonnes to 59 different countries in 2015, but exports to EU member states were severely limited in two ways. Firstly, the subsidies afforded by the Common Agricultural Policy have supported European beet sugar producers from global competitors for decades. Secondly, the 2013 Colombia-EU free trade deal allowed tariff-free sugar imports, but only upto a quota (originally 62,000 metric tonnes with small annual increments), whereas the EU produced over 16 million tonnes of sugar in a one-year period between 2016 and 2017.

Although the EU has eliminated tariffs and quotas on LDC countries (who enjoy tariff free, quota free exports under the EBA policy), as well as on internal sugar production in September 2017 - a measure that caused a significant shift toward world prices - restrictions still apply to other foreign sugar exporters. If Britain leaves the EU customs union and strikes an FTA with Colombia, then Colombian producers could export sugar to the UK without (or at least with greatly liberalised) Tariff Rate Quotas. This is how Brexit can offer Britons lower prices for better products from across the world.

According to trade expert Chris Horseman, the UK “accounted for 20% of all EU banana sales in 2016”. Although Latin American countries supply well over half of the UK’s bananas, these must pay a tariff of €75 per tonne from 2020 (the current tariff is €114 per tonne). Why does this tariff exist in the first place? Some will speak of the “preference erosion” for developing countries, but there is another explanation. While of course no bananas are made on mainland Europe, there is production on the French overseas territories of Guadeloupe and Martinique; and on diplomatically close, former UK and French colonial countries such as Belize and Cote D’Ivoire. Assuming the UK leaves the customs union, it will have an opportunity to reform this.

It is intended that Colombia’s current trade agreement with the EU be rolled-over as soon as the UK regains its independence, so that trade under current conditions is not interrupted. While this may be a reasonable, temporary starting point, we must stress the opportunities for wealth creation that could arise from a more advanced free trade deal with the UK after Brexit. As Mark Menzies (Conservative MP and Trade Envoy to Colombia, Peru, and Chile) has stated, a new free trade agreement can make commerce “more appropriate and more dynamic for both countries, whether it’s a UK-Colombia deal or one with the Pacific Alliance [a trade bloc that also includes Peru, Chile, and Mexico]”.

Boris Johnson also noticed the tremendous potential for future Latin America-UK trade relations during his visit to the region in 2018— the first by a British Foreign Secretary to Argentina and Chile in 25 years, and to Peru in half a century. Citing Keats, Johnson wrote that “there are realms of gold on either side of the Atlantic” if the UK regains control over its trade policy, signing “unhindered and uncomplicated” deals with the Spanish-speaking nations and Brazil.

Britain will be considering the political economy of Latin American countries as it priorities its negotiations. On the one hand, there is the Pacific Alliance: a loose commercial partnership, whose immediate future is uncertain due to the recent election of far leftist Andrés Manuel López Obrador to the Mexican presidency. In Colombia, while the current President Iván Duque opposed further FTA’s during his 2018 campaign, 66% of citizens were in favour of liberalizing trade according to a Gallup poll conducted last year. In my opinion, signing a truly liberal FTA with the world’s fifth largest economy should be a top priority for any government in Bogota, and is not unlikely to foresee.

On the other hand, there is the “one-size-fits-all” customs union of Mercosur, which envelops Argentina, Uruguay, Paraguay, and Brazil. This organisation may be approaching flux, with Brazil’s new president, Jair Bolsonaro, having signaled his plans to modernise Mercosur by turning the customs union into a free trade area. His government has even suggested leaving Mercosur unilaterally— perhaps the real South American version of Brexit— if other members refused to allow Brazil to take full advantage of global trade opportunities.

Combined with plans to lower corporate profit taxes from 34% to 15%, and other reforms, Brazil is turning toward economic liberalism after years of socialist misrule. This provides the UK with the chance to trade freely with a booming nation of more than 200 million inhabitants. Rather than the distorted vision of Brexit as the triumph of Little Englanders, a Brazil-UK FTA would be a victory for what Tory peer Lord Borwick calls Big World Brexit.

Ultimately, of course, businessmen and entrepreneurs mindful of the price mechanism decide what to make and where to sell it, and the opportunities for Latin American producers to sell agricultural products to a post-Brexit Britain are very promising. This does not mean that Latin America is destined to be a mere provider of commodities to richer nations. A welcoming development in recent years, in fact, has been the rise of tech start-ups in the region, where increasing venture capital funding has led to the creation of several “unicorns” including Colombia’s own Rappi, a food delivery app. Stronger economic links with Britain, Europe’s premiere technology hub, can only accelerate this encouraging progress. As for British opportunities in Latin America, the region’s financial services industry is in dire need of greater competition. According to the World Bank, almost half of Latin America’s population remains “unbanked”.

But before Brexit’s potential is fulfilled to any extent, Parliament must enforce the will of the people as expressed on the 23rd of June, 2016, and leave the Customs Union. While the Colombian congress ignored the majority decision in our plebiscite with unelected FARC leaders now legislating with impunity, Great Britain must once more offer the world a lesson in democracy.

Daniel Raisbeck

Daniel Raisbeck is Editor of the PanAm Post and Managing Director of the Bastiat Society.