Brexit, global trade and the overseas territories

Last month a report appeared indicating just how important one of the Caribbean’s overseas territories has become in facilitating global trade.

The study, entitled ‘Creating Value: the BVI’s Global Contribution’, was commissioned by BVI Finance and carried out by the international research consultancy, Capital Economics. It showed that despite the territory’s size, it has managed to create a sustainable, balanced economy based on tourism and financial services; and that the islands have become a significant and recognised international facilitator for cross-border trade.

The report, which provides an evaluation of the economic, financial and fiscal impact of the territory and its investment vehicles on the world economy, indicates that around two fifths of the 417,000 active BVI registered companies originate in Asia, and hold assets with an estimated worldwide value of US$1.5 trillion. This equates to roughly two per cent of global gross domestic product. It also demonstrates the role played by the BVI for major companies listed on the London, New York and Hong Kong stock exchanges.

The study’s findings were cited by the Islands’ Premier, Orlando Smith, at a recent Joint Ministerial Council meeting with British ministers on exiting the European Union. At the meeting, Dr Smith used the information contained in the study to indicate how the UK might develop a larger global trade footprint in the wake of Brexit by capitalising on the global role played by the BVI and, by extension, some other British Overseas Territories.

“Given our strong relations with many countries with which the UK aims to make trade deals, we are hopeful that our strong partnership with the UK will only be further enhanced as the UK exits the EU”, the BVI Premier was reported as having said.

His remarks point to the unusual situation that some of Britain’s overseas territories now find themselves in as Britain starts to negotiate its departure from the European Union (EU); suggesting that the relationship may need to be reconceived.

Although little of the joint meeting in London with the British Government was made public, the Caribbean overseas territories which participated (Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat and Turks and Caicos) have all made clear their Brexit priorities and the unique problems they now face.

They want to find ways to retain the benefits they presently enjoy as a result of the UK’s membership of the EU; to participate fully in the new global trade opportunities the UK eventually hopes to negotiate; and to ensure that their voice and concerns continue to be heard in Europe so that they remain able to influence EU27 decision making on matters of concern.

More specifically, all Caribbean overseas territories say they wish to retain free movement for their citizens within the EU27 after Brexit. Under existing arrangements, most are full EU citizens and are therefore able to travel, work, study, reside and do business freely within Europe. This has particular additional significance in a regional context, as it enables those in the English-speaking overseas
territories to travel freely into the neighbouring French départements d’outre-mer (the DOM) and the Dutch speaking islands.

Unfortunately for the overseas territories, there is no clarity about how any British citizen wanting to travel, work, study, or reside in the EU will be treated after the UK formally leaves. As the UK has made clear, ending free movement is a red line issue. This makes it hard to see how a waiver or opt out for its overseas territories might be possible.

All Caribbean overseas territories also say they wish to have a continuing dialogue and trade relationship with the EU27.

They see practical value in having their voice heard in Brussels and in being able to influence European decisions on issues of significance. This particularly applies to financial services regulation by the EU, and in relation to trade access for those Caribbean overseas territories exporting not just to continental Europe, but also to Europe in the Caribbean in the form of the French DOMs and the islands within the Kingdom of the Netherlands. For example, in a recent exchange with a select committee of the House of Lords, it became clear that Anguilla is concerned about the export of its fish to St Maarten, and the BVI is interested in developing an export-oriented fisheries industry.

An additional issue which is likely to prove less complicated to resolve is the wish of all overseas territories to see the EU’s financial commitment under the 11th European Development Fund (EDF) fully maintained up to 2020, while ensuring continuing eligibility for support from EDF regional programmes, the European Investment Bank, and the general EU budget. At present, the EU provides millions of Euros to support development programmes in all overseas territories in areas from the environment to trade development and education.

They feel that the UK should continue to fund such EU programmes up to 2020 – a possibility the UK has shown an interest in exploring– and after that, consider how either to continue such support, or alternatively create a new overseas territories development window through the Department for International Development.

While the UK continues to retain overall responsibility for its overseas territories, in recent years its role has become of significantly less economic relevance, as the recent BVI report shows.

Most territories have advanced constitutions, largely viable political systems and in some cases a much higher standard of living than exists in many developed nations– the BVI, for example, report a GDP per capita of US$32,500 and an annual trade surplus of US$45m– suggesting the need to reconsider the ways in which they are regarded by Britain.

At present, all of the UK’s Caribbean overseas territories wish to remain a part of the UK family. However, it is conceivable that if a new, more balanced or mutually dependent relationship with the UK of the type suggested by the BVI and Cayman cannot be established, in some overseas territories Brexit could become inextricably linked with constitutional advancement.

David Jessop is a consultant to the Caribbean Council and can be contacted at david.jessop@caribbean-council.org
Previous columns can be found at www.caribbean-council.org
July 23rd, 2017