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Brexit from the outermost regions: damage forecast

Without a deal, the United Kingdom and the EU will be disconnected on March 29, 2019. The single market will give way to trade barriers on both banks of the Canal. This will impact on the nine outermost lands of the European Union

A scenario of no deal, unnamable in Brussels and London until a week ago, is now emerging as a sudden glacier against the ship. The European Council of this October 17 was going to be the one of the happy announcement, but everything indicates that it will be the one of the disappointment and the nerves. Michel Barnier, the Brussels negotiator –an old acquaintance in the outermost regions of the European Union– has tried to transmit serenity: there is time until December to reach an agreement with London on the Brexit -has remarked. They have not helped the president of the European Council, Donald Tusk, or the German government, which on Tuesday, October 16, warned that the agreement is further than ever.

After December, there would be no time to ratify an agreement in the national parliaments. The two parties would go straight to a pure and simple disconnection at 23:59:59 on March 29, 2019, with all that would entail: border controls between Northern Ireland and the Republic of Ireland, controls on both sides of the Eurotunnel of the Channel, a commercial framework that would no longer be the single market, but the World Trade Organization, with its tariff and non-tariff barriers.

The movement of people from one side of the border to the other would slow down. Professionals, researchers, companies, investors: all the human, capital, goods and services flow in freedom that gives meaning to the European Union would cease in one of its main national markets. For all intents and purposes, the United Kingdom would become a third country in the European Union, such as Russia, the United States, Canada or China.

The impact will be felt in every corner of the British Isles and the European Union, also in its most remote regions. Trade relations and cultural ties with the United Kingdom have centuries of history in the Canary Islands, Madeira or the Azores.

From London, it is discussed how a scenario of non-agreement would affect its economy.

The Institute for the Fiscal Studies of the United Kingdom has just published a report in which it updates some relevant indicators. The European Union market accounts for 44% of UK exports –13% of GDP– and more than 50% of its imports –17% of GDP.

For this observatory, the sectors most affected by a scenario of «no deal» would be manufactures of cars and clothing. As with any change of rules, there would also be winners. Among these, the Institute of Fiscal Studies points to British agricultural production. Outside the single market and within the framework of the World Trade Organization, farmers in the United Kingdom will benefit from barriers to foreign fruit and vegetables, at the expense of consumers, who will have fewer products to compare and choose from. Every policy has visible and invisible effects, as Frederic Bastiat observed more than a century ago: more protected British farmers mean Canary, Madeira and Azorean farmers with more problems placing their bananas, their tomatoes, their flowers and their peppers on the docks of England , Wales, Scotland and Northern Ireland.

Michel Barnier, negociador de la UE para el Brexit
Bajo presión. Michel Barnier, el negociador. Under presure. Michel Barnier, the negotiator. – Foto: Mauro Botaro, ©Unión Europea, 2018.

Not even all scholars agree when measuring the impact that a Brexit «without agreement» would have on the British economy. Open Europe, a London-based think tank that has accompanied the entire process –from the referendum in June 2016 to this high point of the negotiation– with always interesting papers, believes that the impact of Brexit on the British economy will not be for so much. Its estimate is that it will subtract 0.17% of GDP each year, by 2030. That impact can be even lower –0.04% lower, if you estimate it– if London deploys unilateral trade agreements with other countries. The Wall Street Journal reported on Tuesday, October 16, that Theresa May’s government has signed a special negotiator for a trade agreement with New Zealand, which would take effect after the departure of the United Kingdom from the EU.

All the impact studies observe the disconnection from one of the two sides of the rupture, or from both, but there are no known studies that observe the impact of Brexit from the side of the European regions. In the case of the outermost regions, the scarcity of analysis is even more acute, which clashes with the fact that some of them will be among the territories most vulnerable to commercial and political divorce between London and Brussels.

The local Government of the Canary Islands informed that it has a specific study on the impact of Brexit in this region, but has not published it on its website. Transparency does not seem to be one of the strong points of the governance of the outermost regions of the European Union.

Although there are no public domain estimates of the impact that Brexit would have on the local economies of the nine outermost territories, it is possible to identify some particularly vulnerable sectors by analyzing the statistics available in the official repositories.

This is what we have tried to do in Europe Rup, asking ourselves: To what extent do the local economies depend on the Rup of trade with the United Kingdom? We have not always found official data that answers this question in all cases. As far as we have achieved, our conclusions are as follows:

The Canary Islands

It will be the outermost region most affected, if trade barriers are installed after disconnection. The United Kingdom is the main tourist market of the Spanish archipelago. Almost five million Britons visited it in 2017 –one in three tourists arriving in the Canary Islands.

The following figure shows the trend of the total expenditure of British tourists in the Canary Islands:

Trade in goods and services is 50.4 million euros in exports from the Canary Islands to the United Kingdom, and 176.5 million in imports, in 2017. The Canary Islands sell fruit and vegetables worth 25 million euros to the British Isles , half of all the export to the United Kingdom.

A tariff on Canarian agricultural products, as a consequence of the lack of agreement for the disconnection, is potentially explosive for the agricultural sector, which contributes 3.8% –on average– to the GDP of the outermost economies.

When the Canary Islands decided to enter into the common customs policy, renouncing its tradition of trade freedom, the leaders of that movement on the board did not suspect that the tariff cord could end up becoming a rope that would tie the industry’s hands and feet private, that now sees leave the fenced garden and move away to one of the main tourist and commercial clients of the region.

The most curious thing is that the Canary Islands renounced Protocol II of association to the EU –which gave it the freedom to trade– and entered the customs cord, precisely, to protect its agricultural and industrial products against competition.

Açores

This autonomous region of Portugal is not as exposed as the Canaries to Brexit. Azores exported to the British Isles worth 1.3 million euros in 2016. The British market represents 1.6% of Azorean sales abroad.

The following chart shows the tendency of the arrival of British tourists to Sao Miguel, Terceira, Pico and the six remaining islands of the Archipelago:

Madeira

It is one of the outermost regions with a high exposure to Brexit. In 2017, it received 256,386 tourists from the United Kingdom. They represent 28.6% of the total visitors of Madeira and Porto Santo.

Export to the United Kingdom means, for Madeira, 21.6% of trade with the European Union. The import of products from the United Kingdom represents 6.07% of total purchases from the European Union.

The following figure shows the trend of foreign trade between Madeira and the United Kingdom:

Martinique, Guadeloupe, Mayotte and Guyane

The French outermost territories have a moderate or low exposure to the disconnection of the United Kingdom and the European Union.

Martinique received one million tourists in 2017. Visitors from the European Union –without France– represent 9.6%. The Institut National de la Statistique et des Études Économiques of France does not offer data disaggregated by countries of origin of tourists. Simply, it classifies them among residents of the French Hexagon and residents of the rest of the European Union.

In Guadeloupe, trade with the European Union –without counting France– was 30.9 million euros in exports in 2017 -11% of total sales abroad- and 327.8 million in imports -11, 7% of purchases. It is not possible to know, with the data provided by the French statistical authority, how much corresponds to the United Kingdom in these exchanges.

Mayotte has a low exposure to Brexit, in theory. In 2017, this island in the Indian Ocean received 61,800 tourists.

In Guyana, it was exported to the European Union -without France- worth 12.4 million euros in 2017, 8.4% of sales abroad. Purchases in markets of the European Union without France were 250.6 million, 17.6% of the total.

The following figure shows the trend of foreign trade with the European Union in Guyane:

La Réunion

With 850,000 inhabitants, this French island of the Indian Ocean is the second most populated outermost territory, after the Canary Islands -2,1 million.

Spain and Romania are the main customers for their exports, which in 2017 were worth 365 million euros, 77 of them in sales to countries of the European Union – without counting France.

As for its suppliers, Germany, Italy, Belgium and Spain – in this order – are the main ones. La Réunion bought abroad worth 5,020 million euros in 2017. Purchases to European Union countries -without France- were 726 million.

There is no significant presence of United Kingdom interests in foreign trade with the Réunion or in the tourism that visits the island. Its main tourist markets are – apart from the travelers of the metropolitan France – Germany, Belgium and Switzerland.

The following table shows the main markets that emit tourism in the island of Réunion:

Among the Caribbean island of San Martín –73,000 inhabitants–, the French statistical authority does not offer data on tourism or foreign trade.

Sources consulted for this article

Europa Rup
Europa Rup distribuye noticias sobre políticas de la Unión Europea para las regiones ultraperiféricas. Europa Rup is a news outlet. We cover EU policies for its outermost regions.

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