International Trade, Brexit and the SDGs: EU Development Policy Implications
18 June, 2020
In 2015, at the UN General Assembly, world leaders signed up to the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), representing a roadmap to peace and prosperity for people and planet, now and in the future. The SDGs symbolize an urgent call for action and serve as a framework for global partnership on sustainable development. Sustainable development can be described as meeting the needs of today’s generations without compromising the ability of future generations to meet their needs. The EU was one of the driving forces behind the 2030 Agenda and is fully committed to its implementation, which is why the European Commission’s 6 priorities for 2019-24 are built on the SDGs. In fact, sustainable development lies at the heart of the European project, as European integration has helped to tackle post-war poverty while at the same time promoting democracy and prosperity for European citizens. The EU has continuously strived for more sustainable development and has made substantial progress in delivering on the SDGs. It has started a transition towards a climate neutral and resource efficient circular economy that allows for increased equality, inclusion, prosperity, and security.
International Trade and the SDGs
The 2030 Agenda highlights the importance of international trade for achieving many of the SDGs and their specific targets. It refers to international trade as “an engine for development”, since it allows for inclusive economic growth and poverty reduction. Thus, international trade has been mentioned in several SDGs (e.g. SDG targets 17.10, 17.11, and 17.12). The idea to incorporate trade in a strategy for global development has come at a rather unfavorable time though. The COVID-19 pandemic poses a serious threat to the world economy and calls to mind the global financial crisis of 2008 in terms of widespread economic damage. While the magnitude of financial intervention is impressive, governments are struggling to contain the economic fallout from the global health crisis. The economic downturn caused by the COVID-19 pandemic clearly jeopardizes the achievement of the SDGs, which is why both immediate and long-term actions are needed to respond to the crisis.
Furthermore, the failure of the Doha Round of trade negotiations among WTO member states undermines the credibility of the global trading system and harms both developing countries and Least Developed Countries (LDCs), which are desperate to increase their exports to more powerful countries. The WTO’s system of multilateral trade seems obsolete, as the most ambitious reform measures on trade liberalization were implemented in the 1990s. The Great Recession in 2008 further reinforced the implementation of protectionist measures, which has had severe effects on trade flows, especially in the poorest countries of the world. In fact, LDC exports could have been roughly 30% higher without trade-restrictive measures being adopted. Given that trade is of particular importance in the SDG framework, the transition towards trade-led sustainable economic growth may become more challenging with a lack of both multilateralism and trade liberalization.
Moreover, the UK’s withdrawal from the EU presents another shock to the multilateral trading system. The substantial increase in economic, political and institutional uncertainty caused by Brexit may exacerbate global economic recovery, with significant effects on developing countries and LDCs. As one of the largest economies of the world, the UK has continuously diversified its trade with developing countries and is an essential export destination for various African, Caribbean and Pacific (ACP) nations. In light of the UK’s considerable participation in world trade, the economic repercussions of Brexit will have a major impact on developing countries in terms of trade, investment as well as aid and development finance. The magnitude of these repercussions depends on the nature of trade agreements with both ACP countries and the EU. Brexit-related uncertainties may therefore further undermine the achievement of the SDGs.
The Impact of Brexit on EU Development Policy: Issues and Way Forward
Due to the UK’s significant role in defining and leading development policy, Brexit will have severe consequences for yet another remit of EU policy. EU development policy therefore represents a crucial field in which to analyze the implications of Brexit. It points to internal and external effects of European (dis)integration and has been increasingly Europeanized while at the same time being largely influenced by the UK’s policy leadership and large-scale funding.
The Leadership Gap
The UK has always played an essential role in advancing the EU’s development policy. It is the third-largest donor country and has achieved the UN target of spending 0.7% of Gross National Income (GNI) on Official Development Assistance (ODA) since 2013 whereas major European economies such as Germany and France have failed to meet this target. Furthermore, the UK’s Department for International Development (DFID) has shown considerable leadership in development policy making, and plays a key role in meeting international development objectives. It is responsible for coordinating the UK’s overseas aid and has a well-developed plan for promoting sustainable development and eliminating poverty. On top of this, the UK has been a determinant advocate for allocating EU aid to LDCs, increasing transparency, addressing gender issues, and introducing result-oriented aid management. Considering that the UK’s colonial past has historically shaped EU development policy, Brexit challenges the EU’s ability to meet its development objectives after losing the UK as a leading development actor. However, recent negotiations show that EU member states are already adjusting to the post-Brexit situation and new coalitions will be formed. This might be an indication of more dynamic changes arising.
The Funding Gap
From a budgetary perspective, the loss of the UK’s financial contributions to the European Development Fund (EDF) will be particularly difficult for the EU. The EDF is the largest instrument in the area of development policy, with €30.5 billion allocated to the current 11th EDF for 2014-20. It has been historically reliant on UK funding, given that the UK is the third-largest contributor after Germany and France. Indeed, the UK is contributing €4.5 billion to the 11th EDF, which accounts for 15% of the total fund. In light of the UK’s decision to leave the EU, the lack of requirements for a member state to leave the EDF led to great ambiguity. However, the 2018 Withdrawal Agreement set the terms for the UK’s commitment to its funding obligations until it effectively left the EU. Thus, the UK remains party to the fund until the end of the transition period. This workaround emphasizes the high degree of dependency, which points to further uncertainty after 2020, also in light of the current Cotonou Agreement expiring at the end of the year. It is still unclear how the remaining 27 member states will compensate financially for the UK’s withdrawal. Since the EDF has its own institutional and legal basis, it could easily be transformed to a pan-European development fund in order for the UK to continue contributing as a third party. A possible EDF reform gives weight to the institutional dimension of Brexit, as it gives occasion to rethink the design of European institutions. The UK has signaled its interest in continued contribution to EU development instruments in return for an appropriate yet undefined role in decision making. Therefore, leaving the door open for the UK in terms of development policy could be of interest to both parties.
There is no doubt that the global trade slowdown caused by the COVID-19 pandemic, the failure of the Doha Round, as well as the UK’s withdrawal from the EU jeopardize the achievement of the SDGs. However, the global economic downturn should not be used as an excuse to reduce support for trade capacity-building and sustainable development. International trade continues to be vital for developing countries and LDCs, and remains an indispensable source of economic development and structural transformation. The multilateral trading system needs to be strengthened and concrete solutions to the current deadlock need to be identified. The upcoming trade negotiations between the EU and the UK, and the trade agreements between the UK and ACP countries must protect the latter from unfavorable outcomes. Brexit does not only challenge the global trading system but also the EU’s ability to achieve its development obligations. It is no secret that the UK will create significant gaps in funding and leadership in this policy area. There is a chance that Brexit may threaten the stability of EU external relations, undermining the EU’s role on the global stage. However, the UK’s absence also represents a chance for the remaining 27 member states and EU institutions to fil this gap and get in the lead of development policy. The forming of new coalitions and the reform of aid mechanisms in response to the loss of the UK’s leading role in development policy emphasize that differentiated integration can be a powerful means to allow for inclusiveness and flexibility. Thus, Brexit may ultimately provide an opportunity for change – not only in terms of development policy but for the EU as a whole.