The Future of Trade Relations Between Cameroon and the United Kingdom After Brexit

The Future of Trade Relations Between Cameroon and the United Kingdom After Brexit

By Jacob A. Akuo, Esq., Co-founding Partner

Britain voted to withdraw from the European Union (EU) through a referendum on June 23, 2016. On March 29, 2017, the then Prime Minister of Britain Theresa May triggered article 50 of the Treaty of the European Union (TEU) by formally notifying the EU of Britain’s intention to exit from the Union.

As per the same article 50 of the TEU, Britain had two years from the date of notification to negotiate their way out of the EU, something that is a tall order by every standard. After many rounds of tough negotiations and some extensions of the exit deadline, a Withdrawal Agreement (WA) was concluded and signed between the EU and Britain. In accordance with the conditions in article 185 of the WA, it got into force on January 31, 2020. The WA lays down the terms of Britain’s orderly withdrawal from the EU, in accordance with the spirit of article 50 TEU.

The WA equally puts in place a transition period (article 126) that ends on December 31, 2020. The transition period is meant to give the UK and the EU the opportunity to negotiate a trade agreement that will govern their future relationship. During this transition period, the UK continues to be bound by EU law, and remains part of the single market and customs union. It goes without saying that EU trade agreements and economic partnerships signed with third countries continue to be applicable and bind the UK until the end of the transition period in December 2020.

it is important to underscore that, this transition period may be extended for one or two years provided the UK adopts a resolution to that effect (article 132 of the WA). However, the UK specifically passed legislation specifically prohibiting itself from seeking an extension of the transition period, meaning the December 31, 2020 deadline is pretty much firm.

Equally, even if the UK goes back on her words by repealing the legislation and decides to adopt a resolution for such an extension, the deadline for adopting such a resolution (July 2020) as per the WA has passed thus rendering the situation more complicated.  It may have been on this basis that the UK Prime Minister floated the possibility of the EU and the UK not reaching an agreement before the deadline and advised the public and businesses to brace for the impact of a no deal. This raises the question of what the trade relationship between Britain and third countries which the UK previously traded with under the banner of the EU will be after the end of the transition period.

Talking about third countries, Cameroon has traded with the UK as part of the EU for a long time now.  On December 17, 2007 Cameroon and the EU signed an Economic Partnership Agreement (EPA). It was approved by the European Parliament on June 13, 2013 and ratified by Cameroon on July 22, 2014. Provisional application became effective as from August 4, 2014. The application is only provisional because, it was supposed to be between the EU and Central African countries of which only Cameroon signed up. This Agreement sets out the terms of trade between Cameroon and the EU and continues to bind the UK during the transition period.

Under this EPA, Cameroon products such as bananas, aluminium, processed cocoa products, plywood and other fresh and transformed agricultural products can enter the EU (including the UK during the transition period) duty-free and quota-free. In exchange, Cameroon undertakes to progressively open its markets to the EU and to liberalize 80% of its trade within 15 years from August 2016. This will give more market access to EU products like industrial machines (pumps, generators, turbines, etc.), electrical equipment (transformers, capacitors, resistors, etc.) and certain chemicals.

Still in the EPA, the EU has conceded to Cameroon’s request of not liberalizing its market in relation to certain agricultural and non-agricultural processed goods from the EU to protect domestic producers. Some of the products include meat, wines and spirits, malt, milk products, flour, certain vegetables, wood, and wood products, used clothes and textiles, paintings, used tyres, etc. Similarly, the EPA puts in place a dispute settlement mechanism to resolve disputes arising from the EPA. Parties are still negotiating comprehensive and improved rules of origin. For the time being, the rules of origin used by the EU for the purpose of the EPA continue to be those in Council Regulation 2016/1076. On the other hand, the rules of origin of Cameroon are contained in Decree (Executive Order) No. 2016/367 of 03 August 2016 laying down the rules of origin and methods of administrative cooperation applicable to European Union goods within the framework of the Interim Agreement towards the EPA.

This is the status quo of trade relations between Cameroon and the UK until the end of the transition period in December 2020. By that time, this will naturally cease to apply between Cameroon and the UK leaving a lot of uncertainty regarding the trade relations of the two countries if alternative arrangements are not made. The UK is the 5th biggest trading partner of Cameroon within the EU and the 11th biggest trading partner of Cameroon in the world in the past five years according to Cameroon Trade Hub.

Cameroon continues to rely heavily on the UK markets to sell products such as bananas, cocoa, peppers, etc. In 2019 alone, UN COMTRADE valued Cameroon-UK trade as follows: Cameroon imported goods from the UK worth a total of $60,669,641 and exported goods to the UK worth a total of $55,993,754. Cameroon also re-exported goods to the UK worth a total of $156,113. What these figures suggest is that there is a lot at stake, especially for small and medium-size businesses in Cameroon should both side not reach a deal by the end of the transition period.

As it stands, Cameroon and the UK are currently having trade talks with the intention of hammering out details of an EPA. They want the EPA to be in force by January 2021, just in time to keep the status quo. Both sides have indicated that they will want little changes to the tariffs and quotas as they existed under the EU-Cameroon EPA.  It will not be out of place to suppose that the delay in the deal is because of both countries trying to extract as many concessions as they can from each other.  However, the clock is ticking and as at November 2020, both parties have just over two months to put their affairs in order.

Should both countries fail to reach a deal before the end of the year, they will have to fall back on WTO rules and their respective concessions and commitments made within this setting. As simple as it may sound, it is quite complicated because both countries have not traded strictly on these rules for a while now. Even when they were trading on WTO rules before the EPA, Cameroon benefited from Generalized Schemes of Preferences (GSP) through the EU Everything but Arms (EBA) Initiative up until January 2017 when it was taken off the list of beneficiaries by the EU because of the EU-Cameroon EPA.

Britain on its part has maintained this approach of keeping Cameroon off the list of beneficiaries of its GSP and has insinuated her intention on the official government website to trade with Cameroon on a Most-Favoured Nation (MFN) basis should a deal not be reached. This may be for several reasons some of which are speculative based on the complexity of the situation. Firstly, the UK is still part of the EU customs union during the transition period and she is still bound by EU trade law and policy. Hence, she may not be able to unilaterally add Cameroon to its list of beneficiaries of the GSP. Alternatively, the UK may think the development level of Cameroon, which is one of the benchmarks taken into consideration when developed countries grant GSPs to its developing counterparts, as higher than required to be classified as a beneficiary of her GSP. Lastly, as already stated above, the UK is currently negotiating an EPA with Cameroon and hope to seal a deal before the end of 2020, and therefore find it redundant to add Cameroon to their list of beneficiaries of the GSP.

Sidebar, GSPs are non-reciprocal preferential treatments granted by developed countries to developing countries such as zero or low import duties. Under WTO Agreements, there are a host of special and differential treatment provisions that enable developed countries to grant differential and favourable treatment to developing countries. The Enabling Clause, for example, (officially called the “Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries”, adopted under GATT in 1979) is one of such special and differential treatment under the WTO and it forms the legal basis of GSPs. In a nutshell, they are an exception to the non-discriminatory obligations provided for in the Most-Favoured Nation (MFN) principle in the GATT.

The UK has made it clear on its official government website that should the two countries not reach a deal by January 2021; they shall be trading on WTO rules on an MFN basis. What does this entail? The MFN principle is contained in various WTO Agreements including the GATT 1994, the GATS, and the TRIPS Agreement. Though they are little nuances in each of these agreements, it is generally meant to ensure that a Member State of the WTO immediately and unconditionally extends to other Member States the same treatment it gives in like circumstances to its most favoured trading partner. So, if a member lowers customs duty or opens market access to another Member or to a third country, it must extend such a treatment to all other members of the WTO. The notable exceptions to this include the Enabling Clause (the legal basis for GSPs) for trade in goods as explained above, a regional trade agreement (free trade agreement or customs union), MFN exemptions contained in schedules of commitments for trade in services, waivers granted by the WTO General Council, and raising barriers against products that are considered to be traded unfairly from specific countries.

As good as an MFN may sound, it is not a guarantee of the best treatment in international trade. As one may infer from the exceptions above, better treatment can be gotten through preferential arrangements such as GSPs, free trade agreements/customs unions, and occasionally, waivers. Case in point, trade between Cameroon and the UK on an MFN basis will be very detrimental to businesses from both countries. Their products will find it difficult to compete in their respective markets due to a potential increase in customs duties that were hitherto non-existent or low. This will especially be the case for Cameroon products which access UK markets under the EPA duty and quota-free. The average MFN rate of Cameroon in 2013 according to the International Trade Centre was 18.1%, while the average MFN rate of the UK to products from Cameroon is 3.83%. Fresh or dried bananas (excl. plantains) is the number one export of Cameroon to the UK and has benefited from zero duty from GSPs and later the EU-Cameroon EPA. It will be obliged to pay average of 3.8% duties making it less competitive with similar products from another jurisdiction.  Furthermore, the UK has an average MFN rate of 21.60% which Cameroon has never had to endure due to GSPs/EPA. This is what the parties may be facing in the coming months if a deal is not reached.

Then there is the problem of what rules of origin will apply to goods from both countries. Though the EU-Cameroon EPA still has to hammer out the details of their rules of origin through ongoing negotiations, the UK operated under the EU Council Regulation on Rules of Origin while Cameroon applied the rules of origin pursuant to a presidential Decree specifically tailored for the EU-Cameroon EPA. Since both parties may not have any preferential arrangements between them and will be trading on an MFN basis, the rules of origin that will be applicable should a deal not be reached are unknown. One may think of WTO rules of origin but WTO negotiations on harmonized rules of origin for non-preferential trade have been without fruition for a long time now. Moreover, Cameroon has notified the WTO that it does not have legislation regarding non-preferential rules of origin, further throwing the situation into more complications.

In conclusion, the uncertainties that lie ahead should a deal not be reached between Cameroon and the UK at the end of the transition period are very daunting and burdensome to say the least. Which is why at Dayspring Law Firm, our attorneys and experts provide assistance and update businesses (small and large) and individuals on the developments in this area and how they can take dispositions to face these potential difficulties. We provide specific advice on rules of origin in both jurisdictions, customs valuation procedures, customs duties to be paid for all goods on the Harmonized System, the various quotas or tariff rate quotas and the non-tariff barriers.

For more on UK-Cameroon relations and Brexit, click here..