THE “BEARABLE LIGHTNESS” OF BREXIT ON THE ACP COUNTRIES’ TRADE: GLOBAL VALUE CHAINS AND RULES OF ORIGIN

Brexit will impinge on the African, Caribbean and Pacific (ACP) countries currently governed by the Economic Partnership Agreements (EPAs) negotiated by the EU. The main reason for this is that UK incomes, and hence demand for ACP products, will be lower than expected over at least the next decade. • There is also a concern that the new Brexit-induced frictions on UK-EU trade will reduce the demand for ACP inputs into the goods that the UK and EU trade with each other: so-called “indirect effects” on exports. • Our empirical results show that, while these “indirect effects” on ACP countries’ exports may exist, their economic effects will be tiny in aggregate even in the case of a ‘No Deal’ Brexit. This is because the ACP countries supply only small amounts of inputs into the products involved in UK-EU trade. • In addition, we show that in one industry in which ACP inputs are important – cocoa products – concerns that rules of origin in a UK-EU free trade agreement may curtail ACP exports are unfounded. • There may be specific industries in specific ACP countries where “indirect effects” are material, but without specific information from those industries, we suggest that “indirect effects” should not be a major concern for policymakers in either the ACP countries or the UK.