Malawi eligible for UK preferential treatment

The decision by the United Kingdom (UK) to withdraw from the European Union (EU), popularly referred to as Brexit, was found to have far-reaching economic implications on Malawi.

Malawi was among the world’s 49 least developed countries that have been enjoying Everything But Arms (EBA) initiative from the EU under which all imports that enter the EU single market were duty-free and quota-free with the exception of arms.

In February 2019, he German Development Institute (DIE) had estimated that Malawi could lose about K30 billion in export earnings due to Brexit as the country was exporting 3.4 percent of its total exports to the UK market.

However, two years down the line, the hope is renewed.

Prior to the UK’s withdrawal from the EU on January 31 2020, trade between Malawi and the UK was guided by the Everything But Arms (EBA) initiative, an EU Generalized Scheme of Preferences (GSP) framework which extends preferential treatment to EU imports from developing countries.

However, following Brexit, an interim framework which replicated the EBA provisions has guided trade between the UK and the developing countries since January 1 2021.

In 2020, the UK Government announced that countries that are currently eligible for trade preferences under the European Union GSP would be maintained after the Brexit transition period from January 1 2021.

This interim UK GSP framework balanced instruments such as tariffs reduced or removed by the EU GSP, which the interim arrangement largely maintained.

This provided stability and continuity of trade and UK market access for 70 developing countries, including Malawi.

Moving beyond this interim arrangement, however, the UK is preparing its own more permanent trading framework with developing countries.

Associate professor of economics at Chancellor College Ronald Mangani says in his Septermber 6 2021 Malawi National Consultations on the Proposed

Generalised Scheme of Preferences of the United Kingdom draft report that the new scheme will be an opportunity for Malawi to establish better trading deals with the UK, in order that continued trading arrangements may enhance their economies and market access either way, thereby boosting trade growth and development.

He says: “From the UK’s perspective, more access to imports from developing countries will increase choice for UK consumers and industries.”

The current interim scheme implies that UK importers pay lower (often zero) tariffs on goods from 70 developing countries.

This covers 47 countries in the Least Developed Country Framework (LDCF), including Malaŵi, and 23 additional countries categorized as low-income and lower-middle-income countries.

The EU and UK are important markets for Malawi, especially because the country has a positive trade balance with them.

In 2020, some 12 EU member states, excluding the UK, were among Malawi’s 50 export markets.

Ministry of Trade figures show that while the 50 markets accounted 98.1 percent of Malawi’s exports, the 12 EU countries took up some 37.4 percent of the exports.

Belgium is Malawi’s largest of all export markets, accounting for 20.8 percent of total exports, followed by South Africa (6.2 percent) and the UK (six percent).

On the other hand, in the same 2020, some 14 EU member countries were among 50 countries that supplied 99 percent of imports to Malawi, but the contribution of the EU countries was only 7.2 percent.

Further, the UK was Malawi’s fifth highest import source, as most imports were from South Africa (20.6 percent), China (16.2 percent), United Arab Emirates (10.1 percent) and India (7.7 percent). Nonetheless, Malawi had a positive trade balance with both the EU and the UK in 2020.

In 2018, Malawi exported goods worth Euro 260 million to the EU under the GSP, which was 86.6 percent of the total value of goods exported to the EU.

However, Malawi’s share of GSP exports to the total exports under GSP to the EU (from all GSP beneficiary countries) was a decimal 0.4 percent and, in terms of overall EU imports, Malawi only accounted for 0.02 percent.

“Malawi has spacious room to improve in order to benefit from preferential trade with the EU and others,” says Mangani.

Ministry of Trade Principal Secretary Christina Zakeyo says when news about Brexit emerged, it brought some uncertainty and fears to most of the EU GSP- beneficiaries such as Malawi.

She says: “There was anxiety that the preferences would disappear depriving us of the tariff-free, quota- free access to the UK market which is one of our reliable export market.

“Thank goodness, the UK Government in 2020 announced that the same countries that are currently eligible for trade preferences under the EU GSP would be maintained after the Brexit transition period from January 2021.”

Zakeyu observes that GSP schemes are fundamental instruments for increasing exports.

She, however, says Malawi needs to address issues of high tariffs, stringent rules of origin and non-tariff barriers to benefit.

Says Zakeyu: “As Malawi, we would like to optimise the following policy focus areas earmarked for adjustments, reducing tariffs for low-income and lower middle-income countries and simplifying rules of origin requirements for least developed countries.

“We also need to address amendments to the conditions and reporting requirements that enable a low-income or lower middle-income country to benefit from more generous provisions through the enhanced framework.”