Illustration: DOROTHY KGOSI
Illustration: DOROTHY KGOSI

With the issue of when, how and even if the UK exits the EU dominating the news, the question that immediately arises is what this will mean for SA.

The EU as a bloc is SA’s largest trading partner. The UK is SA’s second-biggest trading partner in the EU, with total trade between the two countries in 2017 amounting to R79.6bn, excluding gold. This represents 18% of SA exports to the EU and 10% of EU imports from SA.

The Southern African Customs Union (Sacu), Mozambique and the UK currently trade under the terms of the Southern Africa Development Community-EU economic partnership agreement, which provisionally entered into force on October 10 2016.

On March 29 2017 the UK invoked article 50 of the EU treaty notifying of its intention to withdraw from the bloc. Article 50 provides for a two-year period within which the EU and UK must finalise and agree on the terms of their future relationship. The UK’s exit from the EU will have implications for third parties that will depend on when and how this takes place. Mindful of the potential disruption and uncertainty, members of the Sacu-Mozambique group decided to proactively engage the UK shortly after it invoked article 50.

The result was an agreement in principle to roll over the economic partnership agreement on a bilateral basis to ensure, as far as possible, continuity of trade following the UK’s exit from the EU. The current Sadc-EU economic partnership agreement was therefore envisaged as a template for a relatively short-term agreement, with modifications only to those elements necessary to ensure operability.

Significant progress has been made in the negotiations on the rollover of the Sadc economic partnership agreement into a functional standalone Sacu-Mozambique-UK agreement, with only two issues outstanding. These are cumulation and sanitary and phytosanitary measures. Cumulation allows parties to the agreement to incorporate materials or inputs of a third country or processing done in a third country, recognising and accepting such as being from the parties to the agreement.

SA needs to take a long-term view on Brexit and craft a relationship with the UK that will promote mutually beneficial trade and support Sacu member states and Mozambique’s industrial development aspirations.

The two parties are continuing to engage on the matter of cumulation to find a landing ground between the current provisions of the economic partnership agreement and the UK’s request for full cumulation with EU material, even in cases where the EU material is subject to a higher duty when exported to Sacu-Mozambique than when the material is exported from the UK.

This issue is complicated by the fact that the Sadc-EU economic partnership agreement has a most favoured nation clause that provides for extension to the EU of any better treatment granted to an economy that contributes to more than 1.5% of world trade.

The parties have agreed to continue to engage with a view to find an amicable solution that takes into account the interests of both sides and promotes mutually beneficial trade, including regional cumulation among Sacu member states and Mozambique.

In relation to sanitary measures, the key objective for SA, other Sacu member states and Mozambique is to avoid any disruption to agricultural trade by ensuring continued recognition of import requirements already negotiated between our respective countries and the EU.

Examples include continued recognition of EU model health certificates, plant protection certificates and establishment listings for a reasonable period of time. This includes the need to provide, should the UK change its sanitary and phytosanitary regime, for adequate time to enable our traders to adjust and adhere to such new requirements.

It is, however, important to note that the UK’s EU Withdrawal Act of 2018 provides for incorporation of EU legislation that was operative before the UK exits the EU and will form part of domestic law of the UK on the day the UK exits the EU. Sanitary and phytosanitary legislation of the EU will, therefore, be domesticated into UK legislation and continue to apply in the UK after Brexit. This nevertheless does not limit the rights of the UK to develop its own sanitary and phytosanitary  regime that will take into account the biosecurity risks that are specific to the UK.

Important discussions are taking place within the UK parliament — albeit as yet with no conclusion — and various scenarios are emerging in relation to the future relationship between the UK and the EU. The UK government has meanwhile published details of its temporary tariff regime for a “no deal” scenario. This is a tariff schedule that will apply to general trade with the world. It provides for most favoured nation duties that would be applicable for a transitional period of 12 months should the UK exit the EU without a formal withdrawal agreement.

According to this list, a total of 469 tariff lines will remain dutiable, with varying levels and types of duties, including ad valorem, specific, mixed duties and in-quota based duties. These will affect the following sectors: automotive vehicles, clothing and textiles, lamb, beef, pork, poultry, rice, fish, fertiliser, fats and oils, sugar and molasses, ceramics and related products, cheese, tyres and wheels, butter, rum, bananas, fresh beans, bioethanol and spirits, cocoa, polyethylene, clove and vanilla.

This implies that the majority of our exports will enter the UK market duty free. Of the 469 tariff lines that are dutiable, SA trades on 118, with the sector to be most significantly impacted being the auto sector. Should the UK exit the EU without a deal, and should the talks between Sacu-Mozambique and the UK not be concluded by April 12, trade among them will be on the terms of the UK government notice.

In terms of the article 50 notification, the UK should have formally ceased to be a member of the EU on March 29. However, the EU has conditionally granted an extension to April 12 if there is no withdrawal agreement. If the UK parliament approves a withdrawal agreement from the EU, exit will take place on May 22.

However, the draft withdrawal agreement provides for the UK to remain party to all existing EU third-party arrangements, including the Sadc-EU economic partnership agreement, until December 2020. This will imply that SA and other Sadc economic partnership agreement states will continue to trade with the UK under the current Sadc-EU economic partnership agreement until then.

In addition, if the UK opts to remain part of a customs union or common market with the EU, its trade with Sacu and Mozambique will continue to be governed by the Sadc-EU economic partnership agreement, with no disruption of trade or of cross-border value chains. 

SA needs to take a long-term view on Brexit and craft a relationship with the UK that will promote mutually beneficial trade and support Sacu member states and Mozambique’s industrial development aspirations.

The Sadc-EU economic partnership agreement is based on key fundamental principles that need to be upheld in the rollover agreement with the UK. These include asymmetry in liberalisation commitments and other concessions, a commitment to promote regional co-operation and economic integration in the Sadc, and to promote economic development in view of disparate levels of economic development, and prioritising the socioeconomic interests of Sadc economic partnership agreement states.

SA and its regional partners will continue to monitor the developments on Brexit and will keep stakeholders informed.

• Davies is trade & industry minister.