EDITORIAL: Brexit delay ushers in more uncertainty for SA business
Trade with the remaining 27 EU members would have been disrupted as components imported from the UK would now be classified as coming from a third country
The EU is SA’s largest trading partner and one of its biggest sources of foreign direct investment and tourists. And within that, the UK is the second-largest source of two-way trade. So this country’s interest in the unfolding drama — the UK’s departure from the 28-nation bloc — is far from being academic.
A lot of preparatory work has been going on in the background to ensure as smooth a transition as possible for our industry to minimise disruption to those trade flows.
It will be some relief that the UK won’t be leaving the EU on Friday, the second deadline to be missed. It was initially supposed to happen on March 29. With the agreement reached in Brussels this week, the May 22 deadline is also off the table, and the end of October is the next big date to watch.
Britain, which hasn’t managed to decide on the type of Brexit it wants, despite voting for it almost three years ago, now has another six months to get its house in order. Like their counterparts across the world, our farmers and car manufacturers will welcome this delay.
SA car manufacturers would have faced tariffs of around 10%, destroying their competitiveness in one of their most important markets, with dire consequences for jobs.
Some industries would benefit, the UK announced in March that the majority of imports would be eligible for zero-tariff access. Exporters of oranges, onions and peas would have been among those to get easier access.
That would have hardly been enough to make up for the shock to some key sectors, such as the car industry, which sold more than R6bn worth of goods to the UK in 2018.
Trade with the remaining 27 EU members would also have been disrupted as components imported from the UK would now be classified as coming from a third country. So, if Nissan, for example, produced a car in SA with components bought in the UK, that vehicle would no longer qualify for preferential access to the EU market.
It's a good thing that the EU found a way to get UK Prime Minister Theresa May out of the hole she has dug herself in. But this may well just prove to be delaying rather than removing the misery.
As soon as she got back to London, it became clear that the prime minister was nowhere nearer to forging consensus. She hasn't shown herself to possess much in terms of negotiation skills or compromise.
The danger is that, instead of building a new consensus, she will go back to her bunker and six months from now she'll be back in Brussels begging for more time. This scepticism might explain why the currency market wasn't enthused. Sterling traded near the bottom of its recent range against the dollar. This is understandable.
There may yet be a light at the end of the tunnel. With politicians unable to reach consensus, the pressure to let the people decide might prove irresistible. Some in the EU might be hoping that's the case and a second referendum might stop the process, otherwise, the extension makes little sense.
For SA, the delay gives us time to finalise negotiations with the EU and UK to ensure we have agreements in place for continuity if or when Brexit does happen.
The only issue is that the EU has agreements with 70 countries, who will all be expecting the same. It is doubtful to what extent and even more so given that the UK has not negotiated its own trade deals since the 1970s, it has the capacity to undertake all these deals in the next six months.
The best Brexit outcome for us may well be no Brexit at all.
Former EU legal adviser in the UK parliament and current Brexit director at DLA Piper, Paul Hardy, spoke to Business Day TV about what to expect next in the Brexit drama.
For SA, the hope is that the delay gives us time to finalise negotiations with the EU and UK to ensure we have agreements in place for continuity if or when Brexit does eventually happen.