Post-Brexit: A new economic partnership with the UK
JOHANNESBURG – While the world waits to hear what form Brexit will take at the end of October, the Southern Africa Custom Union (Sacum) countries, with Mozambique, recently announced the agreement in principle of a new economic partnership agreement (EPA) with the UK.
The parliamentary processes needed to bring the agreement into effect are currently in progress. The deal, which will govern bilateral trade between the Sacum countries and the UK, will come into effect if the UK leaves the EU in October.
The new deal, termed the Sacum-UK Economic Partnership Agreement, will replicate the preferential trade terms regarding tariffs, quotas, rules of origin and health and safety regulations, which are currently part of the existing Southern African Development Community-EU agreement.
Due to its close investment and financial ties to the UK, South Africa is one of most exposed countries in sub-Saharan Africa in terms of the impact of a hard Brexit on the continent.
The historic ease of doing business with the UK and South Africa is brought about by various factors, including similar time zones, language, historical ties and familiarity. The UK is the fourth largest destination for South African imports, with trade between the countries valued at around R140 billion and growing.
The SA Revenue Service reported recently that exports from South Africa to the UK were up 6 percent in August.
As such, the new EPA benefits South Africa and its neighbours as it will allow for the continued preferential access to the UK market for certain important sectors in the event of Brexit and potential disruptions will be avoided.
The motor industry in South Africa is protected by the new deal. According to the Department of Trade and Industry (dti), the new deal ensures that cars assembled in South Africa will remain tariff-free to the UK. This is good news for South Africa, where the automotive sector accounts for 6.8 percent of gross domestic product.
Further tariff-free imports of South African goods listed in the agreement include citrus products, grapes, plums and wine.
According to the dti, the deal also includes new tariff-free quotas for the Sacum region for about 70 000 tons of refined and unrefined sugar, 18 000 tons of canned pear, apricot and peach and about 70 million litres of wines.
Machinery, textiles and clothing, tea, beef, fresh fruit, fish and nuts are some of the numerous other products that are exported from the region to the UK. Overall, trade between the UK and Sacum countries was worth $12bn (R177bn) in 2018.
The new EPA will also benefit UK businesses that export cars, motor parts, machinery and pharmaceutical products, among other products, to the region. It further includes that the UK’s preferential access to South Africa for component-products made in the EU and used in final British products.
In 2018, a new Prosperity Fund programme with funding of up to £8 million was announced by the UK, which is intended to support the implementation of the new agreement by removing barriers to trade and expanding import and export opportunities between the UK and Sacum.
According to the UK’s Department of International Trade, if trade agreements are not in place if the UK were to leave the EU without a deal, trade between the UK and those countries would take place under World Trade Organisation rules.
The new agreement will be endorsed and signed by South Africa’s Cabinet, after which it will be presented to Parliament for ratification.
Virusha Subban is a partner specialising in customs and trade at Baker McKenzie.