SA and its neighbours fail to clinch a post-Brexit trade deal with UK

SA and its neighbours fail to clinch a post-Brexit trade deal with UK
Rob Davies Minister of Trade and Industry. EPA/NIC BOTHMA / British Prime Minister Theresa May. EPA-EFE/ANDY RAIN

But a possible delay in the UK leaving the EU could still throw them a lifeline.

South Africa and its neighbouring countries have failed to reach an agreement with the UK so far on a post-Brexit free trade agreement. This means that it will be too late for Parliament to ratify such a deal before it rises this week for the 8 May elections, Trade and Industry Minister Rob Davies said on Monday.

He nevertheless remained optimistic that a delay in the UK leaving the European Union could provide enough time for SA and the four other Southern African Customs Union (SACU) countries — plus Mozambique — to iron out the few remaining differences among them to reach an agreement with Britain.

Trade between SACU-Mozambique and Britain is now governed by the EU-SADC Economic Partnership Agreement (EPA). But when Britain leaves the EU, as it is due to do on March 29, the EPA will no longer apply to UK-SACU-Mozambique trade.

Davies and his regional counterparts held a teleconference on Friday with British trade minister George Hollingberry.

But though the two sides narrowed their differences, they could not quite agree on two issues, Davies said at a press conference in Cape Town on Monday.

The main difference remained over how “cumulation” would work in a new trade deal. To benefit from the preferential import tariffs offered in a trade agreement, a UK exporter would have to prove that his product is actually from Britain or has had sufficient work done on it in Britain.

Cumulation rules, however, allow material from a third country or work done in a third country to be accepted as being from the parties to the agreement. Because both sides are trying as far as possible to roll over the EPA into the new trade deal with UK, they have agreed to allow cumulation of EU inputs into their exports into each other’s markets.

However, Davies said the UK was still insisting on full cumulation, in other words, that all EU inputs in its exports should enjoy full duty-free access into the SACU-Mozambique market.

But the southern Africans are saying they cannot do that because that would give Britain greater access to their market than the EU enjoys. For instance, if SACU-Mozambique have imposed an anti-dumping duty on input into an EU export to South Africa, that product does not enjoy full duty-free access into the SACU-Mozambique market.

Davies said it would violate the Most Favoured Nation provisions of the EPA if SACU-Mozambique favoured Britain over the EU by allowing full cumulation.

And South Africa in particular also wants Britain to reciprocate by granting full cumulation to it. He pointed out that while the five other countries in the SACU-Mozambique group enjoyed duty-free, quota-free access for all their agricultural products into the EU market, some more competitive South African agricultural products were subject to quotas and tariffs.

If the UK granted what he called “reverse full cumulation”, those South African agricultural exports would be allowed into Britain duty and quota-free.

He also pointed out that the two sides have not yet quite reached agreement on Sanitary and Phyto-Sanitary (SPS) measures, the precautions countries take to prevent animal and plant imports bringing in diseases.

The UK has agreed to accept temporarily the countless SPS certificates which have been issued to SACU-Mozambique exporting establishments under the EPA. But these two sides are still discussing the details of how long those certificates will remain valid before having to be re-negotiated with Britain.

Amid the continuing uncertainty about when and how Britain will leave the EU, Davies outlined three basic scenarios for future trade between the SACU-Mozambique and the UK.

Scenario 1. If British Prime Minister Theresa May managed to persuade parliament to accept her EU withdrawal deal (which has already twice been rejected) then Britain would leave the EU on March 29, but all Britain’s trade arrangements with the EU would remain in place until the end of 2020. This would include the EPA with SACU-Mozambique. That would give the SACU-Mozambique group enough time to negotiate a future separate trade deal with the UK.

Scenario 2. If the EU agrees to the UK parliament’s decision to extend the deadline for leaving the EU until the end of June, this will also give SACU-Mozambique time to negotiate a separate trade deal with Britain.

Scenario 3. The worst-case scenario. If the EU fails to extend the Brexit deadline until the end of June and the UK Parliament fails to endorse May’s withdrawal plan, Britain will “crash out” of the EU on March 29. In that case, the SACU-Mozambique countries will be subject to a set of import tariffs which Britain published last week for all countries.

Davies said these were mostly favourable to SA and the other SACU-Mozambique countries as most agricultural products would enter the UK duty- and quota-free.

These tariffs would be especially favourable to wine producers as they would effectively allow them to export as much wine as they like. They are now subject to a 150-million-litre-a-year quota to the whole EU.

But Davies said beef and sugar exports would be subject to higher import tariffs, which would hurt Botswana and Eswatini respectively.

And finished motor vehicle exports would also incur increased import tariffs of 10%, which could be fatal for SA motor vehicle exports to Britain.

Conversely, UK motor vehicle exports to SACU-Mozambique would incur a 25% import tariff and whiskey exports would incur import tariffs of R4.50 a litre. DM


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