The Brexit process has precipitated a political malaise which has brought the UK on the cusp of a national crisis. The departure of the UK from the EU without a deal will have impacts that are going to be felt in other parts of the world, including here in Africa. For instance, a no-deal Brexit means that SACU has to re-negotiate another agreement with the UK outside of the existing Economic Partnership Agreement (EPA).
To that end, and in an effort avert the negative impacts of a potential no-deal Brexit scenario, a SACU-Mozambique-UK “Roll-over Agreement” is being negotiated. The expectation is that the Roll-over Agreement would, over time, lead to a standalone Economic Partnership Agreement (EPA). The purpose of the Rollover Agreement would be to ensure uninterrupted trade between the UK and SACU/Mozambique after the UK leaves the EU, presumably on the 12th April 2019. Assuming that there is a “no-deal Brexit”, the Roll-over Agreement can immediately enter into force from 13th April 2019, such that:
- The SACU-Moz-EU EPA is residually in place for a period of 6 months, under the auspices of an MoU. This MoU likely involves a transitional arrangement which would allow, for example, EU certificates of origin, certificates of compliance etc. to remain valid – under the SACU-Moz-UK bilateral. This would also allow for an administrative window to manage the transition.
- This will occur concurrently with the finalization of the SACU-Moz-UK EPA, with the six-month period being a window during which the necessary domestic legislative processes for ratification of the SACU, Mozambique and UK EPA can be concluded.
The Department of Trade and Industry (the dti) published a statement on the 13th March 2019, to provide information regarding the progress of the negotiations thus far. Minister Rob Davies noted that the efforts discussed are meant to preserve existing cross border manufacturing activities and supply chains.
However, several outcomes may emerge from the various scenarios that could play out depending on what happens during the course of 29th March to 12th April 2019, and some of these are outlined in Figure 1 below.
Since the UK has rejected the Withdrawal Agreement already, it is now highly unlikely that the UK will exit the EU with a deal. This means that the chances of Scenario 1 and 2 occurring are very slim, and Scenario 3 and 4 are now more likely outcomes.
Scenario 3 depends on the UK, Mozambique and SACU striking a deal within the two week period from 29th March to 12th April 2019, which also seems like somewhat of a stretch.
From a SACU and Mozambique perspective, the more urgent business would be to tie up the MoU, and then include the outstanding issues as part of a built-in agenda for further SACU-Moz-UK EPA negotiations over the next six months. While that is more plausible in principle, it may prove a strategic nightmare in the long run for two reasons.
- SACU and Mozambique agreeing to defer important issues such as cumulation and SPS effectively means that they cede a significant degree of negotiating power that could otherwise be leveraged to ensure a more favourable trade agreement with the UK.
- It will be difficult to implement the SACU-Moz-UK EPA if no consensus is reached after the 6 month period lapses.
This leaves Scenario 4 as the more likely outcome, where (i) the UK leaves the EU without a deal, and (ii) fails to reach a deal in the SACU-Mozambique. This is a cliff-edge scenario that would effectively lead to an immediate shift to Most Favoured Nation (MFN) tariffs for 469 tariff lines which are deemed to be sensitive to the UK’s domestic industry sectors.
Of the 469 dutiable product lines, at least 246 are agricultural commodities to which ad valorem tariffs – which range between 6% and 12% – are applied. On the same list of agricultural commodities, there are also specific duties on animal and animal products are (i.e. beef, poultry, lamb, cheese, butter etc.).
However, from an agricultural point of view, indications from trade data show that South African exports to the UK have only occurred under 17 of the 246 agricultural tariff lines, with a trade value averaging less than half a million Rand per annum (based on the period 2014-2018). This is essentially less than 1% of South Africa’s total agricultural exports to the UK, which average R9.3 billion per year (between 2014 – 2018).
Given the foregoing, there are two key reasons why a “no deal” Brexit may not have as much of an impact on SACU and South African agricultural exports:
- Official documents suggest that most of the South Africa’s trade with the UK will remain duty-free (i.e. between 80% and 90%). This percentage seems to be higher for agriculture, with initial estimations based on the MFN tariff list showing that 99.9% of the value of existing exports will not be subject to duties.
- The MFN tariffs (which will apply to the 0,01% balance of products) will be temporary and will apply for a transitional period of 12 months.
However, impacts are going to be dire in sectors outside of agriculture – more specifically, the automotive industry, where tariffs of 10% are going to be applied on R6.6 billion worth of South African exports. This ought to be a seperate subject which I will unpack in an upcoming piece.