While the world waits to hear what form Brexit will take at the end of October this year, the Southern Africa Custom Union countries, with Mozambique, (SACUM) recently announced the agreement in principle of a new Economic Partnership Agreement (EPA) with the United Kingdom (UK). The parliamentary processes needed to bring the agreement into effect are currently in progress. The agreement, 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 agreement, 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 SADC-EU agreement.
Due to its close investment and financial ties to the UK, South Africa is one of most exposed country 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 ZAR 140 billion and growing. The South African Revenue Service reported recently that exports from South Africa to the UK were up six percent in August 2019.
As such, the new EPA greatly benefits South Africa and her 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 agreement. According to the South African Department of Trade and Industry (DTI), the new agreement 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% of GDP, with many South Africans employed by the sector. Further tariff free imports of South African goods listed in the agreement include citrus products, grapes, plums and wine.
According to the DTI, the agreement further includes new tariff-free quotas for the SACUM region for about 70 000 tons of refined and unrefined sugar, 18000 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 US$12bn 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. The agreement further includes 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. The UK government has noted that the new agreement is intended to boost economic growth in the SACUM region.
Countries across the world are racing to secure similar agreements with the UK. 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 Organization rules. On balance, this would result in higher import/export tariffs for all parties, and agreements that are more limited in scope than at present.
The new agreement will be endorsed and signed by South Africa’s Cabinet, after which it will be presented to parliament for ratification. The agreement must also be ratified in the other SACUM countries. Given the timeframes, a Memorandum of Understanding has been agreed which will allow SACUM to trade under the new EPA’s terms, if the ratification process is not complete. The new agreement will go a long way towards ensuring that the effects of Brexit will be mitigated for the region and that trade between the UK will continue to flourish and grow in the coming years.