SACU, Moz make progress on impending Brexit

Wednesday, March 13, 2019

South Africa, together with the Southern African Customs Union (SACU) and Mozambique, have made significant progress on negotiations with the United Kingdom on the impending Brexit.

Briefing reporters on work being done regarding preferential trade arrangements after the British exit (Brexit) from the European Union (EU), SA’s Trade and Industry Minister Rob Davies said much progress has been made between the SACU, Mozambique and the United Kingdom (UK). 

This as the UK is scheduled to leave the EU on 29 March.

As part of SACU, South Africa together with Mozambique, have been working with the British government to try to negotiate an arrangement so that should there be a “hard” Brexit, without an agreement, “then we would have an agreement in place that would ensure that there’s no interruption of our existing trade,” Davies said.

“We have reached an agreement on a huge number of issues. We agreed to the rollover of the EPA [Economic Partnership Agreements] on a bilateral basis,” said the Minister at the briefing held in Cape Town.

The briefing comes after British Members of Parliament (MPs) on Tuesday voted against Prime Minister Theresa May’s Brexit Withdrawal Agreement between the EU and the UK. Today, MPs will vote on a “no deal” option.

During negotiations with SACU and Mozambique, several issues came to the fore.

Led by Botswana, issues raised by the group included that of the recognition of sanitary and phytosanitary certificates, which are issued to individual exporters.

“These are valid for exporters into the EU. We [South Africa], including SACU and Mozambique, wanted a recognition of those existing certificates for a period of time. We have secured this and at least an assurance that there will be an easier, cheaper process of changing them,” said Davies.

The Minister said a resolution was reached for the EPA under which South Africa does not get duty-free quota access for its products into the EU.

A number of South African products, including agricultural products, were given tariff rate quotas under the EPA.

“We had to set those. That work has already been done. We have reached an agreement. It shouldn’t be a bad deal as far as that’s concerned,” said Davies.

Issues not concluded

While there has been some level of success, there are other outstanding issues that are yet to be resolved, such as that of cumulation under the rules of origin.

The Rules of Origin facilitator defines cumulation as a provision that allows considering goods obtained in or processing taking place in one free trade agreement (FTA) member country as originating in another.

The UK wants SACU and Mozambique to recognise full cumulation on anything they have from the EU, which the group can concede for a period of time but not in perpetuity.

“Under the EPA, we don’t get cumulation in reverse,” said Davies in explaining the anomaly which involves South Africa not getting duty free entry of canned fruit into the EU.

“The EU does not allow peaches from South Africa to be put in tins in Eswatini and then exported as tinned fruit into the EU because there’s a tariff quota for canned fruit from South Africa,” he said.

The group will not try to establish a regime on cumulation that will allow a continuation of the status quo. South Africa needs auto components from the EU and UK to be recognised, together with components from South Africa, to access the UK market.

Davies spoke of the need to open up this conversation, which won’t happen until Britain leaves the EU.

The group is set to have a ministerial engagement for further negotiations on Friday after the conclusion of two votes by British MPs.

“We will then understand where we are. Our intension is to try and finish this negotiation if we can and then take an agreement to Parliament next week. Whether we make it or not depends on the outcome of discussions on Friday,” said the Minister.

Tariff schedule and implications

 Meanwhile, the UK on Wednesday published its schedule of tariffs that it will charge countries if it leaves the EU without any agreement.

If it leaves under the terms of the Withdrawal Agreement -- which entails no transition period from the time it leaves the EU and under which EU laws would stop applying immediately to the island nation -- the status quo would continue until the end of 2020, while it negotiates a long-term agreement with the EU.

“If they leave without an agreement, then they would revert to the schedule that is put in by the EU into the WTO [World Trade Organisation] in the 1990s,” said Davies.

In a number of cases, the tariffs would be higher than what would be charged under the EPA.

However, the published schedule has indicated that a number of items that the group exports would be duty free (agricultural products like oranges, grapes).

“What would not go in duty free are automotives. We have to deal with that issue bilaterally,” said Davies.

Products like beef, pork lamb, poultry and sugar will be subject to tariffs for SACU members and Mozambique.

“It would not include automotives, which will be a big problem for us [as South Africa]. It would not include beef for Botswana. It would not include sugar for Eswatini -- that would be some of the difficulty,” Davies said.

Parliamentary processes

 While the UK has a 29 March deadline, the clock is ticking much faster for South Africa with regards to reaching a deal.

“Our clock is ticking faster than their clock. Their clock goes until 29 March. Our clock goes until next week. If we don’t conclude, we will not be able to get something through Parliament,” he said.

This comes as South Africa, which will go to elections in May, is set to dissolve the National Assembly next Wednesday.

Davies, however, said this is not the end of the world if negotiations are not concluded on Friday, as there are several fall-back options.

“We could have a non-binding MoU [Memorandum of Understanding] or we could just use the announcement that was made today while we continue to negotiate. We have to play it as it unfolds.

“If they didn’t make this announcement, our fall-back would be better than the WTO terms for the EU, which would apply but it would be for 12 months and not include some of the things that are of importance for us,” said Davies.

British MPs will today vote on whether the UK should leave the EU without a deal. And if they do, the Prime Minister will ask MPs to vote on whether the scheduled 29 March date should be pushed