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Are the Brexit options for retaining SADC-EPA Benefits becoming clearer?


Are the Brexit options for retaining SADC-EPA Benefits becoming clearer?

Are the Brexit options for retaining SADC-EPA Benefits becoming clearer?

Brexit will arrive in about one year from now, at the end of March 2019. There have been many statements and “clarifications” but official negotiations about how the European Union (EU) and the United Kingdom (UK) will trade with each other post Brexit, have not yet started. This has implications for how South African exporters structure their post-Brexit relationships.

On 28 February 2018 the European Commission published its Draft Withdrawal Agreement. It sets out the arrangements for the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the EU and from the European Atomic Energy Community. It will now be discussed in the European Council and the Brexit Steering Group of the European Parliament before transmission to the UK authorities for negotiation.[1]

What are the prospects? The latest controversy is about the fact that the EU wants Northern Ireland to stay in its customs union after Brexit if a hard border cannot be avoided. (A hard Brexit will mean the UK will trade under WTO rules.) It also wants a “common regulatory area” on the island of Ireland which would keep Northern Ireland under EU rules. The “common regulatory area” will mean “no internal barriers” on the island of Ireland, to allow frictionless trade to continue across the border. It will cover customs, VAT, energy, agriculture and the environment among other areas. The fact that the European Court of Justice will have jurisdiction over Northern Ireland, has added to the Prime Minister’s indignation and her response that this was an attack on the UK’s sovereignty. The future of the Good Friday Agreement (bringing peace to Northern Ireland in 1998) has introduced an unwelcome political complication.[2]

Up till now the UK has pushed for a bespoke deal, which has been described as wanting “the rights of Norway with the obligations of Canada.” The various Brexit models and their key features are summarised in the table below.

Alternative Brexit models Erasmus March 2018

Source: BBC.com

The PM’s latest speeches show an understanding that leaving the single market means that there will be some loss of access. In theory a deal will be about enough obligation to satisfy the EU to let the UK trade with as little friction as possible where that matters most. This is what the negotiations will have to sort out. As one commentator observed:

The question is whether May’s menu – some commitments to maintain “substantially similar” regulations; some provision for mutual recognition; a willingness to stay under the jurisdiction of some EU agencies; a promise not to undercut; a mechanism for dispute resolution – will tempt enough of the EU27... to accommodate a trade deal like no other.[3]

For this to happen the earlier “red lines” (no jurisdiction by the European Court of Justice, no free movement, and full regulatory autonomy) drawn by the UK, will have to go. If they remain absolute demands, the only possibility left will be an FTA with the EU such as the one between Brussels and Canada,[4] which took 7 years to negotiate.[5]

How will the different scenarios impact on future South African trade with the UK? What should Pretoria and London sort out now and how could a “deal” be formalized?

South Africa is a party to the SADC EPA. Its bilateral TDCA (Trade, Development and Cooperation Agreement, which entered into force in 2000) with the EU came to an end when the SADC EPA became operational in October 2016. Under the TDCA duties on South African exports have been phased out on many tariff lines. Tariff Rate Quotas (TRQs) are still in place for a number of agricultural goods and are applied under the SADC EPA. As explained before:

The main concerns of these South African exporters with respect to Brexit is to maintain the same tariff liberalisation commitments with the UK for fish, sweet oranges and flowers than those made under the SADC-EU EPA; and the implication of Brexit for the tariff rate quotas. The UK is a major destination for South African sweet oranges, chrysanthemums and Cape hake. Maintaining the tariff liberalisation of the EPA with the UK after Brexit is vital to ensure South Africa retains its current share of the UK market. South African wines are mainly exported to the UK, while limited quantities of non-tropical canned fruit, citrus jams, apple juice and active yeast were exported to the UK in 2016.[6]

There is no certainty yet about future EU-UK trade but present indications are that, when the UK leaves the EU Single Market and EU CU at the end of March 2019, there will be a Transitional Period of two years. During this period the UK will continue to apply the relevant EU laws and regulations, but its own customs administration will apply its own tariff book. South African exporters will, therefore, have to plan for this important new administrative development and for the mew procedures which may apply.

The UK has promised uninterrupted access to its markets as provided for under the EPAs concluded while a member of the EU. This covers SADC EPA benefits. How will this be achieved in terms of legally binding arrangements, given the fact that the UK cannot and will not negotiate new trade agreements with third parties now? It will, in any case, take years to negotiate new FTAs. They will, in all likelihood, put a strong emphasis on trade in services and on investment.

The suggested model is to “roll over” exiting preferences into domestic law and to do so on a reciprocal basis. South Africa (and the other member of the SADC EPA[7]) will have to do likewise. The proposed legislation will have to deal with the relevant tariff book issues, preferences, TRQs, as well as customs procedures, certificates on origin and standards, where applicable. Since the institutional aspects of SADC EPA and its dispute settlement provisions will fall away, the domestic laws about future South African – UK trade will presumably have to cover these aspects too. There will be benefits in doing a proper replacement deal and to repeat the provisions on development and technical assistance too. A detailed study of what aspects of the SADC EPA should be rolled over is called for. The new bilateral arrangement could be in place for a substantial period of time. It should be as comprehensive as possible.

For the immediate future we need clarity about what Rolling Over entails and how our own frictionless trade with the UK will be ensured post Brexit. At least two design issues arise: To put in place comprehensive bilateral domestic legal arrangements for bilateral trade, and that the transitional deal between Brussels and London will give its blessings to this scheme of things. We obviously also want our future preferential trade under the SADC EPA to continue in an uninterrupted manner.

Here at home we will navigate new ground. Can Governments “negotiate” rolling over? How will the results of such “negotiations” be domesticated in order to ensure long-term legal certainty and full compliance with national constitutional requirements?[8]

There is an important difference between an international agreement and domestic legislation regarding long-term certainty. Domestic laws can be altered unilaterally; an international agreement can only be amended as per the agreed amendment clause and, typically, after negotiations.

In a speech delivered on Friday 2 March 2018 PM May described a position in which Britain would leave the EU’s single market and customs union but stay closely aligned in many areas, keeping EU regulations. In the future Parliament would be able to decide whether to diverge, “taking a decision and balancing the interests between keeping the same rule or changing for the future.”[9] The option of divergence now seems to have become an important issue for rescuing a bespoke deal for Britain. The European Commission may take less kindly to the its plans to roll over during the Brexit transition period 50 free trade agreements it has access to now as an EU member. Some are of the view that the EU’s approach opens the possibility that countries could have access to UK markets during the transition but not be required to give Britain reciprocal access.[10]

These are some of the rather serious outstanding issues. We will not know the answers untill finalized as part of the Brexit agreement. It makes it difficult to anticipate all the technical issues to be addressed as part of any roll over initiative. The private sector in SACU will have to plan for new logistical challenges too. Whether South African goods which previously entered the UK after they were cleared on the continent will face new hurdles, is not yet known. We will only know once this aspect has been clarified as part of the Brexit negotiations.

[1] TF50 (2018) 33 – Commission to EU 27.

[2] Peter Mandelson: Brexit’s threat to the Irish economy could see voters turn to unification. https://www.prospectmagazine.co.uk/politics/peter-mandelson-brexits-threat-to-the-irish-economy-could-see-voters-turn-to-unification

[3] Jill Rutter, 2 March 2018: Another step on the road to Brexit: what should we make of Theresa May’s latest speech? https://www.prospectmagazine.co.uk/politics/another-step-on-the-road-to-brexit-what-should-we-make-of-theresa-mays-latest-speech

[4] Martin Wolf, Britain’s road to becoming the EU’s Canada, Financial Times, 21 Feb. 2018.

[5] http://www.bbc.com/news/world-europe-37814884. The FTA with Canada was signed in October 2016.

[6] Willemien Viljoen, tralac Discussion, https://www.tralac.org/discussions/article/12512-export-opportunities-for-south-african-producers-under-the-new-market-access-conditions-in-the-sadc-eu-epa.html

[7] Botswana, Lesotho (which is an LDC and enjoys EBA preferences), Namibia, Swaziland (these are all SACU member states) and Mozambique (another LDC).

[8] Section 231 of the South African Constitution deals with the conclusion, adoption and ratification of international agreements proper, not “rolling over”. However, recent judicial pronouncements (such as the judgment in the High Court of South Africa, Pretoria division, in the case against President Zuma and the South African government for their role in the closure of the SADC Tribunal, rendered on 1 March 2018) require executive actions with international consequences to respect aspects of Section 231.

[9] Brexit Bulletin 5 March 2018. BloombergBusiness.

[10] Ibid.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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