Discussions

UK Elections and post-Brexit Prospects for SACU

08 Jun 2017

Gerhard Erasmus, tralac Associate, comments on the trade prospects for SACU countries once Britain exists the EU and the impact on the SADC Economic Partnership Agreement

The UK is going to the polls today. When Prime Minister May unexpectedly called this election some time ago her party was in an almost unassailable position. Now the Conservative Party looks much weaker. It may still win this election but a poor showing at the polls will have implications for her Brexit negotiations. All the UK parties have been campaigning on the divorce from the EU and the consequences for the British economy. They hold very different views and have detected weaknesses in May’s Brexit policy.

May called the election, so she said, to get a clear statement of support for her government (and presumably for her tough stand) as the one best positioned to lead the UK out of the EU and giving effect to the mandate voters gave her government in the 2016 referendum. She said some parties were trying to undermine the Brexit process that she has already triggered and in which she had indicated the possibility a hard exit from Europe, rather than the softer version others would favour.[1]

Her real plan (to capitalise on the huge lead the Tories had over Labour) may have backfired. Instead of a long, uninterrupted stay in power and a strong hand to deal with EU demands, she may end up much weaker.

There is little talk now from PM May about a hard Brexit. Her stance has softened considerably since the beginning of this year when she announced her Twelve Point Plan. One of the reasons is that the economic costs of Brexit have become clearer. And the EU has been steadfast in its demands for the settlement of the exit bill before Article 50 negotiations will start.[2] The latter will not necessarily (in Brussels’ view) include details about a post Brexit trade deal between the UK and the EU. However, British firms need certainty rather soon, while the clock is ticking. The Article 50 announcement was made in March already. There are only two ears available to conclude these complicated negotiations, unless there is a unanimous decision to extend the period. This does not look likely at present.

It has also dawned on officials that the post Brexit world will pose many technical challenges not previously considered. As one commentator observed: On Brexit day... Britain will overnight be excluded from those EU arrangements with “third countries”, entering the equivalent of a legal void in key parts of its external commercial relations.... It poses a formidable and little-understood challenge for Britain’s prime minister after the June 8 election. While Brexit is often cast as an affair between Brussels and London, in practice Britain’s exit will open more than 750 separate time-pressured mini-negotiations worldwide, according to Financial Times research. And there are no obvious shortcuts: even a basic transition after 2019 requires not just EU-UK approval, but the deal-by-deal authorisation of every third country involved.[3]

Liam Fox, the UK trade secretary, has promised “zero disruption” by securing transition agreements to continue old trading arrangements post-Brexit. Britain will in effect try to replicate its EU inheritance. This might be easier said than done. Such a strategy will require technical capacity which is in short supply; after 43 years of Brussels having negotiated all trade agreements on behalf of London. And it faces the uncertainty of what the other side will demand. These will in fact be full blown trade negotiations.

There will be a long queue, many nations will not want to maintain preferential access terms to the UK. Some have better reciprocal deals to offer. Bigger economies see Brexit as “a window of opportunity”, in the words of one ambassador to the EU. Mr Fox has started preliminary discussions with a dozen-plus countries that want to further liberalise their existing arrangements; South Korea, Switzerland and Norway fall into this category.[4]

Other countries may be worried by the disruption caused, especially on WTO terms. There will need to be give and take. New Zealand, for instance, wants its current quota of lamb sales to the EU to be preserved after Brexit, even though the size of the market will shrink. On top of that, it wants an additional quota for the UK so it can make up for the impact Brexit will have on its flexibility in making sales.

Where does this leave SACU, which has just concluded the SADC-EPA with all 28 EU members, the UK included?[5] Trade with both is vital and needs assurances against interruption by the Brexit process. Such assurances require firm agreements, not courteous diplomatic reminders of the value of bonds going back centuries. Customs officials apply tariff books, not political statements. And we need this with London as well as Brussels, even though the EPA is in force. This agreement contains complicated legal arrangements such as the “regional MFN” provision. New preferences given to any of the major economies must automatically be extended to the EU.

An early implication is that we need plans about being early in the queue. And there must be plans on how to deal with serious negative spillover consequences for South Africa, owing to the country’s strong economic and financial ties with the UK. Some have warned that there might be unexpected new challenges such as non-tariff barriers.[6]

All SACU member states need to do their homework and participate actively in the talks to be held with London as well as Brussels. Namibia, for example, exports beef and table grapes to both these destinations. Exporters will have to become involved in the preparations for the new negotiations and should plan for the eventuality that their goods may face new challenges such as rules of origin requirements in case of a hard Brexit, when it will not be possible to include the UK in the single EU market. New commercial realities will follow. There have already been reports about a decline in the exportation of Kenyan tea to the EU, because it has entered the EU markets via the UK.

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[1] Business Day 06 June 2017.

[2] Michel Barnier, of France, and his 120-strong negotiating team were likely to hold firm to the demand that the UK make a financial settlement before substantive trade negotiations could proceed. A figure of €100-billion has already been mooted.

[3] Paul McClean, Financial Times, 30 May 2017.

[4] Ibid.

[5] This EPA entered into force on 10 October 2016.

[6] British Professor Peter Sinclair during a recent lecture hosted by the University of the Witwatersrand’s School of Economic and Business Sciences. http://www.polity.org.za/article/hard-brexit-fallout-2017-06-02.