The UK All-Party Parliamentary Group on Trade Out of Poverty (APPG-TOP) is undertaking an inquiry into the UK’s Africa Free Trade Initiative (AFTi). The Inquiry has been extended to incorporate the potential implications of Brexit for UK-Africa trade relations.

A second Inquiry Hearing was held in Parliament on Tuesday 12th July. The timeline for submission of Written Evidence has now been extended to 31st July 2016. The Inquiry Committee will then seek to present and publish its Final Report in September 2016, when a new UK Prime Minister and ministerial team will be in post.

tralac has made a formal submission focusing the implications of the UK’s withdrawal from the European Union (EU) for southern Africa and for the Southern African Development Community-EU Economic Partnership Agreement (SADC EPA). Download the full submission below.

Some Implications of Brexit for UK-African Relations

The immediate post referendum challenge is to contain the consequences of uncertainty: about the UK-EU relationship, developments in financial markets, and with respect to formal trade relations between the United Kingdom and its many trading partners, including Africa.

This is a difficult and multifaceted task for which strong political leadership and clearly stated objectives are necessary. Even if a definite decision to withdraw from Europe is announced soon, it will take a long time for the practicalities of the divorce to be worked out. There should, in the meantime, be a basic plan about future relations with Africa.

Africa’s challenge is to respond through constructive engagement about its present and future relationship with the UK (and the EU) and how to ensure that the consequences of Brexit will not derail its own regional and global integration and economic development plans.

Existing market access arrangements for goods from Africa in terms of pre-Brexit agreements, including those soon to be implemented, should go ahead. If the latter requires special mechanisms or interim steps, they should be adopted. All relevant parties should work together in order to prevent the disruption of mutual trade.

Context and Responses

When Her Majesty’s Government (HMG) designs its responses to the recent referendum result and how to prioritize matters, the implications of Brexit for relations with Africa merit the necessary attention. Future UK-Africa relations need a sound platform to ensure stability, predictability, and to serve as a basis for conducting commercial transactions. The UK-African dimension is an important element of the UK’s new foreign relations and goes beyond trade and commerce; to include security and immigration aspects too.

The issues to be addressed are inter-related and involve many technical questions. New trade arrangements with African nations will e.g. have to be WTO compatible; while Free Trade Agreements (FTAs) require their own customs administration, rules of origin and measures to prevent trade deflection. FTAs also contain regional MFN clauses; in order to accommodate other trade agreements and future trade liberalization schemes with third parties. Choices regarding the benefits/costs of bilateral versus regional trade agreements will have to be made. New intergovernmental institutions may become necessary.

Additional factors need to be considered; that time is of the essence and that all affected parties (including African Governments) should become involved in the efforts to re-establish new and long-term bilateral and regional relationships. The challenges ahead require new national policy responses but also mutuality. Lasting structures and arrangements capable of promoting the interests of all the parties involved cannot come about through unilateral action.

The interests of investors and the private sector are also at stake. Major investment and other company decisions are in limbo pending some indication as to the direction that the negotiations on which the UK must now embark, may take.

Practical and legal Consequences of Brexit

Negotiations in terms of Article 50 of the Lisbon Treaty will be primarily about the withdrawal process but should not be conducted without proper consideration of the content of future UK-ACP relations.

Exit from the EU poses several simultaneous challenges. The costs involved in undoing well integrated integration arrangements (with ramifications over a wide spectrum) must be contained; while essential aspects of existing arrangements will have to be renegotiated. More than only direct UK-EU relations will now need new foundations. The UK has for decades interacted with third parties (including African, Caribbean and Pacific (ACP) countries) and the WTO community as an EU member and through the services provided by the Commission.

Those ongoing EU trade negotiations (with e.g. the USA under the Transatlantic Partnership, the EPAs, and new ones mooted in respect of China and others) will now exclude the UK. HMG will eventually have to secure separate deals with such parties; complete with offers for tariff liberalization, services schedules, rules of origin, standards etc.

A new policy framework for UK-ACP relations is required to replace trade and development arrangements presently governed by EU agreements. The UK’s deals could end up being similar to those which the EU has now, but this is not a certainty. It may want to promote its own special interests and respond differently to contemporary global challenges.

It should not be assumed that the EPA framework is still the optimal foundation for ACP-UK relations. The 2030 Agenda for Sustainable Development, major changes in global trade, and disappointment about the post Cotonou results pose the need for a critical analysis of EU development policies and how to design better arrangements. More attention to tailor made agreements with smaller configurations might be called for. There is an opportunity now for the UK to investigate these issues and to contemplate more appropriate outcomes and a new foundation for its own initiatives.

African governments may also emphasize the unique historical ties with the UK. Aid for trade considerations will figure prominently. The 2018 Commonwealth Heads of Government Meeting will be in the UK. The UK may face demands that the special relationship with former colonies be protected.

There is a certain urgency now but new agreements will have to be properly prepared. Sufficient time should be allowed to conclude negotiations and for new agreements to enter into force; they will have to be ratified in terms on national constitutional requirements. Their implementation will require domestication of international instruments to the extent necessary, or the adoption of national laws and regulations. Brexit will have several implications for national governance in the UK.

Most trade agreements involving African states lack proper implementation assistance and a clear plan for post ratification action. This particular aspect could become a more prominent feature of a new generation of agreements with and among African states. Trade facilitation, regulatory bodies (e.g. for service providers) agencies to oversee the enforcement of standards, trade remedy procedures and investigators, enabling legislation and proper training are examples of present deficiencies.

The withdrawal agreement under Article 50 of the Lisbon Treaty should allow the space to pursue new post exit goals and a comprehensive UK-Africa strategy. This makes the sequencing of diplomatic initiatives quite important. Article 50 of the Lisbon Treaty mentions a two year period (from the moment of notification of a withdrawal decision) but vital decisions should be taken soon in order to ensure continuation in trade in the interim, securing investments already made, to prevent legal uncertainty, and to allow for uninterrupted interaction with third parties. The latter should include African Governments, African Regional Economic Communities (RECs) and the African Union (AU). Interim arrangements could be required and dedicated technical and diplomatic staff might have to be deployed.

It is also important to note that two separate sets of negotiations with the EU seem to be required before a comprehensive new EU-UK framework will be in place. Withdrawal under Article 50 of the Lisbon Treaty is the first aspect; to be followed by the “future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union”. These negotiations will obviously not be conducted as separate deals but it is necessary to recognise the different aspects which will have to be addressed and how they will impact on future UK-Africa relationships.

The UK will have to adopt WTO compatible polices for developing countries and LDCs. That will need to be cleared by WTO members. It is not possible to predict the format and content of such accommodations because the EU withdrawal agreement will impact on and determine the nature of new arrangements.

Brexit will unravel important benefits of deep regional integration with the EU, the most integrated market in the word. The costs are not, in all respects, immediately obvious. This factor requires sound legal frameworks capable of allowing adjustment and dispute settlement if required. There will be consequences as private companies factor the changed landscape into their own decisions. It is said that new opportunities (e.g. to conclude bilateral trade deals) will arise; but only in terms of sound and comprehensive policy frameworks.

Many commentators have pointed out that the least disruptive outcome would be for the UK to secure an EEA (European Economic Area – like Norway) type arrangement with the EU; retaining many of the present EU benefits. If this happens it should be easier to ensure continuity with respect to post-Cotonou relations with the ACP countries. However, this type of UK-EU arrangement will have to be “paid” for, in terms of budget contributions, recognition of EU law and standards, and the free movement of persons. If, on the other hand, an FTA between the EU and the UK is agreed, the relationship will be more “distant” and be akin to e.g. the EU-Canada trade deal concluded recently. A standard FTA for trade in goods with the EU (and other third parties) will require WTO compatibility, tariff schedules and rules of origin. Border controls and measures to prevent trade deviation will have to be imposed. Separate deals for trade in services and trade-related matters will become necessary.

An FTA type EU-UK relationship will also mean that all those trade agreements concluded by the EU while the UK was a member will eventually cease to apply to Britain. Trade with e.g. Canada will require a new deal or will take place under MFN rules. The SADC EPA falls in the same category.

Future UK-African Relations

Brexit will not leave UK-African relations untouched. The new scheme which the UK, an important African trading partner and a major donor, has to develop also offers opportunities to cement old ties and to forge new relationships. This could be assisted by factors such as Commonwealth membership, the fact that the legal systems of several African nations are based on the Common Law, and that national administrations have followed British examples.

We do not know how Brexit and post Brexit deals are officially perceived in Africa. There is generally a ‘wait and see’ approach but also signs of uneasiness. Tanzania has just announced that it will no longer ratify the EAC EPA. The true reasons may involve protectionist concerns about the effects on domestic producers and traders (which is a well-known issue) but the announcement did refer to new facts being caused by Brexit.

The one specific aspect which London should emphasize in assuaging African fears is the elimination of uncertainty about preferential access for African goods to UK markets. How can this be done? There can be general guiding principles on how future UK-African relations are officially viewed (an official statement and policy initiative could be a useful starting point) but for the most part there will have to be specific responses. A one size fits all promise will be vague and without focussed action. The SADC EPA serves as an example – to emphasize the specifics of a particular relationship and to design a strategy for the parties involved.

Implications for the SADC EPA

Trade between the EU and SACU as well as between the UK and SACU has always been important. In certain areas (e.g. the export of table grapes, beef and wine) there are special and longstanding market arrangements which benefit SACU. There are also important investment linkages.

The SADC EPA, which took about ten years to negotiate, is officially known as “The Economic Partnership Agreement between the European Union and its Member States, of the one Part, and the SADC EPA States, of the other Part”. It is a comprehensive trade in goods agreement and holds the promise of further negotiations to include trade in services and trade related matters. The EU wants the EPAs to be rules-based and comprehensive partnership agreements which should cover all trade and trade-related matters. As it now stands future trade between the African SADC EPA members (primarily SACU) with the 28 EU member states will be conducted in terms of this agreement.

Technically the SADC EPA is an FTA (about trade in goods) and is governed by Article XXIV GATT. Once in force it will finally replace the TDCA (Trade, Development and Cooperation Agreement), the bilateral trade agreement between the EU and South Africa, which applies since 2000. The SADC EPA was signed on 10 June 2016 and will formally enter into force once all parties have deposited their instruments of ratification. The implementation of the agreement has been announced to be from October 2016.

How will Brexit impact on the fortunes of this agreement and what should SACU strive for? The best scenario for SACU would be if the UK ratifies and starts implementing the SADC EPA while it is still an EU member. It is technically possible because the UK has not yet given notice of its intention to activate Article 50 of the Lisbon Treaty. Up till the final moment when it does withdraw the UK remains part of the EU and is bound by EU law. Even if London does formally notify the EU of its intention to withdraw, it will take a considerable period of time before exit officially happens.

Under the scenario suggested here SACU trade with the UK (and the EU) will not be disrupted and there will be time to start working on a separate UK-SACU trade agreement and to provide for transitional arrangements if necessary. For Mozambique too there can be the same approach and a separate agreement with the UK later. It can be prepared in the interim; before the UK finally leaves the EU.

After the UK has left the EU trade between SACU and an EU of 27 members should continue as agreed in the SADC EPA. What cannot be predicted with any degree of certainty now is what the effect of the UK withdrawal arrangements will be on EU-UK trade with respect to goods imported from SACU members. The answer depends on the nature of the future trade relationship between Brussels and London.

Would London find this idea politically acceptable? We do not know – the idea has not been mooted. HMG may not consider this particular issue as one of its urgent priorities, but is vital for SACU. It could also send a signal that the UK is concerned about its relationships with African nations. The EU would not want this EPA to flounder and would therefore presumably also support an outcome which will restore stability in important trade relations.

Could the TDCA be revived? This seems unlikely. The UK would not conclude a separate deal with South Africa only, SACU’s integrity as a customs union must be protected. Whatever agreements the UK concludes with the SADC EPA members states should be harmonized with its future EU trade relations. The EU has worked hard to conclude the SADC EPA; which South Africa has signed and which offers improved benefits.

Conclusion

It will take a considerable period of time before the UK exit deal will be finalized and a comprehensive and predictable new arrangement between the UK and Africa will be in place. This is not ideal. Interim measures to cope with disruption caused by Brexit and delays in the entry into force of agreements (some of which will have to be negotiated de novo) should be part of the official post Brexit strategy. The EU should support this objective.

The SADC EPA has to be implemented soon and the EU internal legal arrangements for doing so should not be suspended. This requires expeditious action to ensure that the SADC EPA will be implemented as foreseen; Brexit is not a fact yet and this EU arrangement will continue as binding EU law. Such a strategy, in addition to being legally possible, will also provide time to start working on a SACU-UK trade agreement.

SACU should take its own initiatives to prevent post Brexit disruptions and loss of market access. It should do so rather soon and preferably as part of a joint UK initiative.

The SADC EPA is also a case study. The same objective (to prevent disruption of trade and market access) should, mutatis mutandis, guide discussions with other African trading partners and regional arrangements.