What are the trade implications of ‘Brexit’ for South Africa?
Although the reasons behind “Brexit” are varied, most businesses would just like to know what the impact on them would be.
There are two trade perspectives worth considering. The first would be the perspective of United Kingdom (UK) businesses trading with South Africa (and indeed other nations). The second is the perspective of South African businesses trading with the UK.
Firstly it should be mentioned that there may be an impact on UK businesses trading with the European Union (“EU”) as a substantial portion of the UK’s goods are destined for the EU. Should the UK vote in favour of Brexit, the eventual consequence will be that goods will no longer enjoy duty-free and quota-free access to the EU market as the UK will no longer be part of the European Economic Area. Of course the remaining EU members will also face increased duties and perhaps quotas on goods traded with the UK. Another consideration would be that the goods would be subject to more onerous administrative and compliance procedures as the goods would no longer be deemed to originate in the internal market.
An even larger percentage of the UK’s goods are sold in markets where the UK enjoys preferential access to other markets through free trade agreements negotiated as part of the EU. Thus Brexit will in fact mean that UK goods will no longer enjoy preferential access in markets other than the EU (such as South Africa).
It should also be borne in mind that UK services also enjoy preferential access to the EU market. Should Brexit indeed occur, UK services providers may find that they can no longer access the EU market or could only do so under less favourable conditions than what they currently enjoy. The same would of course be true for EU services providers providing services to the UK. The UK and the EU will thus have to renegotiate access to each others’ markets.
In the event of Brexit, the UK will no longer benefit under the Trade Development and Cooperation Agreement (“TDCA”) between South Africa and the EU. Nor will the UK benefit under the recently signed SADC Economic Partnership Agreement (EPA) with the EU which is set to replace the TDCA. Under the TDCA 86% of UK imports to South Africa (and indeed Botswana, Lesotho, Namibia and Swaziland) enjoy duty-free and quota free access. The UK has wholly and partially removed customs duties on 95% of South African imports. Under the SADC EPA, the preferential treatment that SA extends to UK products covers the same percentage goods, whilst the UK would increase its preferential access to 98.7% of South African products.
Thus a Brexit would result in all of these preferences being lost for both trading partners. This would imply that South African products entering the UK or UK products entering South Africa will no longer enjoy competitive advantage vis-a-vie products from other nations who may be members of the World Trade Organisation (“WTO”). These products will thus be given the treatment (called the Most Favoured Nation of “MFN”) accorded to all WTO members with whom these two countries do not have a preferential trade relationship. Thus UK products entering South Africa will be less competitively priced, as a result of tariffs, than EU products entering South Africa (due to the TDCA). Similarly, South African products entering the UK will be less competitively priced, as a result of higher tariff due to the TDCA or SADC EPA no longer applying in the event of a Brexit, than EU products entering the UK.
It should be remembered that both the EU and South Africa have preferential trade arrangements beyond the EU, TDCA and SADC EPA. As such, South African producers and manufacturers will weigh up whether this added cost associated with exporting to the UK remains commercially astute and whether it would not make more sense to try and exploit other preferences that may be available to South African business, such as the EU or the USA. Other foreign producers and manufacturers will also consider whether the UK’s loss of preferential access to the South African market presents them with an opportunity to increase their share of the South African market.
It is indeed possible for the UK to negotiate favourable access the EU, South African and other markets. However the reality is that these negotiations are complex, take a long time to conclude and may or may not be as favourable as the current trading regime enjoyed by the UK.
All eyes are on the UK on 23 June as the trade implications cannot be ignored.
© Trade Law Chambers 2016