UK votes for Brexit – Trade with SA may suffer
The United Kingdom (UK) narrowly voted to leave the European Union (EU) on 23 June 2016. David Cameron resigned as expected and the markets are reeling. But what does the UK’s decision to leave the EU have to do with trade with South Africa (SA)? Unfortunately, there will be implications for trade between SA and the UK.
The UK is a major trading partner of SA. According to the Presidency, lat year South africa exported R41bn to the UK whislt the UK exported R35bn to South Africa. The UK, as part of the EU, also negotiated a free trade agreement on goods with SA, known as the the Trade Development and Cooperation Agreement (TDCA ). Under the TDCA, the UK either wholly or partly removed customs duties on 95% of South African imports. SA in turn granted duty free access to UK imports entering South Africa. The TDCA will shortly be replaced by the SADC EU Economic Partnership Agreement (SADC EU EPA). The SADC EU EPA is a free trade agreement that provides more liberalised access than the TDCA for both SA and UK to each other’s market. As the UK voted for Brexit, the implication is that the UK will no longer be a party to these two free trade agreements negotiated by the EU. This would imply that South Africa will no longer have free access to the UK market. Neither will the UK have almost free access to the South African market. Products being traded both ways will be faced with an increase in tariffs. South African exporters will find that their products will be less competitively priced.
Many South African business have also established themselves in the UK to provide services in the EU. This made a lot of sense, especially in the financial services sector, as it allows firms to provide their services with little regulatory hindrance to the EU. However Brexit may result in UK service providers no longer being able to access the EU market so easily and businesses may find that the regulatory burden increases or that in some instances they are legally prevented from providing services in the EU.
At this stage the full extent of Brexit on trade relations is not yet certain. This is due to the fact that after the Brexit vote, the UK has two years to agree with the EU on the terms of its exit from the UK. If no agreement is reached after two years, the UK’s withdrawal from the EU will become effective (although there is a possibility to extend this deadline). It may therefore be theoretically possible for the UK to reach an agreement which would not have negative trade consequences.
It is however more likely is that the UK will have to renegotiate all of its preferential trade relationships. For South Africa this would mean that the recently signed SADC EU EPA may have to be renegotiated. It has taken more than a decade to negotiate with the EU, so there may be a possibility that its renegotiation may also be lengthy. Should this negotiation not be concluded within the two year deadline, this will add a significant costs to both UK and SA businesses in the form of higher tariffs on imports. Similarly, if the UK cannot negotiate preferential access for its service providers to the EU market, the service providers will be facing significant regulatory costs and perhaps even losing access to the EU market.
© Trade Law Chambers 2016