UK-EU trade talks might have an influence on South Africa and Its neighbors

Concerns have been raised as the deadline for post-Brexit trade negotiations between the European Union (EU) and the United Kingdom (UK) approaches, raising questions about whether the two countries would be able to reach an agreement. The UK is to abandon the EU single market and customs union on January 1, 2021, under the provisions of the Brexit withdrawal deal. Future trading ties between the EU and the UK will be governed by a trade agreement. The possibility of securing such a deal, however, has been cast into doubt by the British government’s latest publication of a new divisive bill that aims to overturn aspects of the Brexit withdrawal agreement.

The result of these discussions would have ramifications for the South African economy, especially in the area of trade. South Africa’s largest trading partner in the world is the EU, and South Africa is the EU’s largest trade partner in Africa. South Africa and the United Kingdom have long-standing and extensive trading links. Prior to its departure from the EU, the UK was South Africa’s second-largest trading partner in the EU regional community, after Germany. In addition, it is South Africa’s fourth-largest export market, behind only China, Germany, and the United States.

Before the United Kingdom voted to abandon the EU, it traded with South Africa under an economic partnership arrangement (EPA) between the EU and some SADC member states (SADC). On October 10, 2016, the EU-SADC EPA went into effect. Except for aluminum and a few agricultural goods, the EU has fully or partly abolished customs duties for South African exports under this deal.

The EU-SADC EPA lays out the laws of origin that products must follow in order to gain exclusive market entry. The standards used to determine a product’s national source are known as rules of origin. Trade remedies were used in the deal to combat unfair trade practices. It also includes safeguards that allow import duties to be raised if an unexpected rise in imports appears to harm the domestic economy.

The UK’s decision to leave the EU meant that it would no longer be a member of the EU-SADC Economic Partnership Agreement. It means that the financial changes are about to be visible as well as it will affect the gbp zar exchange rate, in addition to the global economic crisis due to the covid pandemic.  As a result, trade between SADC countries and the UK will no longer benefit from the preferential terms provided by the EU-SADC EPA system.

The new deal

In 2017, the Southern African Customs Union countries reached an agreement with the United Kingdom to avoid trade disruptions. South Africa, Botswana, Lesotho, Namibia, and Eswatini – as well as Mozambique – are members of the customs union (SACUM). In theory, SACUM and the UK have agreed to bring forward the provisions of the EU-SADC EPA through a new bilateral trade deal. The roll-over was designed to ensure that trading relations remained intact since the UK exited the EU. A new deal, the SACUM-UK EPA, was signed in September 2019 after two years of talks. In effect, the terms of the SADC-EU EPA were transferred to the current SACUM-UK EPA. These include the following rules:Trade with commodities, preferential tariff rates on both sides, trade remedies, technical requirements for agricultural and industrial products’ health and safety, security of geographical signs in both South Africa and the United Kingdom, and dispute resolution. Under the EU-SADC EPA, SACUM countries are entitled to duty-free and quota-free entry for their exports. South Africa’s agricultural, seafood, and aluminum exports receive less favorable treatment due to the mature nature of its economy.

SACUM nations and the UK agreed to a new trade provision that required them to source and use EU inputs for output in order to sell to each other’s markets. This ensured the continuation of interconnected value chains between South Africa, the EU, and the United Kingdom, particularly in the automotive industry. Transitional provisions are used in the SACUM-UK deal. Certain clauses from the EU-SADC EPA will now be transferred to it. Customs issues relating to the protection of geographical identifiers are among them. On the other hand, the UK must give exporters from SACUM countries enough time to conform to new technical rules for imported products if those rules differ from EU regulations.

A built-in agenda was also agreed upon to discuss potential points of concern that could not be addressed through the talks. Market access challenges, international cumulation, export taxes, technological trade restrictions, geographical signs, and electronic certification are only a few of them.

The need for certainty

The final result of the EU-UK trade talks has caused a lot of concern among SACUM countries, as well as the effect this would have on the trade relationship between SACUM and the UK. When the UK leaves the EU customs sector, a pact between the EU and the UK would help to strengthen the certainty and consistency that the SACUM-UK arrangement aims to achieve. If the EU and the UK are unable to reach an agreement, their trading partners will be governed by World Trade Organization law. This ensures that the United Kingdom will be handled the same as any other exporting country that does not benefit from preferential trade with the EU.

The SACUM-UK agreement will be upheld under this case, but it would also bring new trade problems and uncertainties on how such issues, such as the amount and quantity of local materials used in the manufacture of automobiles in South Africa for sale to EU and UK markets, will be handled. As a result, an agreement between the EU and the UK would be the best outcome for SACUM countries.

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