DIT SACU Discussions to Extend Current Access to the UK Market More than a Technical Exercise

It needs to be recognized the existing trade arrangement between the UK and SACU is a reciprocal preferential free trade agreement. This is governed by complex procedural rules which set out which products can benefit from the tariff reductions granted under the agreement. This applies equally to imports into the SACU from the EU and imports into the EU form the SACU.

Rolling-over SACU access to the UK market can be seen as a relatively straight forward technical exercise, since the underlying conditions in the SACU will not have changed.  However rolling over UK access to the SACU market is far more complex, with the situation of the UK post-Brexit changing dramatically.

Since the UK will no longer be part of the EU the territorial scope of the application of rules of origin to UK exports to the SACU market under any arrangement with the UK will have changed. These rules of origin stipulate in detail what level of processing is required in one party to the agreement for products not originating in that party to be granted ‘originating status’ and hence benefit from the duty free preferences granted.

Under the SADC-EU EPA the territorial coverage under which ‘originating status’ is granted was the entire territory of the EU28.  Under any bilateral arrangement with the UK, whether transitional or long term, the territorial coverage under which originating status would be granted would be the UK. In most of the EU EPAs the rules of origin provide for either a maximum 15% value tolerance for non-originating products in the ex-works price of the product or are subject to product specific % tolerances set out by mutual agreement.

The question arises: how many of the UK’s current exports to the SACU would qualify under these rules of origin principles, given the removal of 27 other EU member states from the territorial coverage which confers originating status on an input? This potentially carries important commercial implications for EU27 exporters, and is thus unlikely to be viewed as simply a ‘technical exercise’.

In addition a whole new set of administrative procedures will need to be set in place to verify that goods exported from the UK enjoy ‘originating’ status (proof of origin documentation, movement certificates etc), with systems for calculating originating status, verifying originating status and confirming this applies to the goods actually being imported, all needing to be set up.

This will take place in a context where the same goods which formerly faced no such rules of origin questions under the EU28 agreement, will now find themselves having to be accompanied by documentary proof they indeed meet the rules of origin required to confirm originating status.

The alternative is to de facto dispense with rules of origin altogether.  However this could have far reaching implications. If rules of origin were simply dispensed with, this could open up new opportunities for SACU exports to the UK of ‘manufactured goods’, since if there were no rules or origin, all manner of goods could be exported to the UK from the territory of a SACU member states under the duty free market access provisions.

Either way a substantive renegotiation of existing terms of the EU agreement which governs SACU-UK trade will be needed.

While after 30 March 2019 the UK will no longer be a part of the EU and will no longer benefit from the SADC-EU EPA, South Africa’s tariff rate quota obligations which open up the SACU market in sensitive sectors to EU28 exports will remain in place, but with the beneficiaries being restricted to the remaining EU27 member states. The UK will have no rights of access to these EU TRQs once it leaves the EU.

This is most likely to be felt in the dairy sector, where, for example between 2013 and 2016 UK cheese exports to South Africa grew 20-fold, compared to a mere doubling of EU28 cheese exports.  By 2016 the UK accounted for almost 24% of EU28 cheese exports to South Africa, up from a mere 2.3% in 2013. To put this in perspective in 2016 South Africa accounted for 7.4% of extra-EU UK cheese exports (5).

TRQs for the UK will need to be separately negotiated under a future bilateral SACU-EU agreement and cannot simply be granted during a transitional period, without potentially facing challenges from WTO members. Since this potentially carries important commercial implications for EU27 exporters, this is unlikely to prove to be a simple ‘technical exercise’.

Similarly the TRQs granted for South African exports to the EU will remain unchanged, with the UK having no obligation to take over part of these TRQs under transitional bilateral arrangements. The UK will de facto need to make a commitment to unilaterally granting TRQ access proportionate to current levels of South African exports to the UK market under the TRQ. This type of arrangement could be negotiated, without affecting South Africa’s rights and obligations under the agreement concluded with the EU.  However, if this were to occur outside of a formal FTA this could face challenges from WTO members with competing export interests.

The question arises how are these substantive issues to be effectively dealt with under the proposed transitional arrangement? These are not simple questions and could take time to resolve.

It is against this background that it would appear essential for the UK government make an early and  binding commitment to the unilateral rolling over of existing SADC EPA terms and conditions of access to the UK market on a non-reciprocal basis, while the issues related to the application of SADC EPA market access provisions to imports from the UK in the radically changed post Brexit circumstances are sorted out.

Looking to the longer term agreement, given the prospect of radical changes to UK trade and agricultural policies post-Brexit in areas where SACU member states have export interests (most notably sugar) important issues related to the erosion of the value of future tariff preferences on the UK market will need to be addressed.

For example given current campaigning by Tate & Lyle Sugars (TLS) (see companion article ‘What are the implications for ACP sugar producers of Tate & Lyle Sugars expectations on UK sugar sector policy post-Brexit?’, 10 April 2017),  the UK government could move swiftly to remove the €98/tonne duty on CXL sugar. This would alter the pattern of sugar sourcing by TLS.  This needs to be seen in  context where Swaziland exported 58,679 tonnes of sugar to the UK market, almost 26% of its exports to the EU28 market in 2016.  Such a UK policy move could result in a decline in the price offered for imported Swazi sugar.

However this is not the only uncertainty. With around 20% of UK white sugar consumption coming from EU27 suppliers (mainly France) any failure to establish an alternative basis for UK-EU27 trade from 30^th March 2019 could see high MFN duties imposed on sugar imports from EU27 countries. This could then create new opportunities for Swazi sugar exporters and could impact on UK sugar prices.  However, this needs to be seen in the context of the planned increase in UK beet production by 1/3 in the coming years and plans for a major new investment in beet processing in Yorkshire (see companion article, ‘UK Beet Sugar Production Set to Surge’, 14 August 2017).

Similarly in the citrus sector, once the UK is no longer part of the EU, there will be no plant disease control reason for maintaining high levels of controls on the fungal infection citrus black spot on imports into the UK. Since 2012 increasingly strict EU CBS controls have seen the collapse of Swazi citrus fruit exports to the EU (see companion article ‘ACP Citrus Exporters and Brexit: Part 2: The Case of Smaller Scale ACP Citrus Exporters’, 22 June 2017). Removing unnecessary SPS controls on citrus exports could potentially create new export opportunities for Swazi citrus producers.

However it needs to be borne in mind that disengaging from 44 years of UK and EU food safety and plant and animal health (SPS) regulations could create a legal vacuum in the UK which could carry additional costs for SACU exporters, if this complex process is not carefully managed.

These are just some of the uncertainties and non-tariff dimensions affecting trade with the UK which will need to be addressed before it makes sense for SACU countries, such as Swaziland, to enter into a new long term trade agreement with the UK.