SADC EPA Group Initial Continuity Agreement with the UK

–          Keeping Trade Flowing

While details of the agreement concluded have not yet been released, the UK governments claims for the new agreement need to be de-packaged and critically reviewed.

The first of these claims is that the agreement will ‘allow business to keep trading freely after Brexit’. This is certainly the case for UK exporters, since it will ensure equality of tariff treatment between UK and EU27 exporters in the post no-deal Brexit period.

This is particularly important for the Northern Ireland poultry industry in a context where 70% of its poultry meat (largely poultry parts) is destined for EU27 markets. These EU27 markets will de facto be closed to the Northern Ireland poultry industry for at least six months after a no-deal Brexit. This will arise as a result of the non-compliance of UK meat processing establishment with standard EU 3^rd country SPS pre-export inspection and certification requirements. This needs to be seen in a context where the poultry industry is the largest private sector employer in Northern Ireland and where Northern Ireland accounts for 1/3 of total UK poultry production.

In this context reconsolidating the UK’s existing duty free-quota free access to the SACU poultry market has been seen as essential to absorbing the no-deal Brexit market effects in the poultry sector.

The reverse side of this coin of course is that the SACU countries and Mozambique can expect a huge surge in UK poultry meat exports to their markets in the event of a no-deal Brexit. Given a no deal Brexit will see UK poultry meat exports to the EU27 of almost 200,000 tonnes being halted, new export markets will need to be found for a volume of poultry meat equivalent to more than double (+136%) current extra-EU poultry meat exports.

This can only be a matter of concern to South African, Namibian, Eswati and Mozambican poultry producers. This will be particularly the case if the UK adopts a legalistic interpretation of the safeguard provisions included in the ‘rolled over’ agreement. Such an interpretation would leave SACU+M governments unable to take any legally valid measures to halt these sudden import surges.

It has long been suggested the threat of no-deal Brexit related EU27/UK trade displacement required the inclusion of special Brexit related safeguard measures in any ‘rolled over’ UK-only trade agreements.  It is unclear at this point whether the initialled UK-SACU+Mozambique agreement includes such provisions.

In terms of SACU+M exports to the UK, at the level of tariffs the new agreement does indeed ensure continuity in tariff treatment. This will come as a relief to beef exporters in Namibia and Botswana and sugar exporters in Eswatini.

In the absence of an agreement Namibian beef exporters would have faced UK no-deal Brexit MFN duties equivalent to 31.7% on the value of fresh and chilled beef exports to the UK in 2018 and 42% on exports of frozen beef.

Similarly Botswana’s beef exporter would have faced duties equivalent to 32.1% of the value of fresh and chilled beef exports in 2018 and 49.2% on exports of frozen beef.

This would have made continued trade commercially non-viable with the effect being felt in the coming weeks given the ‘delivered duty paid’ stipulations in UK supermarket supply tenders in the face of Brexit related uncertainties.

This would have amounted to trade prohibiting duties on 25.6% of total Namibian exports to the UK and 31.8% of total Botswanan exports to the UK in 2018.

The situation would have been even worse for Eswatini’s sugar exports where the UK MFN import tariffs charged would have exceeded revenues generated on sales to the UK sugar market in 2018. This would have de facto put an end to an export trade to the UK which accounted for 43.5% of total Eswati exports to the UK in 2018.

This immediate tariff based challenge has been removed by the initialling of the UK EPA by the SACU+M governments. However the tariff issue is only one dimension of the challenges faced in ‘keeping trade flowing’ in the face of a ‘no-deal’ Brexit.

It is currently unclear whether the agreement concluded has set in place relevant provisions and measures to ‘keep trade flowing’ in the context of both the changes to trade administration requirements which the UK’s no-deal departure from the EU customs union and single market will give rise to and the border inspection challenges which will be faced in the UK.

While these border inspection challenges will arise most severely along short cross-channel ‘roll on-roll off’ routes, given the scale and systemic shortcomings in UK ports and the UK border service, the challenges are likely to send ripples across the whole of the UK’s border control system. A careful review of the final provisions of the rolled over agreement initialled will be required to ascertain whether in fact the concluded agreement will serve to ‘keep trade flowing’ from the SACU and Mozambique to the UK in the immediate post-Brexit period.

–      Realising Future Opportunities for Economic Development and Poverty
Eradication

The second major assertion made by the UK government in regard to the agreement concluded with the SACU+ Mozambique is that it is supportive of economic development and poverty eradication in the Southern African signatory countries.

This needs to be seen in a context where the UK High Commissioner to South Africa Nigel Casey had argued Brexit would open up new development opportunities since it would allow the UK to escape EU trade policy restrictions which inhibited the development of SACU exports to the UK (see companion epamonitoring.net article, ‘No Sign of Enhanced SACU-UK EPA Despite UK High Commissioner Talking Up Opportunities Brexit Will Create’, ** August 2019).

However It is unclear whether the concluded agreement:

· Lifts quantitative restrictions on duty free access for South African exports
where the UK has no production interest (e.g. citrus fruits);

· Eases quantitative restrictions on duty free access for South African exports
where the UK has  a structural supply deficit (e.g. sugar);

· Establishes mechanisms for the review of current UK SPS import controls where UK
agro-climatic conditions and agricultural production patterns make such controls
irrelevant under a ‘UK-only’ trade agreement (e.g. strict controls for citrus black
spot on citrus imports);

· Enhances the rules of origin to be applied to imports into the UK under the
agreement, to allow pan-African sourcing of inputs without losing originating status;
a move which would be in line with the UK’s policy commitment to better promoting
African trade integration;

· Removes existing EU rules of origin restrictions on fisheries products linked to
concerns to promote the fisheries access interests of EU27 long distance fishing
fleets;

· Provides assurances on the maintenance of existing proposed UK only no-deal
Brexit MFN tariffs, which in a number of sectors of export interest to both SACU
and Mozambique are vital to the continued value of rolled over tariff preferences.

Failure to address these issues within the current agreement will amount to a significant failure on the part of the UK government to live up to its stated commitment to pursing autonomously a more pro-development trade policy.

–          An end of formal trade discussions?

The UK government in its press release to mark the initialling of the agreement with SACU government and the government of Mozambique argued the initialling of the EPA ‘marks the end of formal trade discussions’.  It is to be hoped this is not in fact the case.

While the text of the agreement is not yet publicly available, it seems likely the ‘rolled over’ ‘UK-only’ EPA will singularly fail to address issues which are crucial to the establishment of a more forward looking pro-development trade relationship between the UK and the signatory Southern African governments.

What is more, if in concluding the current trade negotiations these issues are not addressed, then it is unlikely they will be addressed in the coming 10 years. The hard reality faced is that given the human resource capacity constraints on the ability of the UK government to conduct multiple processes of trade negotiations, it is highly unlikely that once the interests of UK exporters have been secured the UK government will be willing to substantively revisit concluded trade agreements any time in the next decade.

While International Trade Secretary Liz Truss described the agreement as a ‘major milestone’ for UK trade policy, unless the substantive issues identified above are addressed before the current negotiation process is concluded the agreement could prove to be not a ‘major milestone’ in UK trade policy but a major millstone around the necks of Southern African producers and exporters.