Summary
Despite the ‘in principle’ understanding that existing EPA commitments should be the basis of a future bilateral South Africa-UK agreement, any attempt at ‘grandfathering-in’ on a bilateral basis of existing EU negotiated reciprocal trade preferences, outside of a formal WTO compatible FTA, could face strong opposition from other WTO members.
Any efforts to ensure a re-fitted reciprocal trade agreement is in place from day 1 of Brexit could face difficulties around the question of the dividing up of existing quota restricted access for EU28 exports and the need to address the concerns of other SACU members in their future trade relations with the UK (notably those arising from the erosion of the value of traditional preferential access linked to changes in UK agricultural and agricultural trade policies post-Brexit).
Finally any early South Africa-UK bilateral trade deal could reduce the incentive for the UK government to address the concerns of the broader ACP Group in terms of their future access to the UK market.
At an ANC Parliamentary caucus meeting on 17 February 2017, South Africa’s Trade and Industry Minister Rob Davies set out the state of play in South Africa’s efforts to address the issue of future trade with the UK, once the UK has departed from the EU.
According to Minister Davies the South African government has ‘engaged with the UK government and reached an in principle understanding that there will be no damage to existing trade and investment relations’. The benefits of preserving current arrangement are recognised by both parties.
According to Minister Davies both parties agreed ‘the legal commitments under the EPA with the EU, including the UK, will continue to be the basis for our bilateral trade in the immediate future and that those commitments would be carried over into any new arrangement in future’. However he noted particular attention will need to be paid to the question of ‘how quotas, notably on agricultural products, will be dealt with to avoid any damage to current trade’. (1)
This is an important issue for the South African agri-food sector since the UK is a major market for its exports to the EU28. Overall in 2015 the UK market took some 28.5% of South African exports to the EU28, an above average dependence on the UK market, since it is higher than the size of the UK market within the EU would warrant (2).
This average however masks a far higher dependence on the UK market for individual agricultural products exported to the EU. In 28 agricultural products in 2015 there was an exceptionally high dependence on the UK market (above 55% dependency on the UK market in exports to the EU28). In a further 12 agricultural products there was a high dependence on the UK market (between a 30% and 55% dependency on the UK market in exports to the EU28). In a further 8 products there was an above average dependence on the UK market (between a 16% and 30% dependency on the UK market in exports to the EU) (2).
% share of exports to the EU28 exports to the UK by value 2015 (2)
| Exceptionally high dependence | High dependence | Above average dependence |
| Mandarins 080520 – 61.1%
Apples, 080810 – 76.5% Dates 080410 – 100% Figs 080420 – 70.6% Peaches 080930 – 75.7% Other cherries 080929 – 96.4% Cranberries 081040 – 73.2% Raspberries, blackberries etc 081020 – 73.4% Persimmons 081070 – 92.4% Strawberries – 081010 – 100% Kiwis 081050 – 100% Shelled almonds 080212 – 71.2% Other dried fruit -081340 – 100% Dried apples – 081330 -81.2% Dried prunes – 081320 – 100% Other melons -080719 – 95.6% Papayas – 080720 – 100% Fruit and nuts 0811 – 86.4% Fruit & nuts prov pres –others -081290 – 57.7% Chrysanthemums 060314 – 95.3% Pres fruit mixtures others-200899 – 67.8% Pres. Pineapples- 200820 – 81.6% Pres. Citrus fruit -200830 – 87.2% Potatoes 200410 -100% Potatoes preser not frozen 200520 – 100% Veg, fruit, etc pres by sugar – 2006 – 91.6% Fermented beverages e.g. cider – 2206 – 97.3% Apple juice other 200979 – 62.9% |
Fresh grapes 080610 – 30.8%
Lemons – 080550 – 33.7% Guava, mangoes etc -080450 – 32.8% Pineapples – 080430 -39.9% Apricots, cherries, peaches 0809 – 47.1% Plums & sloes 080940 – 34.4% Apricots – 080910 – 39.5% Watermelons – 080711 – 42.4% Pres pears 200840 – 41.7% Pres Peaches & nectarines- 200870- 30.1% Wine – 2204 – 34.5% Flavoured waters 220210 – 45.2%
|
Avocadoes -080440 – 20.3%
Peel of citrus – 0814 – 16.8% Other cut flowers s 060319 – 17.8% Other cut flowers 060390 – 20.5% Foliage other 060490 -26.9% Pres apricots 200850 – 19.8% Homo jam prep – 200710 – 29% Whiskies – 220830 – 16.6% |
Some of the products with an exceptionally high dependence or high dependence on the UK market account for a significant value of trade (above €10 million in exports to the UK). All of these products currently enjoy some measure of tariff preference on the UK market, as a result of the application of the EU-SADC EPA provisions. However this agreement will lapse in terms of trade with the UK once the UK formally departs from the European Union. An event currently scheduled for the 30th March 2017. The trade effects of the lapsing of this preferential access will be influenced by the margins of tariff preferences currently enjoyed and the future trajectory of the UK agricultural trade policy (2).
The 12 most important of these products in 2015 accounted for €620 million in South African exports to the UK. However in 2016, in value terms the importance of the UK market in exports to the EU28 fell in all of these product categories, with the exception of fresh grapes (although the % share of the UK in volume terms increased in 4 product categories). This is the result of both a depreciation of the £ against the € following the outcome of the Brexit referendum and a decline in the volume share of the UK market across a range of products.
Most Valuable (Above €10 million) South Africa Agricultural Products Exports with a High or Exceptionally High Dependence on the UK Market (2015 & 2016)
| 2015 | 2016 | |||||
| Product and tariff heading | EU | UK | % share UK | EU | UK | % share UK |
| Exceptionally High Dependence | ||||||
| Apples (080810) | 125 | 96 | 76.5% | 100 | 69 | 69% |
| Mandarins (080520) | 109 | 66 | 61.1% | 139 | 75 | 54% |
| Cranberries (081040) | 22 | 16 | 73.2% | 35 | 24 | 69% |
| Other dried fruit (081340) | 12 | 12 | 100% | 12 | 9 | 75% |
| Melons 0807 | 11 | 11 | 95.6% | 16 | 14 | 88% |
| High Dependence | ||||||
| Fresh Grapes (080610) | 433 | 133 | 30.8% | 413 | 136 | 33% |
| Wine in 2 litres of less (220421) | 221 | 76 | 34.2% | 208 | 65 | 31% |
| Other wine less than 2 litres (220429) | 166 | 58 | 34.8% | 154 | 51 | 33% |
| Plums & sloes (080940) | 62 | 21 | 34.4% | 74 | 23 | 31% |
| Lemons (080550) | 55 | 19 | 33.7% | 97 | 26 | 27% |
| Preserved Fruit, nuts without sugar – (2008) | 49 | 19 | 37.8% | 45 | 16 | 36% |
| Peaches (080930) | 25 | 19 | 75.7% | 30 | 19 | 63% |
| Sub-Total | 1,289 | 546 | 42.4% | 1,323 | 427 | 32.3% |
| Comment and Analysis The British government is looking to the ‘grandfathering-in’, on a bilateral basis, of existing trade preferences secured under EU28 reciprocal trade agreements, from the date of its formal departure from the EU (see companion article, ‘Capacity constraints and complexities of ‘grandfathering’ highlighted by Parliament Report’, 27 March 2017). This is seen as essential to ensuring UK exporters are not disadvantaged, in terms of the tariff treatment extended by third countries to UK and EU27 exporters from day 1 of the UK’s formal departure from the EU. In the absence of some alternative trade arrangement this would be the inevitable outcome of the lapsing of the territorial applicability of EU agreements to the territory of the UK. However, while WTO members have in the past tolerated a transitional extension of non-reciprocal preferences by developed economies to developing countries (e.g. under the EU’s Market Access Regulation 1528/2007 in favour of ACP countries engaged in EPA negotiations pending the completion of the ongoing negotiations), it is highly unlikely such tolerance would be extended to reciprocal preferences which benefit a developed economy, outside of the framework of a WTO compatible free trade area agreement. The UK’s aspirations for the ‘grandfathering-in’ on a bilateral basis of existing reciprocal preferences, outside of the framework of a formally conclude WTO compatible free trade area agreement, is thus likely to face serious challenges from other WTO members. It is unclear whether this likely opposition in the WTO to simply ‘grandfathering-in’ existing reciprocal preferences, has been taken on board by the UK and South African authorities in their discussions to date. Alternatively the South African government may be looking to the rapid reframing of the existing EU28 EPA into a bilateral agreement with the UK, such that it is ready for signing from day 1 of the UK’s formal departure from the EU. While this could be possible, as Minister Davies acknowledged, ‘how quotas, notably on agricultural products, will be dealt with’, could prove problematical. This is likely to be particularly the case, if little progress has been achieved in the core UK/EU27 negotiations. This could then derail any efforts to have a new bilateral UK-SACU FTA ‘ready to go’ from the date of the UK’s formal departure from the EU. It should be borne in mind that ‘fast tracking’ bilateral free trade area negotiations with the UK would be likely to risk leaving a range of important issues in future trade with the UK unaddressed. The most notable in this regard relates to the future value of any preferential access secured to the UK market. There exist profound uncertainties over the future trajectory of both UK agriculture and UK agricultural trade policies. Policy developments in both of these areas will have a direct bearing on the value of any future preferential access to the UK market which may be secured. This is particularly important to the smaller SACU members. For countries such as Swaziland and Namibia, issues of preference erosion and the nature of the future UK SPS controls to be applied to imports once freed from the confines of pan EU policies, are of central importance to the future value of any preferential access which may be retained to the UK market. It is unclear to what extent the South African government has so far involved other SACU member states governments in their discussions with the UK. Finally, while Minister Davies may be happy with the progress achieved to date in bilateral discussions with the UK authorities on the future market access arrangements to be set in place, given the importance of South Africa in overall UK exports to the ACP Group as a whole, it raises the question as to whether the early conclusion of a bilateral arrangement between South Africa and the UK on post-Brexit trade, would reduce the UK’s interest in the establishment a framework for addressing the trade concerns of the wider ACP Group. |
||||||
Sources:
(1) ANC, ‘Contribution to SONA Debate by Rob Davies Minister of Trade and Industry’, 15 February 2017
http://caucus.anc.org.za/show.php?ID=4789
(2) EC, Market access data base
http://madb.europa.eu/madb/statistical_form.htm
| Key words: BREXIT, South Africa, UK, SACU
Area for Posting: BREXIT, SADC EPA, EPA General |