Analysts with international professional (including legal and financial) services group Herbert Smith Freehills have urged South African companies doing business with the UK to take care that their interests are protected as Britain leaves the European Union (EU) – a process popularly known as Brexit.
This would, Johannesburg-based partner Peter Leon and Brussels-based partner Lode van den Hende (both lawyers) assert in a briefing paper, require:
- undertaking an audit of their transactions with EU/UK-based companies and identifying those that are most likely to be affected by the UK’s withdrawal from the EU-SADC (Southern African Development Community) EPA (Economic Partnership Agreement);
- identifying which of the provisions of the EU-SADC EPA should be included in a new UK-South Africa free trade agreement; and
- engaging the Department of Trade and Industry before it starts negotiations with the UK.
The EU-SADC EPA was signed in June last year. Six SADC countries are involved (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland), although Angola has the option to join later. (The other SADC countries will be part of EPAs being agreed between the EU and other regional African groupings.) As it has not yet been ratified by all 28 EU States, it is currently provisionally in force. This means that only those provisions that are the exclusive competence of the EU, such as those concerning international trade, are now in effect.
They point out that, as the UK is leaving the EU, it is probable that it will also be exiting the EPA. The EPA includes, on the European side, only those countries and territories in which EU treaties apply; once the UK has left the EU, the EU treaties will no longer be applicable to Britain. Also, the EU side of the EPA will be administered by an institutional body, of which the UK will not be a member because it will no longer belong to the EU.
Leon and Van den Hende list four main advantages of the EPA for South African exporters. In their order, these are – asymmetric trade opening, export duties, tariff quotas, and geographical indications.
The asymmetric trade opening sees the EU remove all customs duties on 96.2% of South African products exported to the bloc. Duties are partially removed on another 2.5%. On the other hand, South Africa has eliminated customs duties on 74.1% of EU products exported to this country, and partially removed them on another 12.1%.
New export duties, and increases in existing export duties, on trade between the two sides are forbidden. However, as an exception and to promote industrial development, the SADC countries can establish export duties on up to eight products. However, such exceptional and developmental tariffs may not exceed 10% and can be in force for no more than 12 years.
Under tariff quotas, the EPA created new and increased tariff rate quotas for South African exports to the EU, such as butter, ethanol, some fruits, sugar, wine and yeast, among others. And the EU has undertaken to protect more than 100 South African geographical indications, while South Africa will do the same for more than 250 EU geographical indications (these cover agricultural products, including foodstuffs and wines).
“An obvious transitional solution that could minimise disruptions on all sides – and one which the UK and South Africa ‘in principle’ agreed to earlier this year – would be for the UK to conclude a new free trade agreement with South Africa along lines similar to [those of] the EU-SADC EPA,” they observe. “This should be done at the same time as the UK’s withdrawal from the EU. This may potentially be an attractive solution to both the UK and the EU. “It could buy the UK time to negotiate its own agreement with South Africa and allow the EU to avoid a situation where South Africa could request that the EU-SADC EPA be renegotiated following the UK’s departure.”