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Statement by the Minister of Trade and Industry on the Conclusion of an Agreement with the UK addressing the trading relationship in the event of a no-deal Brexit.

2019-09-17
Honourable Members,

Thank you for the opportunity to make a Statement on the conclusion of talks involving the governments of the United Kingdom and South Africa.

These talks have sought agreement on terms that would apply to our trade relationship should the UK leave the European Union without an appropriate withdrawal Agreement.

I am pleased to report that the discussions have been successful and that subject to Cabinet approval, the Agreement reached with the UK will be submitted to Parliament for ratification.

I wish to provide the House today with the context for the Agreement, a brief summary of some of the terms agreed and the implications for the SA economy, investment and jobs.  

Importance of trade with the UK for South Africa

The United Kingdom is one of South Africa?s most important trading relationships.

In 2018, bilateral trade between our countries was worth R142 billion.

The United Kingdom is our fourth largest market for exports, behind only China, Germany and the United States; and it is the seventh largest supplier of imported goods.

It is estimated that our exports to the United Kingdom supports 56 500 direct jobs and a further 117 500 indirect jobs, bringing the total number of jobs supported by exports to the UK to nearly 175 000.

Our exports to the UK support jobs in platinum mines in North West and Limpopo. It supports our citrus industries in Eastern Cape, Western Cape, Limpopo and Mpumalanga. It supports our wine, grape, apple and berry industries. It supports the automotive industries in Eastern Cape, KwaZulu-Natal and Gauteng. It supports the beneficiation of platinum, through the sale of about R1,4 billion worth of catalytic converters used in British-assembled cars.  Across the country, trade with the UK supports industry and jobs.

How is current trade facilitated between the UK and South Africa?

As with all members of the European Union, trade with the UK has to date been facilitated under what is known as the SADC-EU Economic Partnership Agreement or ?EPA?.

The EPA provides for the tariff arrangements applicable to trade between six SADC countries and any of the 28 EU member states. The SADC countries are: South Africa, Botswana, Lesotho, Namibia, Eswatini and Mozambique (known together as SACUM). A number of products are duty free and there are detailed trade rules set out in the EPA to make trade easier between ourselves.

Why do we need a new Economic Partnership Agreement between SA and UK?

However, Honourable Members, will know that following a referendum held in the UK in 2016, the UK has notified the EU of its intention to leave the EU by 31 October this year, though processes in the British parliament may affect the date.

If there is no agreement on the terms of the departure, it will be in the form of a no-deal exit.

This will have a material impact on the six SACUM countries, including South Africa, which trade with the UK under the terms of the existing SADC-EU EPA. All trade will then fall under standard WTO rules, which means that the normal import tariffs would apply and many of our products will lose duty-free status.

For SA and indeed for the SACUM countries, reverting to trade on WTO terms would incur significant costs.

In March this year, the UK published an interim tariff regime in the event of it leaving the EU customs union and in the absence of a replacement to the SADC-EU EPA. If this were to occur, South Africa would lose preferential access to the UK market on 114 products, affecting exports of around R7 billion. This affects among others, vehicles, auto components, wine, textiles and clothing, sugar, fish and machinery. In some cases, this may lead to a loss of exports completely, which would be significant for a number of provinces.

In addition, UK exports to SACUM countries would be subject to higher tariffs, which may also increase the costs of these products in SA, and if they are input costs into SA-made products, it will hurt local industries.

There would also be potential loss of trade for SACUM neighbours: for Botswana the costs would be in beef exports; Eswatini in sugar exports; Namibia in fish, fruit and beef exports.

This is important to us, Honourable Members, because economic slowdown amongst our neighbours can trigger a slowdown in a number of our industries. In 2018, exports from South Africa to SACUM neighbours amounted to R179 billion.  

What has been the process to establish a new EPA between SA and UK?

To avoid the disruption to South Africa?s exports and that of the region, the SACUM countries engaged with the UK over a roughly two-year period.

Talks initially stalled.

In July this year, I engaged with my UK counter-part to enable resolution of the remaining issues so that the agreement could be concluded before 31 October 2019.

An expedited process for the negotiations saw significant ground covered in addressing outstanding issues, and the final terms were concluded by our SACUM officials in Gaborone earlier this month.

What measures are contained in the new EPA between SA and UK?

The new agreement, which will be known as the SACUM-UK Economic Partnership Agreement, will effectively roll-over and replicate the terms of trade present in the existing SADC-EU EPA. It will allow for seamless, uninterrupted trade to continue between ourselves and the UK.

The tariff arrangements under the SADC-EU EPA have been carried over to cover our trade with the UK.

The new Agreement also includes details on
  • the quota levels for certain products of duty-free trade
  • health and safety standards for agricultural products
  • the rules to determine whether a product qualifies as locally-made and is therefore eligible for preferential trade rates (or what is called the ?rules of origin?); and
  • whether goods which have been processed partially in an EU-state can still qualify under the rules of origin (this is called ?cumulation?).

Under the EPA, South African-assembled cars have tariff-free access to the UK, making our cars more competitive in that market than cars made in many other parts of the world.

This supports SA industrialisation and create jobs here in South Africa.

Tariff-free imports are also enjoyed for our citrus products, grapes and plums, while South African wine enjoys tariff-free access under a quota.

Where we have tariff-rate quotas in place with the EU, a new, additional quota has been agreed for trade between the UK and SACUM.

For example, in addition to the current quota to the EU which remains unaffected by this Agreement, we have a new tariff-free quota for
  • about 70 000 tons of refined and unrefined sugar
  • 18 000 tons of canned pear, apricot and peach and
  • About 70 million liters of wines.  

The UK asked for the right of component-products made in the EU, and used in final British products, to qualify for preferential access to South Africa. We agreed, subject to the same facility being available for SA exports to Britain that uses components any of the EU countries as well as from any of the other SACUM countries. This is important for example in the auto-sector given that the supply-chains have become global and SA car-makers use components manufactured elsewhere; and in food products.
 
The new EPA will use the health and safety standards applicable to the EU, and the UK will continue to accept EU model health certificates and plant protection certificates for a period of 12 months from Brexit. The UK will accept imports of specified animal products from establishments approved by the EU, for a period of 6 months after the UK leaves the EU. The period on both of these can be extended by a further 6 months.

South Africa currently has special protection, or what are called safeguard measures, in place for poultry imports from the European Union. This is to support South African chicken producers and local jobs. We have now agreed that the safeguard measures that are in place against EU chickens, will continue to apply to British poultry until March 2022, even if and when Britain leaves the EU, unless it is set aside through the normal processes of review or appeal.

We have also agreed to a built-in agenda, namely a list of matters for further negotiations after the Agreement comes into effect. These include issues such as
  • the right of countries to use export taxes to promote local industries; and
  • crediting South African-made inputs in products made in other SACUM countries, when we export these to Britain in future.

The new EPA will come into effect in the event that the UK leaves the EU on 31 October 2019, and will govern bilateral trade between the six SACUM countries on the one side, the UK on the other.

This is an important agreement to provide certainty and predictability for exporters.

It will ensure that in the event of a no-deal Brexit, trade between the UK and South Africa will continue on the same terms. This means that South African businesses which use South Africa as an export base to the UK can begin to plan, knowing that their preferential access will be protected.

It means that those investors who held back on capital-commitments or managers who pressed the pause button on new orders, until they have certainty, can begin to invest and to produce again.

And it means that the thousands of workers from across this country, whose jobs are supported by trade with UK, can feel confident that this government is working for them.  

What steps still need to be taken to ensure that the agreements come into full force and effect?

The processes to bring the new EPA into effect are currently underway. Once it is approved by Cabinet, the agreement will be submitted to this august House for ratification. A similar process will take place in each of the other six countries.

Given the time available until 31 October, there is a distinct possibility that not all the ratifications will be in place. To cover this possibility, a Memorandum of Understanding has been agreed, which will allow trade to continue on the agreed terms in the EPA from 1 November this year, effectively until the new Agreements come into effect.

Concluding remarks

Regardless the outcomes of UK debates on Brexit, our trading relationship with the United Kingdom can continue without disruption. This is important for the thousands of South African workers whose jobs are dependent on this trade; and for the investors who have utilised South Africa as an export base to the UK and the rest of the world.

The Agreement is more than 2 000 pages long, including its Annexes. It is therefore a substantial body of text to regulate our future trade and to support South African jobs.

I thank you for the opportunity to advise this House of the positive developments.