South Africa and its trade partners in the Southern African Customs Union (SACU) and Mozambique have been actively working towards maintaining the benefits these countries currently enjoy in exports to the UK as part of the Economic Partnership Agreement (EPA) with the EU.
Negotiations pre-BREXIT
The UK is South Africa’s largest export destination, with total exports at 101.4 million litres for the year ending 28 February 2019 – packaged wine making up 36% and bulk wine 64%.
The Southern African Development Community (SADC), which includes South Africa, currently has an Economic Partnership Agreement (EPA) with the EU, which promotes market access through duty-free imports of certain products to EU countries, including wine.
Currently, under the EPA between South Africa and the EU, South Africa can export up to 113 million litres to the UK tariff-free. This increases annually by 1 million litres.
The EPA applies to the UK for as long as it is part of the EU. However, following BREXIT, the EPA will no longer apply to South African exports to the UK.
Discussions surrounding post-BREXIT trade started in 2018, with SACU-Mozambique proposing that the UK roll over the terms of the current EPA into a standalone agreement to ensure that trade is uninterrupted as the UK transitions out of the EU.
The UK rejected SACU-Mozambique’s proposal and agreed on a tariff-free quota of 79 million litres. However, this new agreement could not be enforced as the parties could not reach an agreement on two unresolved issues relating to sanitary and phytosanitary (SPS) measures and cumulation.
The principle of cumulation would not apply to wine, except in cases where a wine that has been exported to the EU in bulk, blended and/or bottled and exported to the UK, has undergone a drastic or substantive change. However, although unlikely at this stage, should SACU-Mozambique agree to the UK’s insistence on a permanent commitment regarding cumulation, this could have a severe impact on industrialisation and job creation in the African countries.
What happens now?
South Africa will continue to receive all preferential trade under the EPA in exports to countries within the EU regardless of BREXIT. However, a 0% trade tariff will apply to South African exports to the UK in the following 12 months.
The UK published a list of import tariffs in March 2019, which includes trade tariffs for what it calls “Most Favoured Nations” (MFN’s), namely all World Trade Organisation (WTO) members who did not have a preferential arrangement such as a free trade agreement in place before BREXIT. South Africa is listed as an MFN, hence enjoying a 0% trade tariff quota-free.
However, although South Africa retains its duty-free benefit, it might lose its competitive advantage as other EU countries listed as MFN’s would also enjoy the 0% tariff duty and countries such as Chile, Australia and Switzerland managed to have the terms of their respective EPA’s with the UK roll over into standalone agreements.
The levelling of the playing field will require good negotiation and business partnerships with importers to retain South Africa’s market share in the UK.