The road ahead for South Africa’s trade agreements with the UK and EU became unclear last Friday after the UK unexpectedly voted to leave the EU, garnering a mixed reaction.

MMI Investments and Savings economist Sanisha Packirisamy said: “The Brexit result will create uncertainty around the future of South Africa’s trade agreements with the UK and EU and likely put South Africa’s export growth and extended current account deficit at risk.”

But the Department of Trade and Industry (dti) said there would be no immediate implications for South African exports into the UK and existing treaties. The dti said the UK would have a period of two years to negotiate their exit from the EU after formal notice to withdraw from the EU had been given. The government would consider all the options available and start engagements with the UK.

“The UK is and will remain an important trading partner for South Africa,” it said.

The UK was South Africa’s eighth-largest trading partner, with local exports to the UK at R41 billion and imports at R35bn, the dti said.

Until the end of that two-year period, the Common International Trade Policy (CITP) of the EU would continue to apply to South Africa’s exports to the UK.

The CITP included the current free trade agreement between South Africa and the EU, called the Trade, Development and Co-operation Agreement. It would also cover the Economic Partnership Agreement (EPA) that was signed on June 10.

The recent-signed EPA was considered a victory for South Africa’s trade and intellectual property interests with the extension of the geographical indications for trademarks such as rooibos, honeybush, Karoo lamb and local wines.

But at the time Catherine Grant-Makokera, a director at trade consulting firm Tutwa Consulting, said she was not optimistic about the short-term benefits of the geographical indications as it was hard to get registered in the EU.

“The EU does not have a good track record when it comes to the registration of geographic indications. I do not know why it would be different for South Africa,” she said.

With the upheaval in the EU after Friday’s vote it remains to be seen how this process plays out.

Werner Gerber, an audit manager of BDO South Africa, said all South Africa’s exported goods had to comply with the strict requirements by the EU.

“These demanding requirements can sometimes have a demotivating effect on the South African export market. Consequently, we are not exporting as many goods, especially fresh fruit and vegetables, as we are able to or as we would like to, to countries such as the UK,” he said

Gerber believes that due to the lengthy period of negotiations for new trade deals it was likely that the UK would opt for less strict importation policies, giving South Africa the opportunity to increase its export market in the UK.

“With the pound being stronger than the euro, export revenue would, therefore, be able to increase significantly. This could, therefore, be just what South Africa needs to stabilise our economy after the recent drought,” he said.

Strict regulation has been an ongoing bone of contention for the local citrus industry.

According to the SA Citrus Growers’ Association South Africa’s citrus industry was spending more than R1 billion annually to control black-spot disease in fruit to comply with EU standards, Bloomberg reported in April.

As black-spot is a fungal disease that results in leaf-spotting and fruit blemishes and is not harmful to humans, the local industry believes the measure is unfair and punitive.

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The possible implications of BREXIT on South Africa’s trade relations with the United Kingdom

Statement issued by the Presidency, 24 June 2016

South Africa, through the Department of Trade and Industry, has followed with interest the BREXIT referendum in the United Kingdom (UK) and the final vote to leave the EU.

In 2015, the UK was 8th largest trading partner of SA. South Africa’s export to the UK was R41 billion and imports was R35 billion. The UK is and will remain an important trading partner for South Africa.

The UK will have a period of two years to negotiate their exit from the EU after formal notice to withdraw from the EU has been given. Until the end of that 2 year period, the Common International Trade Policy (CITP) of the EU would continue to apply to SA’s exports to the UK. The CITP includes the current free trade agreement between SA and the EU, called the Trade, Development and Cooperation Agreement (or TDCA). It will also cover the Economic Partnership Agreement (EPA) that was signed on the 10th of June 2016 in Botswana. Therefore, UK rights and obligations under the existing EU Treaties will continue to apply during this period. There will therefore be no immediate implications for SA exports into UK.

SA/SACU and the UK would therefore have at least two years to review their future trade relationship. One of the options open to the UK would be to join European Free Trade Area (EFTA). EFTA has a free trade agreement with the EU and forms part of the European Economic Area. Importantly, EFTA also has free trade agreement with the Southern African Customs Union (SACU) that South Africa is part of. SACU and EFTA have already started a review of this agreement. Another option would be for the UK and SACU to negotiate a bilateral free trade agreement and one possibility would be to base it on the EPA.

The SA Government will consider all the options available and start engagements with the UK.