South Africa signed a free trade agreement (the Trade, Development and Cooperation Agreement or TDCA) with the European Union (EU) in 1999. The trade provisions of the TDCA entered into force on 1 January 2000 and provides for the elimination of import tariffs on around 90% of all trade between South Africa and the EU over a period of twelve years.

 The remaining provisions of the TDCA entered into full force on 1 May 2004. The TDCA covers both agricultural and industrial products and contains a Protocol on Wines and Spirits providing for duty-free quotas for South African wines and spirits into the EU market.

The TDCA has contributed significantly to the strong growth in bilateral trade between South Africa and the EU over the past ten years. As the EU expanded, additional protocols were entered into to ensure the extension of the TDCA to all of the current 27 member states of the EU. This has opened up further markets for South African exporters, but it also means increased competition for South African manufacturers from imported EU products.

As the partners to the agreement are of unequal size, the TDCA provides for an asymmetric phase down of import tariffs. The TDCA provides for the removal of import tariffs on 95% of the EU’s imports from South Africa within 10 years, while South Africa has twelve years to remove the import tariffs on only 86% of its imports from the EU. In addition the EU, the bigger trade partner in this deal, had to implement most of its agreed tariff phase downs within the first six years while South Africa as the smaller trade partner only has to implement the majority of its tariff phase downs in the second six years of the implementation period.

We are fast approaching the end of the TDCA’s implementation period in 2012. While most South African products covered by the TDCA have been enjoying duty-free access to the EU market for a number of years, a great number of EU products can now also be imported at a much lower import tariff or even free of duty. Importers should be aware of these opportunities and should investigate whether these preferences could now enable them to source products from the EU at a lower cost than from their traditional suppliers. In many cases, as with many plastic products, the preference in terms of the TDCA could amount to a saving of up to 20%. This could obviously make a big difference to an importer’s bottom line. 

It is important to keep in mind that the TDCA only provides for preferential tariffs on goods traded between the parties to the agreement. In order to ensure that only those parties benefit from such preferential treatment, the TDCA contains strict rules of origin. These rules determine the nationality of a product and are especially important where a product is manufactured from imported raw materials or from both imported and domestic raw materials. In such cases the rules of origin will specify the amount of working or processing that is required before such products can be deemed to be of a specific origin. In other words, a certain level of value addition is required within South Africa before a product will be seen as a South African product that can benefit from the preferences under the TDCA.

Compliance with these rules is very important, as importers and exporters can face substantial penalties (in some case up to three times the value of the goods), forfeiture of their goods and even the possibility of imprisonment where incorrect declarations are made with regard to the origin of goods. Similarly, importers should also ensure that the customs classification of their imported products is correct, as they could also face similar consequences where goods are declared under the incorrect tariff headings.

Even though the TDCA has now been in place for more than a decade, it is clear that it still presents many opportunities to South African importers and exporters. It would make sense, especially in the current economic climate, for importers and exporters to ensure that they are up to date with any possible preferential tariffs applicable to their products.

Niel Joubert
© Trade Law Chambers 2010