South African Broiler Sector: Pertinent Trends in International Trade Law
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Trade regulatory measures invariably impacts on the competitiveness of the industries affected. Virtually every component of the South African broiler value chain is subject to some form of regulatory intervention, emanating from multiple jurisdictional spheres. This presentation is based on a paper aimed at clarifying the international legal framework governing South African broiler trade and to review regulatory action following import surges from the United States of America (USA) and the European Union (EU). The study commences with an overview of key treaties governing multilateral trade in agricultural products. This is followed by a consideration of South African trade remedies against the US and the EU, focussing on implications pertaining to unilateral and bilateral instruments currently in effect.
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South African Broiler Sector: Pertinent Trends in International Trade Law
- 1. Strategic positioning of South African agriculture in dynamic global markets 5 December 2014 Presented by: Stephanie van der Walt Strategic positioning of South African agriculture in dynamic global markets
- 2. Strategic positioning of South African agriculture in dynamic global markets Scope and Purpose • The regulation of trade through treaties, legislation and other instruments of governance, both international and domestic, invariably impacts on the competitiveness of the industries affected by these measures. • Virtually every component of the South African broiler value chain is subject to some form of regulatory intervention, emanating from multiple jurisdictional spheres. • The aim of the present study, is to elucidate the international legal framework governing South African broiler trade and to review regulatory action following import surges from the United States of America (USA) and the European Union (EU).
- 3. Strategic positioning of South African agriculture in dynamic global markets To Be Discussed • Measures applicable within the broiler sector at the time of the study • Multilateral Trade Governance: – General – Trade Remedies: Anti-Dumping • Unilateral and Bilateral Arrangements – USA AGOA – EU TDCA
- 4. Strategic positioning of South African agriculture in dynamic global markets Trade Remedies Imposed on Broiler Imports • USA (frozen bone-in pieces) : June 2000 – Present • Brazil (frozen whole birds; frozen bone-in pieces) : February 2012 – March 2013 • SACU Tariff Increase (whole birds, boneless cuts, bone-in portions and offal) : September 2013 – Present • Germany, Netherlands and UK (frozen whole birds; frozen bone-in pieces) : July 2014 – Present
- 5. Strategic positioning of South African agriculture in dynamic global markets General SACU External Tariff Increase, September 2013 Applied rate of duty on certain poultry products imported from the world, EU, EFTA and SADC
- 6. Strategic positioning of South African agriculture in dynamic global markets Multilateral Trade Rules: General Principles • The WTO consists of fundamental principles that are the foundation of the multilateral trading system. • Principles include: – Trade without discrimination – Freer trade: through negotiation – Predictability: through binding and transparency – Promoting fair competition – Encouraging development and economic reform
- 7. Strategic positioning of South African agriculture in dynamic global markets Most Favoured Nation Treatment • Under WTO agreements countries cannot discriminate between trading partners • If someone is granted a special favor (lowering custom duty rates) then this must be done for all other WTO members • Exceptions: – Countries can set up free trade agreement that only applies to goods traded within group (trading partners) and discriminates against goods from outside – Countries can grant developing countries access to their markets – Countries can raise barriers against products that are considered to be traded unfairly from specific countries.
- 8. Strategic positioning of South African agriculture in dynamic global markets Narional Treatment • Imported (foreign) and locally-produced goods should be treated equally [at least after foreign goods have entered market] • Should also be treated equally: foreign and domestic services, local trademarks, copyrights and patents • This is the principal of “national treatment”: treating foreign goods as you would treat your own nation’s • “National treatment” is only applied once a product has entered the market • Thus, a country is allowed to charge customs duty on an import (not in the market) and not charge customs on a locally-produced product.
- 9. Strategic positioning of South African agriculture in dynamic global markets Trade Remedies • Trade remedies are permissible import restraints that otherwise would be contrary to WTO principles – essentially, exceptions to the bedrock rules of binding tariffs and MFN (most favored nation) treatment • Designed to allow relief from imports deemed “unfair,” or adjustment from a surge in imports – often called the “safety valve” to allow further trade liberalization • WTO identifies three primary types: – safeguards (temporary relief from import surges) – countervailing duties (counteracting subsidies) – antidumping (counteracting unfairly low prices)
- 10. Strategic positioning of South African agriculture in dynamic global markets Anti-Dumping • “Dumping” and responses thereto, is regulated under Article VI of the GATT and in accordance with the Anti-Dumping Agreement. • What is dumping? – If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. – There are several different ways of calculating whether a particular product is being dumped, and whether dumping is “heavy or light.”
- 11. Strategic positioning of South African agriculture in dynamic global markets Anti-Dumping: Prescribed Methodology • The ADA strives to narrow down the range of possible methodologies. It provides three ranked formulas for calculating a product’s normal value in a given case: – price in the exporter’s domestic market – the price charged by the exporter in another country – calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins
- 12. Strategic positioning of South African agriculture in dynamic global markets Anti-Dumping: Prescribed Methodology continued • Calculating the extent of dumping on a product is not enough, however. • Anti-dumping measures can only be applied if the dumping is shown to be a direct cause of injury to the competing sector in the importing country (Art 3, ADA) • The investigation into alleged dumping must evaluate all relevant economic factors that have a bearing on the state of the industry in question. • Only once the value of the product has been determined to (1) be below production cost and (2) be a direct cause of injury to the domestic market can a duty be imposed.
- 13. Strategic positioning of South African agriculture in dynamic global markets Unilateral and Bilateral Arrangements In addition to its multilateral commitments under the WTO, South Africa has also entered into bilateral trade agreements with other countries and RECs, notably the EU. The country is also a beneficiary of unilateral trade concessions made by the US under its African Growth and Opportunity Act (AGOA). Both of these instruments are currently under review.
- 14. Strategic positioning of South African agriculture in dynamic global markets Unilateral Measures: African Growth and Opportunity Act • AGOA refers to legislation approved by the US Congress and signed into law on 18 May 2000 • The cited purpose of this act is to assist countries in sub-Saharan Africa (SSA) in trading with the USA, thus improving economic relations between the US and the SSA region as well as to provide “tangible incentives for African countries to continue their efforts to open their economies and build free markets.
- 15. Strategic positioning of South African agriculture in dynamic global markets Trade Under AGOA Changes in exports from initially AGOA-eligible countries to the US following scenarios assuming a return to the GSP compared to the baseline scenario, 2025
- 16. Strategic positioning of South African agriculture in dynamic global markets South Africa and AGOA • AGOA-related trade accounts for close a third of South African exports, absorbing nearly 80 percent of the country’s value-added manufactured goods. • DTI found that continuation of AGOA offers the potential to significantly support export-driven job creation in South Africa. • In the agricultural sphere, AGOA was found to be of particular importance to the export-oriented wine and citrus sectors, bolstering trade flows, and substantially contributing to job creation as well as skills transfer.
- 17. Strategic positioning of South African agriculture in dynamic global markets South Africa and EU (TDCA still in force) • Article 23 of the TDCA deals with anti-dumping and countervailing measures and provides as follows: – Nothing in this Agreement shall prejudice or affect in any way the taking, by either Party, of anti-dumping or countervailing measures in accordance with Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the GATT 1994, the Agreement on Subsidies and Countervailing Measures, annexed to the Marrakech Agreement establishing the WTO. – Before definitive anti-dumping and countervailing duties are imposed in respect of products imported from South Africa, the Parties may consider the possibility of constructive remedies as provided for in the Agreement on Implementation of Article VI of the GATT 1994 and the Agreement on Subsidies and Countervailing Measures.
Editor's Notes
- In its most recent application to ITAC, SAPA requested the imposition of an anti-dumping duty of 91 percent on chicken imports from Germany and the Netherlands, as well as a duty of 58 percent on British products for alleged unfair trade practices during 2012
- These increases were undertaken in accordance with South African policy space available within the bound tariff rates under its WTO commitments. The increases are not trade remedial therefore, but rather serve as a unilateral effort on South Africa’s part to relieve competitive pressure from the domestic industry.
- South Africa is a founding member of the WTO and automatic party to all non-optional treaties administered under its authority. The WTO agreements are paramount to the regulation of trade between the majority of the world’s nations, governing around 96 percent of global economic activity.
- Pursuant to the MFN principle, if a Member grants an advantage to any country (such as a lower tariff on a product), it is required to extend such advantage immediately and unconditionally to all WTO Members. It is, however, important to note that the opposite is not an obligation: a WTO Member could give an advantage to products from WTO Members, which it would not need to extend to non-WTO Members .
- “Trade remedies” is a collective term for anti-dumping duties, countervailing duties and safeguards. In South Africa, the institution of trade remedies is managed under the auspices of the International Trade Administration Act, 71 of 2002 (ITA Act) with regulations on anti-dumping in particular promulgated on 14 November 2003. Promulgation of the ITA Act was an attempt to bring South Africa’s anti-dumping legislation in line with the requirements of the WTO. The legislature used the ADA as a model and considered the anti-dumping regimes of the EU, the USA, New Zealand and Australia as examples in drafting the regulations. ITAC’s investigations are therefore based on the ADA, while the regulations serve as a procedural guide. Anti-dumping regulations, Notice 3197, in Government Gazette 25684 of 14 November 2003.
- There are several different ways of calculating whether a particular product is being dumped, and whether dumping is “heavy or light.” The ADA strives to narrow down the range of possible methodologies. It provides three formulas for calculating a product’s “normal value”. The primary method is based on the price in the exporter’s domestic market. When this cannot be used, two alternatives are available, namely the price charged by the exporter in another country, or a calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins. The agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. n 35, 70—78.
- The South African government is currently consolidating its position on AGOA as the Act is set to expire on 30 September 2015, subject to renewal by the US Congress. Should AGOA not be extended, current AGOA-eligible countries will revert back to the US Generalised System of Preferences (GSP). The projected effect on trade is set out in the graph. Not surprisingly, the African countries that would face the highest tariff increases into the US market due to the discontinuity of AGOA preferences would also be the ones experiencing the largest export losses. As the graph illustrates, the US average protection imposed on Namibia’s exports of agricultural products would increase from 0.0 to 13.0 percent, and the ones imposed on Lesotho’s and Swaziland’s exports of industrial products would change from 0.0 and 0.4 percent to 11.4 and 6.9 percent, respectively. The rest of SACU’s total exports to the US would drop by 17.1 percent, with exports of specifically milk and dairy products as well as textiles and wearing apparel products dropping by 76.2 and 56.2 percent, respectively, as compared to the baseline in 2025. High export reductions can be observed in milk and dairy, as well as in meat products and South Africa. Lower but still meaningful export losses are registered in other food products, including vegetables, fruit and nuts.
- The poultry sector, however, is among the few industries more likely to suffer losses as a result of an AGOA extension. This is partly due the long-standing contention with South African anti-dumping duties imposed on US chicken imports.
- The TCDA confirms the exclusive application of the multilateral rules. On the multilateral level, the trade remedy disciplines of the GATT govern anti-dumping investigations and the measures adopted by the South African authorities. In the case of Brazil and the USA the relevant GATT provisions constitute the applicable law. Disputes about the validity of trade remedy measures are governed by the DSB of the WTO. The investigation involving imports from EU member states is somewhat more complicated, however. The European Commission (EC) as well as the member states of the EU are all WTO members, but TDCA concluded between the EU and South Africa in 2000, contains its own trade remedy and dispute settlement provisions. Article 23 of the TDCA deals with anti-dumping and countervailing measures and provides as follows: Nothing in this Agreement shall prejudice or affect in any way the taking, by either Party, of anti-dumping or countervailing measures in accordance with Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the GATT 1994, the Agreement on Subsidies and Countervailing Measures, annexed to the Marrakech Agreement establishing the WTO. (2) Before definitive anti-dumping and countervailing duties are imposed in respect of products imported from South Africa, the Parties may consider the possibility of constructive remedies as provided for in the Agreement on Implementation of Article VI of the GATT 1994 and the Agreement on Subsidies and Countervailing Measures. The Parties therefore retain their right to refer disputes about the correctness of anti-dumping measures to the dispute settlement mechanism of the WTO.