TRALAC - Trade Law Centre

'Time for a reality check of what is at stake in AGOA talks'

Thursday, 28 May 2015 Published: | Malcolm Ferguson

Source: Independent Newspapers (South Africa)

Any South African interested enough to follow the arcane negotiations between the South African Poultry Association (Sapa) and their US counterparts, the USA Poultry and Egg Export Council (Usapeec) over so-called anti-dumping customs duties levied on US chicken exports to South Africa, can only have viewed recent developments with increasing alarm.

The discussions around the application of South African anti-dumping tariffs imposed on US poultry exports have been ongoing for months, but the political climate surrounding them became highly charged when the US poultry producers concluded that their South African counterparts were not negotiating with them in good faith.

As a result and in an effort to raise the cost for the perceived obduracy of the South Africans, the US poultry producers sought the support of the US Congress to link the issue of South Africa’s “discriminatory” tariffs on its poultry to the much larger and hugely more threatening issue of South Africa’s duty free access to the US market under the so-called African Growth and Opportunity Act (Agoa).

 ‘Special treatment’

The Agoa legislation, which requires renewal every 10 years, singles out Africa as a region for “special treatment” by granting African countries the right to export their goods to the US without imposition of customs duties. The largest beneficiary under this legislation among African nations is South Africa, with roughly $3 billion (R36bn) in exports gaining duty free access to the US market.

South African products affected by this concession range from fruit and wine to high value exports such as motor vehicles and their components. The range of goods is thus varied, while their value assists to balance trade between the two countries.

US displeasure with anti-dumping tariffs on their poultry exports has been simmering for years, but came to a head when South Africa’s International Trade Administration Commission decided to impose a 37 percent duty on chicken imported into South Africa from amongst others Brazil, the European Union, and the US in a move seen as protection for South African producers, who claim they are unable to compete with cheap imports from these countries.

This decision brought to a head US poultry producers’ unhappiness with South Africa’s tariffs on their exports, as they correctly claim they are being unfairly singled out over and above other global producers, because in addition to the 37 percent ad valorem tariff, US poultry exports are subjected to an additional customs duty equivalent to approximately R9.80 per kilogram.

Contention

The issue has become a point of contention because this additional duty applies only to US exports, in particular so-called “bone-in” chicken portions (so-called dark meat) mainly thighs and legs.

Consultations to address these “discriminatory” tariffs have been underway between the respective South African and US producer bodies for some time, but the South African negotiators have held to their view that the lower priced US exports constitute a form of uncompetitive and prohibited dumping into the South African market. Accordingly they say the special tariffs imposed on US exports are justified because an anti-dumping duty “… levels the playing field so that two parties can compete fairly.”

And there lies the very nub of the American objection to Sapa’s position.

The additional tariff imposed on US exports say Usapeec is anything but fair and point out that US exports come in for special attention over and above those of other exporters such as Brazil, the European Union, for example.

Sapa’s contention is that the additional tariff is justified because US sourced dark meat portions are not being sold at prices which reflect their real cost of production in the US, as their price (the point of reference being supermarket shelves in the US) is effectively subsidised by the higher prices achieved from the sale of the much more expensive breast meat cuts. This, due to a two-tier marketing system used by US poultry producers whereby they sell dark meat portions in the US at substantially lower prices than the widely preferred chicken breast portions.

This, Sapa claims, is an unfair trade practice in the international context and therefore they have continued to hold to their position that the imposition of additional tariffs on US bone-in chicken cuts is entirely justified, because this two-tier price for different chicken cuts in the US market gives them an unfair advantage over South African producers.

Now much as South Africans who believe in protecting our producers and South African jobs may like to agree with that assertion, unfortunately international trade rules governed by the World Trade Organisation (WTO) do not seem to support that view.

Uncompromising

In general WTO rules only allow for the imposition of anti-dumping tariffs where “export prices are below those in the exporter's home market,” which is certainly not the case with US bone-in chicken cuts.

It is to be regretted that South Africa’s poultry producers have held to this uncompromising position for so long, as it has turned a minor issue relating to demonstrable discrimination against US poultry exports vis-à-vis other global producers into a profoundly political issue for a group of 13 US senators who have committed high profile political support to their poultry industry, in this dispute.

These US lawmakers have ensured that the US Senate’s conditions for renewal of Agoa by the US Congress will require a review by the US Trade Representative’s office of the fairness of South Africa’s trade policies and practices in so far as they affect trade and economic exchange with the USA.

This is a blunt weapon which threatens South Africa’s special trading status with the US under Agoa. Even before approval, this requirement has already been used to attack South Africa’s demand that its domestic security and guarding industry must be South African owned.

It is therefore to be welcomed that the South African Minister of Trade and Industries, Rob Davies, committed himself last week to attend the next round of discussions between the poultry industries scheduled to be held in Paris in early June.

The issues at stake are now much bigger than a spat over poultry exports and as the minister has admitted, South Africa is now confronted by “… a list of things that will exclude us from Agoa.” Indeed the time has arrived to let our poultry producers know that they must stop “playing chicken” with the country’s broader international trade interests.

 

Malcolm Ferguson is an independent commentator. He is a former South African ambassador and specialist on international trade matters.

  • View a follow-up letter by Kevin Lovell, chief executive of the SA Poultry Association - CLICK

 

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