TRALAC - Trade Law Centre

Poultry deal 'a day late and a dollar short'

Tuesday, 09 June 2015 Published: | Malcolm Ferguson

Source: Independent Newspapers

The announcement over the past weekend that the South African Poultry Association (Sapa) and their US counterpart, the USA Poultry and Egg Export Council (Usapeec) have reached agreement over a dispute about South African anti-dumping duties imposed on US chicken legs and thigh portions exported to South Africa, is to be welcomed, but worryingly this may be as the Americans say “a day late and a dollar short” – ie too little too late.

This dispute has been a festering sore in South Africa’s trading relationship with the US for a decade and a half, and centres on a R9.80 per kilogram anti-dumping duty on US chicken, which the Americans have variously branded as “discriminatory, unreasonable, unfair and inappropriate…”

Efforts have been made by both sides over the past few months to resolve the dispute, but absence of acceptable progress and a lack of resolution for so long, led Usapeec to conclude that their South African counterparts were determined not to resolve it, as it advantaged them.

The unfortunate result has been politicisation of the issue, much to the potential disadvantage of South Africa.

Failure to settle

In an opinion commentary (Time for a reality check of what is at stake in Agoa Talks – Business Report, May 28) it was asserted that the failure to settle this dispute timeously and amicably led the US poultry producers to seek the support of the US Congress to link the issue of South Africa’s “discriminatory” tariffs on US poultry exports to the much larger and much more threatening issue of South Africa’s preferential access to the American market under the so-called US African Growth and Opportunity Act (Agoa).

Agoa is a legislated, unilateral US preferential trade programme approved by the US Congress, which affords qualifying African countries preferential access for certain categories of their exports to the US market.

Agoa draws on the so-called Generalised System of Preferences (GSP), a preferential tariff system which permits exemption from the more general rules of the World Trade Organisation (WTO) and allows WTO member countries to apply reduced import tariffs on goods originating from lesser developed countries – the purpose being to encourage trade with these nations.

Agoa goes further and focuses specifically on Africa expanding the approximately 4 600 items falling under the GSP to more than 6 400 items.

The largest beneficiary of the Agoa structure is South Africa, with the US International Trade Commission reporting that South Africa exported $3.1 billion (R39bn) under the preferential Agoa system (including the GSP) to the USA in 2014.

The Agoa, first enacted in 2000, is currently awaiting re-authorisation by the US Congress and the decision by Usapeec to elicit the support of the US Congress by linking it to this process, to assist them in finding a resolution to this trade wrangle over what they regard as unjustified exclusionary South African duties on their exports, has turned a minor trade dispute into a profoundly political issue for the Americans.

For the group of 13 US Senators who committed high profile political support to their poultry industry by attaching special conditions to South Africa’s continued participation in the Agoa system, this was their way of saying to South Africa’s poultry industry – and by extension also to the South African government – the time to get serious about settling this dispute had arrived long before last week’s talks in Paris carved out a deal whereby US poultry producers will be allowed to export a quota of 65 000 metric tons of chicken legs and thighs to South Africa annually.

In a rambling response complaining that Sapa’s refusal to concede that US chicken producers were not dumping their chicken in South Africa (Former envoy misses the crux of poultry dispute – Business Report, June 1) Kevin Lovell, the chief executive of Sapa stated that their position was based on a legitimate exception to the WTO’s general rule that dumping does not occur when an export product is sold at a higher price than in the exporters’ domestic market.

The exception being the so-called “cost of production methodology… where there are either no sales in the ordinary course of trade in the exporter’s domestic market or where because of a particular market situation, sales in the exporters’ market do not allow for a proper comparison.”

Lovell stated further that “because of the US market preference for white meat (breast and wings) over dark meat chicken portions, “(i)n determining the cost of production of the US producers… (South Africa) applied the WTO permissible weighted cost methodology.

Under this theory, all meat is assumed to have the same value by weight, even if market prices are radically different for different parts.

Economically bizarre

Thus if weighted cost of production were applied to beef, for example, it would assume that fillet and brisket are of equal value by weight; likewise chicken breast and drumsticks are of equal value by weight.

The Americans have described this as “an economically bizarre and absurd theory” while Lovell says a WTO panel… found the weighted cost methodology was not inherently unreasonable.

This however, does not mean it is reasonable and in deciding on the case Lovell refers to, which involved China applying a similar methodology, the WTO in 2013 decided resoundingly against this approach.

It held that “China’s basis for finding dumping was flatly inconsistent with WTO rules, concluding that costs that are unique to a product, such as breast meat cannot be averaged to artificially inflate the cost of other parts of the animal.”

Another complaint was that the US was “trying to convert Agoa – a non-reciprocal trade measure – into a reciprocal trade measure.” While non-reciprocal Agoa is certainly not unconditional and as the doyen of Washington media correspondents Simon Barber remarked recently, “what’s given unilaterally can also be taken away unilaterally.”

Unfortunately, conditionality which attaches to Agoa, of which there are many and one of which is resolution of trade disputes, and now the new demand for a review of South Africa’s eligibility within 30 days of Agoa approval, may well have serious and highly negative consequences for our trade with the US.

This could have been avoided if Sapa had not pursued its special interest so singlemindedly and been prepared to recognise earlier that their approach had passed its sell-by date.

 

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

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