Discussions
South Africa: New Guidelines for agricultural safeguard measures
JB Cronjé, tralac Researcher, discusses new guidelines for agricultural safeguard measures – South Africa
South Africa’s International Trade Administration Commission (ITAC) recently published Draft Guidelines and conditions pertaining to a safeguard application in terms of article 16 of the Agreement on Trade, Development and Co-operation (TDCA) between the European Community and its Member States and South Africa, which entered into force in May 2004. The purpose of the Guidelines is to provide a reference and procedural guide to the application of safeguard measures on the importation of agricultural products originating in the European Union (EU).
Recent analysis shows that despite the trade preferences accorded to the EU in terms of the TDCA its relative importance both as an export destination and import source for South Africa has declined over the past decade. However, for agricultural trade, the EU has remained South Africa’s main export destination and source of agricultural imports and these imports, in particular chicken cuts, are increasing their relative market share (Sandrey and Gill 2013). According to Global Trade Atlas data, the value of South Africa’s imports of whole frozen chicken and boneless cuts from the EU increased from US $ 348 000 and US $ 53 000 in 2008 to US $ 4.69 million and US $ 169 000 in 2012, respectively. These imports represent compound growth increases of 92% and 34%, respectively over this period. It should, however, be noted that provisional anti-dumping duties applied for most of 2012 on imports of both products from South Africa’s largest import source, Brazil, and boneless cuts imported from the United States are subject to definitive anti-dumping duties.
Early last month, ITAC initiated an investigation for remedial action in the form of a safeguard against the increased imports of frozen potato chips. The investigating authority has only once before, in 2007, initiated an investigation into remedial action in the form of safeguards against increased imports of lysine. The investigation on frozen potato chips was initially launched in November 2012 but was later terminated because the investigating authority failed to notify it timeously to the World Trade Organization (WTO) (Read an earlier Discussion here). This time the safeguard investigation was immediately notified to the WTO’s Committee on Safeguards under Article 12(1)(a) of the Agreement on Safeguards (WTO 2013) meaning that the investigation and the application of measures must be within the framework of that agreement.
The applicant alleges a recent, sudden, sharp and significant increase in the net volume of frozen potato chips imports. The applicant also indicated “that the expansion of capacity in the EU, the financial crisis which resulted in the oversupply of frozen potato chips in the world market and an aggressive export strategy by the EU producers of frozen chips augmented by the absence of sufficient duty protection as a result of the TDCA culminated in circumstances that occurred after the negotiation of the relevant tariff concessions could not have been foreseen at the time the concessions were negotiated in accordance with Article XIX of the GATT”. The application suggests that it is mainly the increased imports of frozen potato chips from the EU that is causing serious injury to the domestic industry. According to Global Trade Atlas data, South Africa’s world imports (volume) of frozen potato chips classified under tariff heading 2004.10.90 increased 34% and that from the EU 186% from December 2008 to December 2012. The EU’s share of total imports increased from 41% to 88% over the same period. Imports from the EU and Southern African Development Community (SADC) may enter South Africa duty free whereas those imported from elsewhere including European Free Trade Association (EFTA) countries are subject to a 20% customs duty.
Article 16 of the TDCA provides for an alternative solution to that of the WTO’s Safeguard Agreement whereby any Party to the agreement is allowed to take provisional measures against the imports of agricultural products if these “cause or threaten to cause a serious disturbance to the markets in the other Party”. There is an apparent lack of clarity in the text but it suggests different or less stringent standards and conditions for the application of measures than those provided for under the TDCA’s general safeguard clause in Article 24 and the WTO’s Safeguards Agreement. It does not, however, operate on the basis of a trigger mechanism as provided for in Article 5 of the WTO’s Agreement on Agriculture but requires causality between the increased imports and serious disturbance in the domestic market.
Agricultural safeguard matters must immediately be considered by the Cooperation Council (Council) to find an appropriate political solution. Pending a decision by the Council, “and where exceptional circumstances require immediate action, the affected Party may take provisional measures necessary to limit or redress the disturbance”. ITAC’s draft Guidelines provides that “such measures will take the form of a provisional safeguard duty” which “will stay in place until such time as a decision has been reached” by the Council. In the absence of a solution, the matter must be referred for arbitration.
The provision does not stipulate what form appropriate action could take but such actions could include the suspension of concessions or obligations, quantitative import restrictions, duty increases to Most-Favoured-Nation levels or any other measure. In order for the South African Department of Trade and Industry to present a matter of an alleged disturbance to the Council it must have a prima facie case demonstrating that imports from the EU are causing or threatening to cause serious disturbance to the South African market. The same applies in cases where there is a need for immediate action pending a decision by the Council.
Whatever the shortcomings of the provision may be, the publication of the draft Guidelines gives a clear impression that the South African government is prepared to step up to the demands of domestic agricultural industries and to test the vague substantive requirements of the agricultural safeguard clause and the wide discretionary powers of the Council in finding appropriate solutions for any given case.
Something that is less clear at this stage is what influence it will have on negotiations between the EU and the SADC Economic Partnership Agreement (EPA) States. When South Africa joined the EPA process it was decided that the review of trade-related matters under the TDCA should be dealt with under the SADC EPA negotiating process. Agricultural safeguard measures form part of a list of unresolved issues that are currently being negotiated between the EU and the SADC EPA States.
Sources:
Government Gazette No. 36207, Notice 174 of 2013, 8 March 2013.
Government Gazette No. 36307, Notice 344 of 2013, 5 April 2013.
Sandrey, R. and Gill, T. 2013. An assessment of the Trade and Development Cooperation Agreement. Stellenbosch: tralac. Available at: http://www.tralac.org/files/2013/02/S13WP032013-Sandrey-Gill-Assessment-of-TDCA-20130213.pdf
WTO, Committee on Safeguards, 13 March 2013. Notification under Article 12.1(a) of the Agreement on Safeguards on the Initiation of an investigation and the reasons for it – South Africa – (Frozen Potato Chips), G/SG/N/6/ZAF/3.