Safeguard measures on frozen potato chips
JB Cronjé, tralac Researcher, discusses the application for remedial action regarding imports of frozen potato chips originating in or imported from Belgium and the Netherlands
Trade remedies and safeguard measures are trade policy tools that allow governments to take remedial action, typically in the form of tariff increases, against imports causing injury to domestic industries. Recourse to these remedies is initiated by domestic industries in response to different situations and circumstances causing injury to them. The multilateral trade rules of the World Trade Organization (WTO) allow member states, under certain circumstances, to take temporary measures to safeguard affected domestic industries against the effects of sudden import surges. These safeguard measures must, in accordance with the WTO’s Agreement on Safeguards, be applied on a non-discriminatory basis to all imports of a particular product irrespective of its source. Preferential trade agreements may also permit the application of safeguard measures to address distortions which result from the liberalisation of regional or bilateral trade. In these cases safeguard measures may only be applied on imports originating from the other contracting parties or party and to the extent necessary to address the problem. Equally, the WTO’s Anti-dumping Agreement allows member states to take temporary action against dumped imports from specific countries; i.e. goods exported at a price lower than their normal value and when the dumping is causing or threatens to cause material injury to the domestic industry.
Major producers of frozen potato chips, classifiable under tariff subheading 2004.10.90, in the Southern African Customs Union (SACU) market recently re-applied for the initiation of an investigation for remedial action in the form of a safeguard (Government Gazette 36207, 8 March 2013) as well as for the initiation of an investigation into alleged dumping (Government Gazette 36575, 21 June 2013) on imports originating in or imported from Belgium and the Netherlands. Affected parties have 30 days to respond to the anti-dumping investigation notice. WTO members are not prevented from investigating and applying safeguards as well as anti-dumping measures on a product at the same time. (Read an earlier discussion note here).
The International Trade Administration Commission of South Africa (on behalf of SACU) proceeded with the safeguard investigation on imported frozen potato chips and notified the WTO’s Committee on Safeguards of its decision to apply provisional safeguard measures for a maximum of 200 days pending the conclusion of its investigation (WTO, G/SG/N/7/ZAF/2). The provisional safeguard measure consists of an ad valorem safeguard duty of 61.42 per cent. Safeguard measures, which in broad terms take the form of suspension of concessions or obligations, can consist of duty increases to higher than the bound rate. The bound rate in this case is 37 per cent. Generally, imports from the European Union (EU) and Southern African Development Community (SADC) may enter SACU duty free under the respective free trade agreements, whereas those imported from elsewhere, including the European Free Trade Association (EFTA) countries, are subject to an applied duty rate of 20 per cent.
The notification to the WTO’s Committee on Safeguards also includes a list of developing countries excluded from the application of the measure (WTO, G/SG/N/11/ZAF/2). According to the WTO’s Safeguards Agreement, developing countries receive special and differential treatment with respect to other WTO Members’ safeguard measures in the form of a de minimis import volume exemption. Safeguard measures cannot be applied against imports originating in a developing country if its share of imports is less than 3 per cent and provided that developing countries with less than a 3 per cent share collectively account for not more than 9 per cent of total imports of the product concerned. However, South Africa’s list of developing countries excluded from the safeguard measure include countries such as Egypt and Argentina whose import share, according to Global Trade Atlas data, account for 4.2 per cent respectively of total imports in 2010.
South Africa’s notification to the WTO provides that a recent, sudden, sharp and significant increase in imports “occurred in the period 2009 to 2010 and the subject product continued to be imported in increased quantities both in absolute terms and relative to production.” According to the Government of South Africa’s data, “imports in 2010 compared to 2009 increased from 1540 tons to 13705 tons which represent an increase of 811.23%. As a result the SACU industry is suffering serious injury in the form of a decline in market share from “98.09% to 76.84% in 2012” and a decrease in sales volume “from 2009 to 2012 by 3.34%”. The notification further provides that the “proliferation of quick service restaurants; excess production capacity of the frozen potato chips in the European Union; and the EU not keeping up with its export subsidy commitment made in 1995” culminated in circumstances that occurred after the negotiation of the relevant tariff concessions that could not have been foreseen at the time the concessions were negotiated. The applicant established a different link to unforeseen developments in its application to ITAC. The applicant indicated the following unforeseen developments, namely “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”. The South African Government has not offered any concessions for compensation but offered consultations on the provisional measures.
The fact remains, South Africa’s imports of the product are confined to a limited number of exporters of Belgium and the Netherlands in the EU. EU Member States will be affected by this safeguard measure. South Africa’s free trade agreement with the European Union, the Trade, Development and Cooperation Agreement (TDCA), provides for the application of safeguard measures on imports from the other party under the conditions provided for in the WTO Agreement on Safeguards and in accordance with the procedures laid down in Article 26 of the TDCA. This provision creates an obligation on South Africa to notify its European counterparts via the Cooperation Council of any decision to apply safeguard measures. Such measures are subject to periodic consultations within that body, particularly with a view to establish a timetable for its abolition. It also provides “in the selection of measures, priority must be given to those which least disturb the functioning of this Agreement and shall be limited to the extent necessary to prevent or remedy serious injury and to facilitate adjustment.” The TDCA therefore creates an additional obligation on South Africa not only to inform the other side of any decision to apply safeguard measures but also to seek solutions before taking them.