Discussions
Some Bigger Picture Implications of South African Trade Policies
Gerhard Erasmus, tralac Associate, discusses current trade policy issues South Africa
Recent press reports have noted unhappiness in the USA about South Africa’s use of anti-dumping duties on imported chickens (Business Times 16 February 2014). The effect of these duties on American poultry products are described as “controversial” and causing American lobbyists to push for retaliation in the form of the withdrawal of the benefits which South African exports to the USA enjoy under the African Growth and Opportunity Act (AGOA). They argue that South Africa, an upper middle income country, should no longer enjoy the non-reciprocal AGOA benefits.
AGO benefits are substantial; amounting R 40.8 billion worth of South African exports to the USA in 2012.
The final outcome of this spat is to be awaited but serves as a good case study of the consequences of domestic trade policy measures, global responses, and the links to multilateral and regional trade agreements. It also tells us something about how the international trade system functions and why governments need to pay careful attention to global and regional trade arrangements in addition to how they promote specific national interests. Their trade policies should be balanced, long-term and informed about all possible consequences. Action in one particular sector is bound to have wider consequences.
It is lawful to impose anti-dumping duties (provided the applicable rules are followed) but may not always be wise. Such measures have to be weighed against the responses which they will cause. Will they indeed promote sound, long-term and inclusive growth strategies?
The applicable WTO rules allow members to impose anti-dumping (AD) duties in case of unfair trade practices; provided specific requirements are met. Dumping must be shown to have taken place, material injury must have resulted and there must be a causal link between the dumping and the injury caused. These measures may not be imposed for protectionist reasons per se. Anti-dumping investigations have to be conducted in a transparent manner, be supported by factual evidence, domestic judicial review should be available, and such measures may be contested before the Dispute Settlement Body of the WTO. The majority of WTO trade disputes are in fact about unfair trade measures, which include countervailing measures against subsidized imports. Under contemporary global trade conditions there has been an upsurge in the use of these measures and of complaints against them. South Africa recently withdrew anti-dumping duties against Brazilian chickens after a threat to start legal proceedings in Geneva.
So why do the aggrieved American poultry producers not avail themselves of the existing legal remedies? Is there a justifiable link between AGOA benefits and responses to the measures against imported American chickens? And what about chickens imported into South Africa from the EU and elsewhere? Will they be affected? What are the broader regional implications?
The USA may still decide to go the dispute settlement route against the South African AD measures imposed on imported chickens. It has done so recently when China imposed such duties on American chicken imports. However, it should not come as a surprise that American lobbyists are also looking at AGOA. The non-reciprocal benefits provided for under this scheme do not fall under the normal WTO disciplines. AGOA provides for quota and duty-free entry into the United States for certain goods, expanding the benefits under the WTO Generalized System of Preferences (GSP).
AGOA is not based on an international agreement. Its legal basis is American legislation approved in May 2000. The purpose behind it is to assist the economies of sub-Saharan Africa and to improve economic relations between the United States and this region. The American Administration may determine which sub-Saharan African countries are eligible for AGOA benefits; each year the President determines which countries should remain eligible.
If AGOA benefits are terminated (as has happened in some instances) there are no legal remedies and the matter cannot be taken to the WTO Dispute Settlement System. This does not mean that it is likely that South Africa’s exports will be excluded in the short term. It does however serve as a strong reminder that there are fundamental differences between treaty-based trade benefits and systems such as the GSP and Everything but Arms. The latter are unilateral grants and have specific rules of origin; which may often be quite onerous.*
Do American and European chickens fall in different categories? European/South African trade is regulated by a bilateral trade agreement; the Trade, Development and Cooperation Agreement (TDCA). This is an FTA which has to comply with the requirements of Article XXIV GATT. FTAs are exceptions to the MFN rule of the GATT and allow for preferential and reciprocal trade between the parties which are not extended to third states. In this sense there are fundamental differences between trade between the USA and South Africa (which is based on WTO rules) and EU/RSA trade (which is conducted in terms of the special arrangement of the TDCA). There is no bilateral trade agreement between the USA and South Africa (SACU). The rules of the TDCA grant chickens imported from the EU the special benefits of that bilateral agreement; they are exempted from the applicable WTO disciplines. The TDCA also provides for its own dispute settlement arrangement.
These considerations and others explain why the USA has been pushing for a bilateral trade agreement with SACU for some time. These initiatives have been unsuccessful so far but will remain on the agenda. South Africa’s preferred platform for new trade negotiations is the Doha Development Round, which is however going nowhere. The trade facilitation deal adopted in Bali seems to be the only new action as far as multilateral trade negotiations are concerned. This new agreement will take a long time and very deliberate effort to implement in order to benefit Africa.
The fact that China has recently applied to join the plurilateral trade in services negotiations of developed WTO members serves as an indication of the limits to BRICS solidarity; as did the Brazilian reaction to ITAC’s AD duties on Brazilian chickens.
It is worth recalling that the BRICS initiative is not based on a trade agreement. It may generate several other benefits in terms of technical cooperation and perhaps investment, but it does not regulate trade. The recent visit by a high level Indian delegation to Namibia reminded us of desires in Delhi to conclude a bilateral deal with SACU, or even a trilateral between MERCOSUR, India and SACU. However, these initiatives are still to bear fruit. Should such a trilateral trade arrangement be negotiated it will require serious trade policy calculations and careful balancing; involving all the SACU member states. The domestic protection now implemented in South Africa will be directly affected. Some local commentators (e.g. the CEO of the local Association of Meat Importers and Exporters) have already described the anti-dumping policies of South Africa as “protectionist” and inflationary. They will certainly require new attention when it comes to new trade negotiations.
These concerns point to some of the regional implications of Pretoria’s trade policies. For domestic reasons its contemporary trade policy focuses directly on the increased use of import tariffs, and, as part thereof, anti-dumping duties. However, what Pretoria decides will impact directly on the SACU member states. The International Trade Administration Commission (ITAC) administers the SACU Common External Tariff (CET). At present SACU has no mechanism for involving the SACU governments in these policy decisions.
* The EU GSP e.g. excludes beef and table grapes; which are Namibia’s main exports to the EU. Sugar is another sensitive product.