Tar­iff cuts are not for the birds

SA has ex­pe­ri­enced a surge in im­ports of bone-in chicken por­tions from the EU

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - MELULEKI NZ­I­MANDE & KERRI ELLER­BECK

TRADE be­tween SA and the Euro­pean Union (EU) is gov­erned by the Trade De­vel­op­ment and Co-op­er­a­tion Agree­ment, which pro­vides for tar­iff elim­i­na­tions by the EU on im­ports of poul­try, meat, eggs and egg prod­ucts from SA.

Un­der Ar­ti­cle 15 of the agree­ment SA elim­i­nated tar­iffs on im­ports of th­ese prod­ucts from the EU from Jan­uary 1 2012. By 2012, SA’s chicken meat im­ports rep­re­sented 20% of the to­tal chicken meat mar­ket, which re­sulted in the South African Cus­toms Union (Sacu) rais­ing the gen­eral tar­iff on five cat­e­gories of im­ported chicken prod­ucts against the whole world, with Brazil and Ar­gentina be­ing the main ex­porters to Sacu at the time.

How­ever, be­cause the agree­ment es­tab­lished a free trade agree­ment be­tween SA and the EU, and pro­hibits the par­ties from in­creas­ing gen­eral tar­iffs against each other’s goods, EU chicken ex­porters to SA were ex­empted from the gen­eral tar­iff in­creases ef­fected in 2012 and con­tinue to en­joy duty-free ac­cess to the South African mar­ket. Since Sacu im­ple­mented the in­creases in gen­eral tar­iffs, SA has ex­pe­ri­enced a surge in im­ports of bonein chicken por­tions from the EU.

The in­crease of im­ports is at­trib­ut­able not only to the duty-free sta­tus which they en­joy un­der the agree­ment, but also the fact that Sacu, whose pop­u­la­tion prefers bone-in chicken meat, is a per­fect mar­ket for EU pro­duc­ers as there is lit­tle or no mar­ket for bone-in chicken meat in their do­mes­tic mar­ket.

The agree­ment per­mits the use of tra­di­tional un­fair trade reme­dies such as an­tidump­ing du­ties to deal with un­fair trade prac­tices. The agree­ment also pro­vides for fair trade mea­sures (safe­guards) which can be in­voked to pro­tect do­mes­tic pro­duc­ers against in­ju­ri­ous ef­fects of im­ports in par­tic­u­lar cir­cum­stances.

One such mea­sure is found in Ar­ti­cle 16 of the agree­ment which pro­vides for a safe­guard mea­sure that can be in­voked where the im­ports of prod­ucts orig­i­nat­ing in one party cause or threaten to cause a se­ri­ous dis­tur­bance to the mar­kets in the other party. In this re­gard com­plaints must be im­me­di­ately con­sid­ered by the Co-op­er­a­tion Coun­cil to find an ap­pro­pri­ate so­lu­tion and, where ex­cep­tional cir­cum­stances re­quire im­me­di­ate ac­tion, the af­fected party may take provisional mea­sures to limit or re­dress the dis­tur­bance.

The In­ter­na­tional Trade Ad­min­is­tra­tion Com­mis­sion has cre­ated a le­gal frame­work to en­able in­ter­ested par­ties in SA to use the Ar­ti­cle 16 agri­cul­tural safe­guard in the agree­ment. It pub- lished the guide­lines and con­di­tions per­tain­ing to a safe­guard ap­pli­ca­tion in terms of Ar­ti­cle 16 of the agree­ment in Gov­ern­ment Gazette No­tice 744 of 2013 on July 19 2013. The guide­lines pro­vide a pro­ce­dure for ap­ply­ing for safe­guard mea­sures on the im­por­ta­tion of agri­cul­tural prod­ucts orig­i­nat­ing in the EU.

It is stated in the guide­lines that the provisional mea­sures that may be taken in ex­cep­tional cir­cum­stances 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 Co-op­er­a­tion Coun­cil and, in the ab­sence of a so­lu­tion, the mat­ter must be re­ferred for arbitration.

Ar­ti­cle 16 does not stip­u­late what would con­sti­tute “an ap­pro­pri­ate so­lu­tion” from the meet­ing of the coun­cil. It is ex­pected that this may in­clude the sus­pen­sion of con­ces­sions or obli­ga­tions, quan­ti­ta­tive im­port re­stric­tions, duty in­creases to most-favoured na­tion lev­els or any other mea­sure.

For SA’s Depart­ment of Trade and In­dus­try to present a mat­ter of an

EU chicken ex­porters to SA were ex­empted from the gen­eral tar­iff in­creases and still en­joy duty-free ac­cess

al­leged dis­tur­bance to the Co-op­er­a­tion 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.

With the ne­go­ti­a­tion of the re­cent In­terim Eco­nomic Part­ner­ship Agree­ment (EPA) be­tween the EU on the one hand and An­gola, Botswana, Le­sotho, Mozam­bique, Namibia, SA and Swazi­land on the other (SADC-EPA States) there is con­cern the safe­guard mech­a­nism pro­vided for un­der Ar­ti­cle 16 of the agree­ment will be­come re­dun­dant. How­ever, in this sit­u­a­tion re­course can be found un­der Ar­ti­cle 34(2) of the In­terim SADC-EU EPA which is to some de­gree sim­i­lar to Ar­ti­cle 16 of the agree­ment as it con­tains a safe­guard mech­a­nism de­signed to pro­tect do­mes­tic pro­duc­ers against a surge in im­ports orig­i­nat­ing from the EU. Ar­ti­cle 34(2) of the In­terim SADC-EU EPA also pro­vides for provisional mea­sures to be em­ployed in crit­i­cal cir­cum­stances and states that such provisional mea­sures may be taken for a max­i­mum pe­riod of 180 days where they are taken by the Euro­pean Com­mu­nity and 200 days where taken by an EPA state.

Ar­ti­cle 16 of the agree­ment ap­pears to be stronger than the In­terim SADCEU EPA in relation to provisional du­ties as it does not pro­vide for a max­i­mum time pe­riod in which provisional mea­sures are to be re­moved. There­fore, the provisional mea­sures re­main in place for as long as the Co-op­er­a­tion Coun­cil has not reached a decision. Un­der the In­terim SADC-EU EPA, provisional mea­sures are limited to 180 days where they are taken by an EC Party or 200 days where they are taken by an EPA state.

Ar­ti­cle 16 of the agree­ment is also silent on the type of safe­guard mea­sures that may be ap­plied, whereas un­der the In­terim SADC-EU EPA there is a re­stric­tion on the safe­guard mea­sures that may be im­posed and the cus­toms duty may only be in­creased up to a level which does not ex­ceed the most-favoured na­tion ap­plied rate at the time of tak­ing the mea­sure.

There­fore, if the agree­ment were to be re­placed by the In­terim SADC-EU EPA, one of the con­se­quences for SA and lo­cal poul­try pro­duc­ers is that the cur­rent agri­cul­tural safe­guard pro­vi­sion un­der Ar­ti­cle 16 of the agree­ment would be re­placed by a dif­fer­ent safe­guard pro­vi­sion which, in­ter alia, con­tains re­stric­tions on the type of safe­guard mea­sures that can be im­posed as well as time lim­its for re­moval of the safe­guard mea­sures.

Such bi­lat­eral safe­guard in the In­terim SADC-EU EPA ap­pears to be weaker than that pro­vided for in Ar­ti­cle 16 of the agree­ment. It is also im­por­tant to note that the fi­nal SADC-EU EPA has re­cently been ini­tialled; how­ever, it is not avail­able pub­licly and there­fore it is not pos­si­ble to as­cer­tain at this stage whether the agri­cul­tural safe­guard pro­vi­sion un­der the fi­nal SADC-EU EPA has been sub­ject to change.

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