South Africa is no stranger to both imposing anti-dumping duties and being challenged by its stance at the World Trade Organisation (WTO). In January 2012 South Africa slapped Brazilian poultry imports with anti-dumping duties. In response Brazil lodged a trade dispute against South Africa at the WTO. Instead of imposing definitive anti-dumping duties as required by the WTO’s Anti-Dumping Agreement, South Africa recanted and opted for general import duties on Brazilian poultry.

This paper reflects on South Africa’s decision, since revoked, to impose provisional anti-dumping duties on Brazilian poultry. The paper considers South Africa’s about-turn after Brazil lodged a dispute at the WTO. It starts with a critical examination of the legal framework that governs anti-dumping duties, and concludes with an analysis of the implications of the dispute for South African- Brazilian trade relations.

ITAC’s provisional anti-dumping duties and WTO rules

In June 2011, the Southern African Poultry Association (SAPA) lodged a complaint before South Africa’s International Trade Administration Commission (ITAC) alleging the dumping of Brazilian frozen whole and boneless chicken cuts in the Southern African Customs Union (SACU) countries Botswana, Lesotho, Namibia and South Africa. In January 2012, ITAC proceeded to impose provisional anti-dumping duties between 6% and 63% on Brazil’s chicken imports following an investigation which found that three Brazilian exporters sold their chicken meat in the SACU market at lower prices compared with the Brazilian market.⁽²⁾  One of the exporters, Aurora Alimentos, a Sao Paulo-based poultry, pork and dairy conglomerate, sold its boneless chicken cuts in the SACU market at prices 6.3 % lower than those sold in Brazil. The other two, Sao Paulo-based Brasil Foods, Brazil’s largest and the world’s tenth largest food company, and Palotina-based C Vale, a large Brazilian agribusiness, exported at prices that were 62.9% and 46.6% lower respectively.⁽³⁾ ITAC concluded that SACU chicken producers had suffered material injury  from the increased chicken imports as they experienced a substantial decline in profits, price under-cutting, reduced market share, decrease in growth of revenue, and under-utilisation of production capacity.⁽⁴⁾

The WTO’s General Agreement on Tariffs and Trade (GATT) of 1994 is the overarching agreement that deals with all trade in goods, although matters concerning dumping are specifically provided for in the Anti-Dumping Agreement which gives effect to article VI of the GATT by guaranteeing WTO members the right to impose anti-dumping duties.⁽⁵⁾ As an annex to the GATT, the Anti-Dumping Agreement extensively addresses the issue of dumping and processes of imposing anti-dumping duties. In terms of the Agreement, dumping occurs when a product is exported at less than its normal value or if the product’s export price is less than the comparable price in the country of origin. Due to the nature of the practice, dumping may result in unfair competition in the market in which the products are dumped, to the detriment of domestic producers in the market where dumping has occurred.

That being said, there is currently no consensus among WTO members on whether dumping is anti-competitive or not. The lack of consensus stems from the different interests protected. On the one hand, competition law protects the interests of the consumer from anti-competitive practices such as price discrimination. On the other hand, anti-dumping principles guard the interests of domestic industries. Consequently, the application of both areas of law continually exposes tensions.

Therefore, the Anti-Dumping Agreement does not prohibit the practice of dumping per se. Nonetheless, it allows a government to unilaterally impose anti-dumping duties as a trade remedy. Anti-dumping duties must be preceded by an investigation to prove that the alleged dumping has indeed taken place, followed by a calculation of the extent of the dumping and proof that the dumping is causing, or is threatening to cause, material injury. As such, anti-dumping taxes can be imposed only where there is a causal link between the dumping and material injury to the competing domestic industry.

Criticism of ITAC’s decision

ITAC’s poultry decision received criticism from various quarters, in both Brazil and South Africa. The Brazilian Poultry Association (UBABEF) argued that the duties were politically motivated and designed to protect an inefficient South African poultry industry at the expense of the consumer.⁽⁶⁾ UBABEF further highlighted that the anti-dumping duties would result in either the prevention of Brazilian imports, or cost Brazil’s exporters US$ 70 million per annum, cost which would be transferred to the South African consumers, the biggest losers in this situation.⁽⁷⁾ This is of particular concern within the South African context when one considers that chicken has become the staple diet for the poor.⁽⁸⁾ Any increases in prices of chicken meat will negatively affect the majority of the country’s population.

In the home market, the Association of Meat Importers and Exporters of South Africa argued that the anti-dumping duties on the two chicken products were unwarranted because they only constituted less than 2% of domestic chicken production, thus local producers were not materially injured as required by the Anti-Dumping Agreement.⁽⁹⁾

Brazil lodges a dispute at the WTO

Brazil made informal attempts to solve the dispute with South Africa, such as through a proposed trade-off between Brazilian poultry and South Africa’s wine, which the latter rejected.⁽¹⁰⁾ The proposal would have allowed Brazilian poultry to be exported to South Africa sans duties and in exchange South African wine would be exported to Brazil under the same terms. South Africa’s refusal of the proposal was motivated by fears that more Brazilian chicken imports would harm an already embattled domestic poultry industry. Furthermore, Brazil’s proposal was not much of an incentive because South Africa already has Europe as its established export market for its wines and Brazil does not feature in the top 25 countries to which South Africa exports its wine, most of which are in Europe.⁽¹¹⁾ Thus, South Africa did not consider the trade-off to be in its interests.

Brazil subsequently lodged a dispute at the WTO’s dispute settlement body on 21 June 2012. Although this was the first trade dispute between BRICS (Brazil, Russia, India, China and South Africa) members, this was not the first time that South Africa imposed anti-dumping duties, and the same being challenged. Between January 1995 and June 2002, South Africa initiated 157 anti-dumping investigations of which 106 resulted in the imposition of anti-dumping duties.⁽¹²⁾ According to the WTO, South Africa has 31 anti-dumping duties in operation, 7 are currently under review and 5 are being investigated.⁽¹³⁾

Brazil alleged that the imposition of anti-dumping duties on its chicken products was in conflict with South Africa’s international trade obligations in the GATT and the Anti-Dumping Agreement.⁽¹⁴⁾ In its request for consultation on the matter, Brazil argued that ITAC had made some technical errors, did not consider factors such as the export price and the normal price as charged in the Brazilian market, and that the investigations failed to specify the information necessary to ensure fair comparison of the prices charged in Brazil and South Africa.⁽¹⁵⁾

In terms of the WTO’s Dispute Settlement Understanding, once a complaint has been lodged, the parties to the dispute should try to settle the points of contention between themselves in a consultation phase not exceeding 60 days.  In the event of unsuccessful consultations, a panel would be appointed to adjudicate on the matter, and given six months to hand down its decision.

However, Brazil’s dispute with South Africa failed to proceed past the consultation phase. Although there is no official word indicating that Brazil has formally withdrawn its dispute, indications are that South Africa did not wish to proceed further with definitive anti-dumping duties on Brazilian chicken meat. In January 2013, South Africa’s Department of Trade and Industry rejected ITAC’s bid to impose definitive anti-dumping duties on Brazilian poultry. Instead it imposed import tariffs of up to 82%, a steep increase from the former 27%, on all poultry imports originating from countries with which South Africa has no preferential trade arrangements on the basis that the domestic industry was being affected by all chicken imports, rather than Brazilian imports only.⁽¹⁶⁾ With regard to general import duties, South Africa can impose the maximum of 82% tariffs, which is more than the anti-dumping duties levied on Brazilian chicken. Interestingly, Brazilian imports will now be more expensive when subjected to general import duties than they were when subjected to anti-dumping duties.

Why the dispute stalled

Several factors contributed to the stalling and abandonment of the dispute proceedings at the WTO. Of significance is South Africa’s decision not to impose definitive anti-dumping duties on Brazil’s chicken imports. In terms of the WTO’s Anti-Dumping Agreement, provisional anti-dumping duties can be in force only for a limited period of six months, and thereafter must be followed by a final determination, which has not happened in this case.

A case has also been made that South Africa’s decision to abandon its final anti-dumping duties was a strategic one, particularly in light of the fact that both countries are members of the BRICS alliance.⁽¹⁷⁾ It would seem that South Africa does not want to be viewed as targeting a fellow BRICS member, and as such opted for a more general import tariff that would affect all countries that do not have a trade pact with Southern Africa. Moreover, the timing of the decision to abandon definitive, targeted anti-dumping duties on Brazilian chicken meat, and instead impose a general tariff hike on all chicken imports, is significant. The decision was taken less than two months before South Africa hosted the fifth BRICS Summit in March 2013. One can surmise that South Africa’s decision was to allay any fears Brazil may have had, and to avoid contentions during the BRICS summit.

The abandonment of the WTO procedure has removed an opportunity for the dispute settlement body to make a binding ruling on the matter. However, this is not unique because the Dispute Settlement Understanding places a premium on allowing countries to settle their trade disputes out of court, to the extent that even if a dispute has progressed to other stages, consultation and mediation are always preferred avenues.

Impact of the chicken dispute on South African- Brazilian trade relations

While it is unreasonable to expect dispute-free trade relations, the revoked anti-dumping duties may not bode well for Brazil and South Africa. In June 2013, Brazil initiated dumping investigations on South African bus and truck tyre manufacturers and exporters.⁽¹⁸⁾ As part of the investigation, South African companies will be expected to respond to detailed questionnaires from Brazilian authorities. The outcome of the investigation will determine whether South African tyres will be slapped with anti-dumping duties. Should the investigation find that South African tyres were being dumped in the Brazilian market, it can be expected that anti-dumping duties will be imposed on South African tyres. In the event that South Africa disagrees with such a finding, then it has the right to declare a dispute at the WTO.

Notwithstanding these recent developments, trade relations between South Africa and Brazil have been growing since the demise of apartheid in 1994. In 2008, trade between the two countries was valued at US $2.4 billion.⁽¹⁹⁾ At the time that ITAC imposed the provisional anti-dumping duties and the subsequent general import tariff hikes on chicken meat, Brazil was the largest exporter of the product in the SACU market.  Since Brazil currently does not have a trade agreement with South Africa, this means that it is subject to general import tariffs.  European Union (EU) countries also export poultry to South Africa but are not affected by general import tariff changes because of the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the EU which allows European chicken imports entry into South Africa duty-free.

Even though there is no overarching trade agreement signed by the BRICS countries, trade among BRICS members has been identified as one of the pillars of their economic engagement. Issues of expanding trade links and increased economic cooperation through practical measures such as the BRICS Business Council have featured in the group’s agenda quite prominently. Both Brazil and South Africa are parties to the SACU-Mercosur preferential trade agreement which is aimed at governing trade relations and promoting trade between South America and Southern Africa. Mercosur is a customs union comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela. The SACU-Mercosur agreement was expected to enter into force after 2012 but this has not happened as the agreement is still in the process of ratification by signatory countries. Within this trade agreement, South Africa and Brazil are the major players. Brazil has put in place a so-called South-South policy primarily aimed at integrating and improving relations with strategic developing countries.  South Africa, touted as the ‘gateway to Africa’, was included in the Brazilian agenda. Moreover, both countries are members of the India-Brazil-South Africa (IBSA) Dialogue Forum which is aimed at promoting cooperation on crucial issues such as trade. Growing trade between the two countries and the concerted efforts to promote deeper economic integration appears to have prevented the poultry dispute from escalating further and affecting progress made.

The need for investment in the South African poultry industry

South Africa’s domestic poultry industry accounts for 17.4% of the agricultural sector and 37% of the animal products sector.⁽²⁰⁾ Nonetheless, the developments regarding Brazilian chicken imports have revealed that the domestic industry is less competitive than other countries. SAPA has admitted that the domestic poultry industry faces stiff competition, not only from Brazil but also from European exporters. SAPA has gone as far requesting protection from imports in the form of increased tariffs as shown by the increased tariffs on imported chicken in January 2013. The idea of South African government subsidies have also been suggested to enable the poultry industry to compete with international producers.⁽²¹⁾ However, the government is yet to commit itself to subsidies for this sector and has not made any formal comments on the suggestion made by SAPA.

The domestic poultry industry provides much-needed employment opportunities for 140,000 people. However, between January 2012 and May 2013, SAPA reported 5,000 job losses and the closure of five small-to-medium poultry farms.⁽²²⁾ Nonetheless, protectionist practices such as import tariffs that are aimed primarily at shielding the domestic industry are not the solution. What the industry needs is meaningful investment in the sector, sound business strategies and advanced production methods to ensure that it can compete with producers such as Brazil.

Concluding remarks

Anti-dumping duties are a perfectly appropriate response when the practice of dumping has occurred. As such, there is nothing remiss about the imposition of anti-dumping duties. That being said, although South Africa’s decision to back-track is rare, it prevented a fall-out in South African- Brazilian trade relations. Subsidising the domestic poultry industry is a viable option as it will bring down prices and assist the industry, but as with all trade issues, it must be compliant with WTO rules. Brazil’s anti-dumping investigation on South African tyres can create a fracture between the two countries and may even be the subject of WTO dispute proceedings.  Ultimately, as the current situation stands, South African consumers are paying the price for consuming local poultry.

Written by Precious Ndlovu ⁽¹⁾

NOTES:

(1) Precious Ndlovu is a consultant with CAI, and her interests lie in international trade law, regional integration, and international trade agreements in Africa. Contact Precious through Consultancy Africa Intelligence’s Finance & Economy Unit ( finance.economy@consultancyafrica.com). Edited by Nicky Berg.
(2) ‘Provisional payments on chicken meat from Brazil’, International Trade Administration Commission (ITAC), 12 February 2012, http://www.itac.org.za.
(3) Ibid.
(4) Ibid.
(5) ‘Agreement on the implementation of Article VI of the General Agreement on Tariffs and Trade’, World Trade Organisation (WTO), April 1994, http://www.wto.org.
(6) Viljoen, W., ‘Anti-dumping duty on chicken from Brazil. Are frozen whole chickens and boneless chicken cuts being dumped in the SACU market causing material injury to the domestic SACU market?’, Trade Law Centre, 15 February 2013, http://www.tralac.org.
(7) ‘A new chicken war’, Business Beyond the Reef, 24 February 2012, http://kekepana.com.
(8) Visser, A., ‘Chicken producers in South Africa intensify bid for import duties’, Business Day Live, 18 April 2013, http://www.bdlive.co.za
(9) Ibid.
(10) ‘Look who’s talking: Brazil files a complaint at the WTO against South Africa’s protectionism’, Brazilian Bubble, 12 June 2012, http://brazilianbubble.com.
(11) South African Wine Industry Statistics website, http://www.sawis.co.za.
(12) Joubert, N., ‘Managing the challenges of WTO participation: The reform of South Africa’s anti-dumping regime’, World Trade Organisation, 10 June 2013, http://www.wto.org.
(13) ‘South Africa semi-annual report under article 16.4 of the Anti-dumping Agreement’, World Trade Organisation Committee on Anti-dumping Practices, 2 August 2012,  https://docs.wto.org.
(14) ‘South Africa anti-dumping duties on frozen meat of fowls from Brazil’, World Trade Organisation, 21 June 2012, http://www.wto.org.
(15) ‘South Africa anti-dumping duties on frozen meat of fowls from Brazil: Request for consultations’, World Trade Organisation, 25 June 2012, https://docs.wto.org.
(16) Fraser, J., ‘South Africa- Brazil trade partnership hits potholes’, Inter Press Service News Agency, 12 January 2013, http://www.ipsnews.net.
(17) Ibid.
(18) Joubert, N., ‘Brazil investigating dumping by South Africa tyre manufacturers’, Trade Law Chambers, 24 June 2013, http://www.internationaltradelaw.co.za.
(19) ‘Fact sheet: SACU- Mercosur preferential trade agreement’, The Trade Beat, 10 August 2013, http://www.thetradebeat.com.
(20) Munshi, R., ‘State needs to shield poultry farmers from cheap imports’, Business Day Live, 30 May 2013, http://www.bdlive.co.za.
(21) Ibid.
(22) Stafford, T., ‘Kevin Lovell, SA Poultry Association CE’, Financial Mail, 16 May 2013, http://www.fm.co.za.