12 January 2013

South Africa-Brazil Trade Partnership Hits Potholes

Johannesburg — As the five members of the BRICS group of emerging economies - Brazil, Russia, India, China and South Africa - tighten ranks and seek to expand their global influence, the inevitable trade spats have begun.

A decision last month by South African Trade and Industry Minister Rob Davies to pursue a general tariff increase on chicken imports in response to concerns that Brazil is "dumping" the product could also hit Argentina, a leading trade expert here has warned.

Duane Newman, director of the Johannesburg-based Cova Advisory, explained that Argentina and Brazil, both of which export significant quantities of chicken to South Africa, are the main countries without free trade agreements with Pretoria to protect them from the planned tariff hike.

"There could be some unintended consequences from Minister Davies' decision not to target just Brazil with anti-dumping duties, but to raise the tariffs," explained Newman.

Report reveals systematic 'dumping'

An investigation of the chicken trade between the two countries from 2008 to 2010, conducted by the International Trade Administration Commission (ITAC), confirmed allegations that Brazil was dumping whole chickens and boneless cuts of chicken on the South African market.

The ITAC's findings made a strong case for Pretoria to slap 'anti-dumping' duties on the South American nation.

According to the ITAC's report, anti-dumping duties can be imposed when there is a price difference between sales in a producer's own market and prices charged on exports, when there is material injury to producers in the importing country and when there is a causal link between the imports and the damage.

The report found that with regard to whole chickens, price undercutting by Brazil caused material injury to South African producers, a loss of market share and a loss of potential growth.

Similarly for boneless chicken cuts, the report found evidence of price undercutting, suppression of South African producers' ability to increase their prices, and a drop in sales volume, output, market share and growth.

The investigtion found that between 2008 and 2010 whole chickens from Brazil accounted for 36 percent to 44 percent of South African imports, while boneless cuts took between 94 percent and 97 percent of the South African import market.

According to Francois Dubbelman of the specialist trade consultancy F.C Dubbelman & Associates, who acts as advisor to the South African Poultry Association, "At that stage Brazil was the largest exporter to the Southern African Customs Union (SACU) of these chicken products, causing SACU producers injury."

"Thus the industry received no relief against the unfair trade from Brazil for at least five years - although ITAC found there had been dumping and material injury," he added.

South Africa's response

In January 2012, South Africa slapped provisional payments of between six and 62 percent on chicken imports from Brazil but failed to take the next step of imposing targeted anti-dumping duties on Brazil, shifting instead to a general imposition of higher tariffs on all chicken imports.

Newman called the decision a "rare" one, adding, "It will be interesting to understand the detailed reasons for the minister's decision as it seems as if he is disagreeing with ITAC."

Newman noted that the increase in general duties on chicken to up to 82 percent from the current 27 percent "will impact all imports of chicken, apart from (trading partners) with which South Africa has a preferential trade agreement like the European Union (EU), the European Free Trade Association (EFTA) and the Southern African Development Community (SADC)."

He said the countries that would be caught by the tariff increases include Brazil, Argentina and some Asian nations. There are existing anti-dumping duties against chicken imports from the United States into South Africa.

Some experts believe that Davies' decision came in response to Brazil's June 2012 complaint to the World Trade Organisation (WTO) about the provisional payments imposed by South Africa.

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