Summary
The EC has initiated a process leading to the establishment of an arbitration panel to rule on the validity of safeguard measures taken against EU poultry meat imports under the EU-SADC Group EPA. While many of the EC’s objections are technically correct they ignore the wider context of the evolution of EU poultry meat exports, to which tariff reduction and ‘tariff standstill’ commitments contained in the pre-existing EU-South Africa TDCA made a unique contribution prior to the introduction of SPS related import restrictions in December 2016. With the progressive lifting of these restrictions, the longer term structural trend towards increasing EU exports of poultry meat to South Africa is beginning to re-assert itself. This needs to be seen against the background of concerns a ‘no deal’ Brexit could lead to a huge surge in EU27 poultry meat exports to extra-EU markets. In this context the current EC action can be seen as part of EU ‘no-deal’ Brexit preparations. As such this raises the spectre of the aggressive pursuit by the EC of the full implementation of nominal EPA commitments, so as to open up new market possibilities for EU27 export sectors facing the prospect of severe trade and market disruptions under a ‘no-deal’ outcome to the ongoing Brexit process.
On 14th June the EU requested formal consultations with the Southern African Customs Union (SACU) over its application of safeguard measures in the poultry sector, which affect EU exports of frozen chicken cuts to the SACU market. The request is tabled ‘pursuant to Article 75 (2) of the EU-SADC EPA according to which SACU and its constituent states (Botswana, Lesotho, Namibia, South Africa and Swaziland) have to act as a collective for disputes which concern collective action of SACU’ (2).
This challenge relates to the ‘extra duties imposed by SACU in September 2018’, amounting to ‘an extra tariff of 35.3% subject to a progressive reduction over a period of three and a half years’. The EU claims this safeguard duty is ‘not in conformity with the provisions of the Economic Partnership Agreement’ (1).
The EC argues the measures taken are ‘inconsistent with certain provisions under the EU-SADC EPA’, namely ‘Article 34 (2) of the EU-SADC EPA’. It argues while ‘safeguard measures can be legally adopted in exceptional circumstances to temporarily counter surging imports that threaten domestic industry’, the current measures have the sole effect of ‘replacing EU imports, worth earlier some €183 million a year, with the imports from other countries, such as the U.S. and Brazil (1)’.
The EC maintains it has ‘sought an amicable solution to the issue’, but ‘to no avail’. The EC expressed the hope ‘both sides can still find a mutually satisfactory solution in the course of the 40-day dispute settlement consultations’. If no solution can be found the EU will move onto ‘request the establishment of an arbitration panel’ (1).
According to the EC, the safeguard measures were based on ‘an alleged increase in the volume of imports into the territory of SACU causing or threatening to cause a disturbance and/or serious injury’. The EC argues the ‘alleged increase in quantity of import did not result from obligations incurred under the EU-SADC EPA and that ‘any import increase occurred prior to the application of EU-SADC EPA cannot be a result of the obligations incurred under the same agreement’ (2).
More specifically the EC argues the measures are inconsistent with the provisions of the EU-SADC EPA because:
- the assessment of the existence of a threat of disturbance and/or serious injury as a result of an increase in volume of imports was based on outdated import data;
- the measure at issue was adopted by a different authority from the one which opened the investigation, and on a different legal basis;
- the measure at issue has a different geographic scope than the investigation, which did not take into account the import data relating to SACU but was based on data relating exclusively to the Republic of South Africa;
- other factors such as the volatility of feed raw material prices, the increase in labour costs, diesel, electricity, plastic and cardboard boxes, duties imposed on the soya oilcake used in production of feed and imports from other countries were not appropriately taken into account in the analysis;
- the measure does not take into consideration that the imports during the period December 2016–September 2018 greatly decreased compared to the period covered by the investigation’ (2).
The EC argues the measures adopted ‘must not exceed what is necessary to remedy or prevent the serious injury or disturbance’; with the EC arguing the measures adopted appear to be ‘inconsistent with these requirements’ (2).
The EC further argues the SACU’s action are further in violation of the EU-SADC Group EPA since ‘the Trade and Development Committee has not been given the opportunity to properly examine the case’ as required under the SADC-EU EPA, and furthermore the Trade and Development Committee, and hence the EU, had not been ‘provided with the necessary data’ to ensure a thorough examination of the dossier before safeguard tariffs were introduced (2).
The EU’s case needs to be seen against the background of recent developments in the South African poultry sector. This includes a phenomenal expansion in poultry meat imports from the EU since 2009. This increase coincided with the phasing out of tariffs on imports of poultry meat from the EU under the 1999 EU-South Africa Trade Development and Cooperation Agreement (TDCA), which were ‘back-loaded’ to the end of the tariff phase down period (2000-2012) and the application of a ‘tariff standstill’ commitment under the EU-South Africa TDCA. The application of this ‘tariff standstill’ commitment exempted EU suppliers from both the application of anti-dumping duties (used against imports from the USA and Brazil) and the subsequent selective increase in MFN tariffs on poultry imports (within South Africa’s ‘bound’ tariff ceiling), in response to growing competition from imports on the domestic South African market (introduced in October 2013).
EU poultry meat exports to South Africa (tonnes)
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
| 5,136 | 16,152 | 89,620 | 130,017 | 151,075 | 196,295 | 211,310 | 272,498 | 76,825 | 81,127 |
Source: EC Market Access Data Base
The provisions of the EU-South Africa TDCA initially provided EU exporters with an average tariff advantage over 3rd country suppliers of 10% for 91.4% of the EU poultry meat products exported, with this margin of tariff preference increasing further with the application of higher MFN duties. This was an important contributing factor to the 53-fold increase in the volume of EU poultry meat exports to South Africa between 2009 and 2016 (see table above).
Impact of AI Bans on EU Broiler Meat Exports to South Africa (Tonnes)
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
| Total South African | 354,266 | 368,202 | 456,954 | 528,108 | 523,428 | 556,877 |
| EU | 148,104 | 188,079 | 194,685 | 262,352 | 76,422 | 70,395 |
| Brazil | 169,032 | 154,280 | 225,850 | 218,036 | 320,885 | 348,155 |
| % share EU | 41.8% | 51.1% | 42.6% | 49.7% | 14.6% | 12.6% |
| % share Brazil | 47.7% | 41.9% | 49.4% | 41.3% | 61.3% | 61.5% |
Source: SAPA, ‘State of the Poultry Industry’, 13 February 2018 – Point of entry for SAPA power point presentation
https://pmg.org.za/committee-meeting/25773/
By 2016 the EU exceeded Brazil in importance as a supplier of poultry meat to South Africa despite the cost disadvantages which EU producers face relative to Brazilian poultry producers (Brazilian production costs are estimated at 72% of average EU production costs).
A second major factor driving the expansion of EU poultry meat exports to South Africa was the push factor arising from the efforts of the Russian government to restrict poultry meat imports from the EU, as part of a drive to stimulate local Russian poultry meat production. In 2010 the Russian market took 208,401 tonnes of EU poultry meat (3), with this being progressively reduced prior to the complete ban on EU agro-food imports into Russian introduced in August 2014, which saw only 2 tonnes of recorded EU poultry meat exports to Russia in 2015 (3).
In many respects it was the South African market, served on the basis of the tariff concessions granted under the EU-South Africa TDCA, which ‘saved’ the EU poultry sector in the face of the progressive restrictions of access to the Russian market.
This growth in imports of EU poultry meat into South Africa however posed a serious challenge to the continued growth of the South African poultry meat sector, with major farm and processing plant closures resulting in significant job losses, despite the protective measures introduced against non-EU suppliers in October 2013 (4). The situation of the South African poultry sector was further compounded by a severe drought which increased feed costs and subsequently an outbreak of Avian Influenza which devastated South African poultry flocks.
A respite was only provided by the imposition of quantitative controls on imports of poultry meat from certain EU member states in December 2016 in the face of avian influenza outbreaks across Europe. This began to create market conditions for the revival of the South African poultry sector after a difficult period. However South African poultry sector companies have adopted a cautious approach, given the temporary nature of the SPS based restrictions on imports from the EU.
With SPS restrictions on imports from the EU being progressively eased the longer term trend in EU poultry exports under the preferential trade agreements concluded with South Africa and subsequently the SACU has re-emerged. This saw EU monthly export volumes from July 2018 consistently higher than in the preceding year, with overall in 2018 EU export volumes growing 7.7% compared to 2017 and from January to April 2019 EU export volumes to South Africa being 124% higher than the corresponding period in 2018 (5).
It was against this background of the emerging resumption of the previous trend in EU poultry meat exports to South Africa that safeguard measures were activated under the EU-SADC TDCA, the precursor of which provided the basis for poultry sector tariff preferences extended to EU exporters.
This is the wider context within which both the introduction of the SACU wide safeguard duties and the EC’s current challenge to these safeguard measures need to be seen.
| Comment and Analysis The EU objections to the SACU safeguard duties while at one level technically correct fail to take into account this wider context. Most notably in this regard was the origin of the growth in EU poultry meat exports to South Africa in the tariff preference granted EU exporters under the EU-South Africa TDCA, which provided the basis for the EU-SADC EPA tariff preferences EU poultry meat exporters now enjoy.While technically the EU-SADC EPA is indeed a separate legal agreement, in terms of its trade effects, it is merely an extension of the earlier EU-South Africa TDCA. From a trade and development perspective therefore it is necessary to view the new agreement as an extension of the pre-existing agreement. To argue otherwise, while legally correct, would appear to be in contradiction with the EU’s trade for development policy commitments since it ignores the realities of the trade developments which have taken place since 2010.The underlying structural problem of the trade in poultry parts from the EU thus remains and is likely to become a much more serious issue in the event of a ‘no-deal’ Brexit. A ‘no-deal’ Brexit is likely to halt the current EU27-UK mutual trade in poultry meat which exceed 1 million tonnes per annum (see companion epamonitoring.net article ‘ACP Livestock Sectors and the Collapse of Cross Party Talks to Resolve the Brexit Impasse’, 20 May 2019). This will leave both EU27 and UK exporters looking for new alternative markets. Based on the experience of the Russian import embargo it is clear the South African poultry sector has a firm foundation for fearing a large scale surge in imports of poultry meat from the EU under a ‘no-deal’ Brexit scenario. It is against this background that the EC’s decision to take the SACU to an arbitration panel if necessary needs to be seen. Indeed, taking all steps necessary to open up 3rd country markets to EU exports can be seen as an important part of the EU’s ‘no-deal’ Brexit preparations. In this context the current EC initiative to actively use EPA provisions to open up markets for EU exporters has implications which reach well beyond the SACU and well beyond the poultry meat sector. The EC is likely to take similar initiatives to utilise provisions to open up markets for EU exports in products most vulnerable to Brexit related trade disruptions across a range of concluded trade agreements, including those concluded with ACP countries. In the poultry sector the most vulnerable region would appear to be the CARIFORUM region. Beyond the poultry sector other product areas potentially of concern include: beef; dairy products; fruit and vegetables such as apples oranges and onions as well as sugar. Individual ACP governments will need to review their vulnerability to import surges in these products. The EC’s current challenge to the use of EPA safeguard provisions can be seen as a legal sleight of hand in response to the urgent need to assist specific EU sectors in making adjustments to likely Brexit related trade disruptions. There is a certain irony in the EU challenging the use of safeguard mechanisms aimed at preserving the space for continued local poultry sector development in South Africa, when the EU itself makes extensive use of tariff protection and managed trade arrangements to maintain the market space for the continued growth of the EU poultry sector. In the EU this is seen as essential given the underlying cost disadvantages of EU producers vis a vis their major competitions in Brazil, US, Ukraine, Argentina and Thailand (see companion epamonitoring.net articles ‘Report highlights vulnerability of EU poultry sector to liberalisation of trade in poultry meat’, 5 September 2017 and ‘EU Urged to Continue to Use High Tariffs to Protect EU Egg Sector’, 11 July 2019). Average poultry production costs per 100 kg: EU and international competitors
Without these trade policies, which insulate the EU poultry sector from the full force of international competition, EU producers would rapidly be restricted to the premium end of the market and the EU poultry sector would face not only an end of the current period of rapid growth, but also a major contraction of production. |
Sources:
(1) EC, ‘EU asks for formal consultations with Southern African Customs Union on trade in poultry’, 14 June 2019
http://trade.ec.europa.eu/doclib/press/index.cfm?id=2031
(2) EC, ‘’Note verbale’, European Union, NV/2019
http://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157928.pdf
(3) EC, Market Access Data Base,
https://madb.europa.eu/madb/statistical_form.htm
(4) SAPA, ‘South African Poultry Association 2017 Industry Profile’
http://www.sapoultry.co.za/pdf-docs/sapa-industry-profile.pdf
(5) EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 20 June 2019
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf