PRESENTATION TO THE PORTFOLIO COMMITTEE ON AGRICULTURE, FORESTRY AND FISHERIES THEME: tariffs and subsidies in agriculture, forestry and fisheries

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PRESENTATION TO THE PORTFOLIO COMMITTEE ON
AGRICULTURE, FORESTRY AND FISHERIESTHEME
tariffs and subsidies in agriculture, forestry
and fisheries

• BILLY MOROKOLO
• DIRECTOR MARKETING AND PART TIME COMMISSIONER AT
  THE INTERNATIONAL TRADE ADMINISTRATION COMMISSION
  (ITAC)
• 18 SEPTEMBER 2012

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CONTENTS

• LEGAL BASIS FOR TARIFF ADMINISTRATION IN SOUTH
  AFRICAN CUSTOMS UNION (SACU)
• INTERNATIONAL TRADE COMMITMENTS
• INTERNATIONAL TRADE POLICY LANDSCAPE
• REWIND BACK TO 1994 URUGUAY ROUNDAGREEMENT ON
  AGRICULTURE
• SOUTH AFRICAN AGRICULTURAL TARIFFS BOUND AND
  APPLIED
• SOUTH AFRICAN AGRICULTURAL IMPORTS 2010
• PRODUCER SUPPORT ESTIMATE (PSE) BY COUNTRY
  SUBSIDIES
• FAST FORWARD TO 2000 RSA/EU TDCA TRADE
  DEVELOPMENT COOPERATION AGREEMENT
• INDUSTRY COMMENTS ON TARIFF LEVELS
• DAFFs TAKE ON THE TARIFF LANDSCAPE
• WALKING THE TIGHTROPE
• SUMMARY AND CONCLUSIONS

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LEGAL BASIS FOR TARIFF ADMINISTRATION IN SACU

• THE INTERNATIONAL TRADE ADMINISTRATION ITAC
  ACT. Act No. 71, 2002
• The object of the Act is to foster economic
  growth and
• development in order to raise incomes and promote
  
• investment and employment in the Republic and
  within the
• Common Customs Area by establishing an efficient
  and
• effective system for the Administration of
  international
• trade subject to this Act and the SACU agreement
• The object is achieved through the implementation
  of the following measures
• Customs tariffs focus of the presentation
• Import and export control,
• Administration of Trade Remedies such as
• Anti-Dumping DA recently applied to dumped
  whole chicken and chicken portions from Brazil
• Countervailing CV and
• Special Safeguards SSG.

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INTERNATIONAL TRADE COMMITMENTS IMPACTING ON
TARIFF POLICY ADMINISTRATION IN SACU

• South Africa has formal trade agreements with a
  number of countries and
• economic blocks.
• These trade agreements are aimed at improving
  market access to specific
• countries and usually includes the lowering
  of customs duties and other
• impediments to trade.
• The following trade agreements are currently in
  place
• SACU This is a customs union and no duties
  apply.
• SADC SOUTHERN AFRICAN DEVELOPMENT
  COMMUNITYFree Trade Agreement, all tariffs at
  0
• EU EUROPEAN UNIUON (27 member states) Free
  Trade Agreement, most tariffs at zero, except
  sensitive products such as wheat, sugar, maize,
  dairy and meat.
• 96 of imports from the EU are currently duty
  free with very little chance of increasing those
  tariffs.
• EFTA European Free Trade Agreement, most
  tariffs at zero.

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INTERNATIONAL TRADE POLICY LANDSCAPE

• The TDCA included a standstill provision. This
  provision prevented tariffs from being increased
  beyond the basic rate that was agreed at the
  start of the negotiations for the TDCA in 1996.
• Certain tariff lines, including maize, wheat and
  sugar that are subject to a tariff formula and
  are excluded from the standstill up to a certain
  limit.
• In general, South Africa has a fairly open market
  and approximately 40 of agricultural imports
  from all destinations enter the country duty
  free.
• South Africa has 996 agricultural tariff lines,
  of these, 396 currently carry a 0 duty.
• At the beginning of 2012 when the final stage of
  the TDCA is implemented, the number of lines at
  zero duty with regard to the EC EUROPEAN
  COMMUNITY will be 881.
• The lines subject to a formula duty (maize, wheat
  and sugar) are currently also at zero

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REWIND BACK TO 1994 URUGUAY ROUNDAGREEMENT ON
AGRICULTURE URAA

• URAA codified and disciplined border measures and
  all trade distorting domestic measures to
  establish a fair market oriented agricultural
  trading system
• Nearly all quantitative import restrictions were
  converted into tariffs Amendment of Marketing
  of Agriculture Products Act, No 47 of 1996 a
  response to URAA.
• During process of conversion, aim was to maintain
  same level of protection as was the case under
  import control
• All agricultural tariffs were bound and SAs
  applied rates for agricultural products were set
  at levels well below bound rates i.to. WTO WORLD
  TRADE ORGANIZATION commitments,
• Comparatively, SA still has a relatively low
  level of tariff protection on agriculture,
• The SA average tariff on imports is 9 while 17
  at the OECD Organization for Economic
  Cooperation and Development and 14 in non-OECD,
• Import tariffs are in the main lower than what
  South African agricultural products experience in
  the export markets (export tariffs)

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SOUTH AFRICAN AGRICULTURAL TARIFFS BOUND AND
APPLIED, 2004Average () per Harmonized System
HS Chapter
39.70
av
av
9.40
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South African Agricultural Imports 2010
FTAs EU, SADC, EFTA Envisaged FTA Comesa,
EAC Preferential Agreement Mercusor
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PRODUCER SUPPORT ESTIMATE (PSE) BY COUNTRY, EU
AND OECD AVERAGES

• The calculated support is expressed as a
  percentage of gross farm receipts,
• Following are examples of PSE extracted from a
  report published by the OECD in 2006
• EU 34
• OECD 31
• JAPAN 58
• US 20
• CHINA 6
• SA 5 (mainly border measures or tariff
  protection).
• The percentage indicates the extent of policy
  intervention by the state in the sector and
  contribute about 10 depression in world prices
  of commodities mainly due to subsidies,
• Level of global support is gradually rendering
  unsubsidized production unsustainable and
  unprofitable,

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FAST FORWARD TO 2000 RSA/EU TDCA

• South Africa signed an FTA with the EU RSA/EU
  TDCA that removed policy space that was in our
  schedules.
• most tariffs will be zero this year with the
  exception of sensitive products such as wheat,
  sugar, maize, dairy and meat.
• But sensitive products also have limits beyond
  which tariffs cannot increase (a bit of policy
  space to increase tariffs exist) standstill
  clause- examples
• Dairy R5/kg
• Wheat 50 ad valorem
• Meat 50 ad valorem,
• Sugar 105 ad valorem
• WHERE IS THE TARIFF POLICY SPACE AGAINST CHEAP
  IMPORTS?
• Policy space generally tight and reduced by TDCA,
  EFTA, SADC commitments and WTO bound rates,
• Need to renegotaite the new standstill provision
  in the TDCA Economic Partnership Agreement to
  remove upper technical limit.

On specific duties, effective protection eroded
over time as prices increased
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INDUSTRY COMMENTS ON TARIFF LEVELS

• Industry arguments against improved access for
  the EU includes the
• following
• EU producers are subsidized.
• Applied rates are generally low and the EU is
  already a big player on our market such as in
  dairy products powder milk and cheese
• Protection offered by specific duties is
  generally very low as duties do not keep trend
  with price and cost increases See graph below
• The TDCA was asymmetrically in favour of the EU
  and must be rectified.
• Policy space consideration for the conversion of
  specific duties to ad valorem to preserve
  protection over time

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Selected Dairy Products Ad Valorem Equivalents
Tariffs Product Bound Applied Milk Powder
96 R4.50/kg Whey Powder 96 R4.50/kg Butter 7
9 R5.00/kg Cheese 95 R5.00/kg
Standstill Clause TDCA As applied
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DAFFs TAKE ON THE TARIFF LANDSCAPE

• DAFFs tariff policy approach proposal to dti and
  ITAC was informed by the Sector Plan need for a
  clear and equitable tariff policy dispensation to
  address trade distortions at international
  markets caused by a range ofsubsidies that
  unfairly compete with our unsubsidized products,
• Took note that SA liberalized trade and
  deregulated markets faster while the multilateral
  trading rule system established to reduce
  distortions got stuck in slow movement WTO
  impasse on agriculture,
• Realization that tariff dispensation as applied
  may not be sufficient to encourage expanded
  domestic production of some agricultural
  products,
• That agriculture still remains an exception in
  the multilateral trading rules system. Much
  higher distortions are tolerated compared to the
  industrial sectors and therefore the sector
  deserves differentiated treatment

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DAFFs TAKE ON THE TARIFF LANDSCAPE

• That the tariff dispensation then considered
  market price disadvantage and did not broadly
  consider other factors such as subsidies govt.
  support into the agric sector as well as overall
  fragility of the sector.
• Noted that the application of tariff policy was
  generic across sectors and did not take into
  consideration the special socioeconomic
  importance of the sector,
• DAFF supported by sector players argued for a
  differentiated tariff policy framework to take
  into account the special features of the sector
  food security, rural development, absorption of
  low skilled labor, high labor absorption rate per
  Rm invested than any other sector, source of raw
  material for downstream agro-processing, etc
• The case by case argument for flexibility in the
  application of tariff policy on agricultural
  products is incorporated in the National
  Industrial Policy Framework NIPF and applied by
  ITAC,

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DAFFs TAKE ON THE TARIFF LANDSCAPE

• DAFF and NAMC are now playing an advisory role on
  all tariff applications for agric, forestry and
  fisheries products,
• Implementation of policies and instruments such
  as a tariff policy must take a strategic approach
  and generate wider impact on the broader
  agricultural development,
• Application of tariffs must be geared towards
  achieving certain long term outcomes such as
  industry growth, competitiveness, jobs, exports,
  etc and be linked to development policies and
  programs and not be implemented in isolation
• Noted that the importance of the sector must be
  seen to be broader than its contribution to Gross
  Domestic Product GDP importance always
  downplayed.

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WALKING THE TIGHTROPE

• Applications for tariff increase by primary
  producers always generate a negative reaction
  from downstream players within same value chain,
• Tariff increases on imported raw agric products
  have a potential to increase food prices
  negative welfare effects in the face of high
  global food prices,
• Low tariffs on primary products have an effect of
  discouraging expansion of domestic production
  crowd out primary producers dairy industry an
  example.
• Applications for tariff reduction always met with
  negative reaction from primary producers within
  same value chain,
• Given the above scenario, ITAC is expected to
  perform a balancing act to straddle the two
  divides farmers on one side and downstream
  industry and consumers on the other side.
• An industry based approach to tariff setting
  looking at the broader interests of the entire
  industry value chain is essential though a
  challenge.

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SUMMARY AND CONCLUSIONS

• ITAC operates under a prescribed legal framework
  (ACT) and within the bounds on Free Trade
  Agreements that SA signed implements what has
  been negotiated and agreed to,
• The sector to use tariff policy as a strategy to
  derive certain socioeconomic such outcomes such
  as increasing production and competitiveness,
  ensuring food security, profitability,
  sustainability, contribution to rural
  development, etc rather than a narrow focus on
  protection,
• Urged to also use Government policies such as New
  Growth Path NGP, Industrial Policy Action Plan
  IPAP, NIPF as a basis for arguments,
• Tariff setting is like walking on a tightrope
  attempting to balance two countervailing forces,
• Note that in the long run, the world might move
  into a FTA as such tariffs may no longer be an
  effective tool to address distortions in global
  trade,
• Available policy space is tight but could
  consider conversion of specific duties to ad
  valorem as well as the renegotiation of the
  standstill clause.
• Tariffs not only available tools AD, CV, SSG
  though complex to use for now.

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BRIEF ON THE CHICKEN IMPORTS FROM BRAZIL

• In February 2011, the South African Poultry
  Association SAPA submitted an application to
  ITAC alleging dumped chickens from Brazil,
• A full scale investigation on the application was
  initiated in June 2011
• In January 2012 and based on evidence, the
  dumping allegation was confirmed and ITAC
  recommended the imposition of preliminary dumping
  duties of 62.93 and 46.95 on whole birds and
  boneless cuts imported from Brazil provisional
  for 6 months to allow parties to resolve
  disputes,
• In June 2012, the Government of Brazil requested
  consultations with the Government of South Africa
  to try to resolve the matter,
• Consultation took place in July 2012 in Geneva,
• During the consultative meeting, Brazil raised
  issues on information used to arrive at the
  dumping decision, material injury, as well as
  procedure followed,
• The outcome of the bilateral was referred to
  Minister Rob Davis who then referred the matter
  back to ITAC,
• ITAC will relook at the issues raised by Brazil
  and correct where appropriate and resubmit its
  findings,
• Currently, the provisional anti-dumping duties
  have lapsed.

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• THANK YOU