While President Thabo Mbeki and President George W Bush were preparing to discuss the role of the world’s largest economy in the development of Africa last week, it emerged that Americans’ eating habits may well become a stumbling block on the road to a free-trade pact between the United States and Southern Africa.
At the core of this perceived threat lies the average American consumer’s health-induced preference for chicken breasts. In response the US producer view has rendered the rest of the bird dirt cheap — a view that is feared would destroy other domestic poultry markets if the same costing principle were applied to American exports.
It is also a view that has led to a stalemate position in bilateral talks between US negotiators and their South African counterparts over the methodology of formulating the cost of chickens.
Minister of Trade and Industry Alec Erwin said this week that no lasting solution has been found to two issues that have emerged in bilateral talks during the past year with the US — one of these was the US’s attempt to ‘obviate dumping problems confronting its poultry exports to South Africa”.
The other issue was South Africa’s efforts to structure a more stable environment for its steel exports to the US — the latest in the form of a recent South African steel industry delegation meeting with US government officials.
During this meeting the South Africans sought to placate the Americans’ concerns about purported surges in South African steel exports. According to Iqbal Sharma, chief director of bilateral trade at the Department of Trade and Industry, the delegation has assured US government officials that the perceived surge had its origin in ‘mainly the logistics of the shipment of the steel”. Also that local exporters have ‘endeavoured to maintain a disciplined and responsible presence in the US market without being disruptive”.
Erwin said no ‘lasting solution” has been found either to the problem of poultry or that of steel exports. ‘As [the Southern African Customs Union] and the US commence negotiations for a free-trade agreement, [these issues have] increased in prominence as a focal point for bilateral discussions.
‘These are areas where creativity and resourcefulness will be called for as protection in these sectors is high in the US.”
The degree of that creativity and resourcefulness will be challenged by the positions held in bilateral talks that have lasted for almost two years since the Board of Tariffs and Trade found that the US was dumping its ‘brown” chicken meat in South Africa.
The debate over chicken meat imports from the US has centred on the methodology for determining so-called dumping margins. The US prefers the use of net realisable value, which takes into consideration market preferences in the exporting country, while South Africa prefers the cost of production accounting methodology. Both methods are acceptable under World Trade Organisation rules.
According to the US methodology the American preference for chicken breast — the white meat part of the chicken — means it is the only part worth quibbling about; a view that could see South Africans paying as much as $1,15 a pound (about R18, 90 a kilogram) for chicken breast while the rest of the chicken could be valued at as little as $0,17 a pound (about R2,80 a kilogram).
The first round of free-trade agreement negotiations was concluded last month. Current talks focus on market-access issues concerning areas ranging from agricultural and industrial tariffs to trade remedies such as anti-dumping measures.
The parties have ‘agreed to disagree” on this methodology, deciding instead to focus on industry-to-industry cooperation and a US request that South Africa institute a so-called ‘changed circumstances” review.
According to Sharma the ball is now in the US’s court. Its negotiating team still has to suggest a date for industry discussions to start.
But, on the changed circumstances review, the position of the Board of Trade and Tariffs has been that ‘in terms of its own procedures, the government cannot institute a review of its own volitions but rather the US industry should, itself, apply for a review”.
The chicken industry in South Africa is huge: 11,3-million birds weighing on average 1,5kg are slaughtered every week. That amounts to about 760 tons a year, valued at about R7,5-billion, yet despite its size it constitutes only 0,8% of the world market compared with the US stake of 26%.
The local industry was hammered last year by a weak rand and the high price of maize — the dominant source of chicken feed.
Imports in the last quarter of last year remained largely unchanged during the first quarter of this year and equalled about 20% of local production.
Ironically, anti-dumping tariffs have so far this year kept the Americans out of South Africa. (Import tariffs are currently R2,20 a kilogram with an additional R2,60 charged in terms of anti-dumping regulations for portions with bone intact.)
Zach Coetzee, executive director of the Southern African Poultry Association, said the industry appreciated the government’s strong stance as concessions at this level could effectively wipe out the local poultry industry, together with the jobs of 74 000 workers.
The US is one of South Africa’s leading trading partners — in 2000 the trade balance favoured South Africa for the first time, with surpluses registered in the following two years as well. Exports to the world’s largest economy ballooned to R30-billion last year.
This could in part be attributed to the deterioration in the rand’s value relative to the dollar and to the enactment of the Africa Growth and Opportunity Act in 2000.
The Act has helped to boost exports, especially in sectors that are highly protected in the US and where, consequently, duty-free treatment has produced competitive benefits. Thus, 97% of local textile exports can be attributed directly to the Act — for agricultural products the figure is 62%.
But the legislation is far from perfect: product duty-free benefits are reviewed yearly, raising the prospect that a product could be removed from the Act’s list, leaving industry players in the lurch when they plan.
The recent Corporate Council on Africa Summit discussed these issues with a view to pressing the US government to eliminate the annual reviews and to extend the life of the Act from 2008 to 2018.