Question

AGOA CASE STUDY

New threat to AGOA benefits' by Kevin Lovell

SUNDAY, 02 OCTOBER 2016

SOURCE: ENCA / ANN (SOUTH AFRICA)

The United States poultry industry has warned that South Africa could once again lose its trade free access for many exports to the market if South African poultry and pork producers get a court injunction to block US chicken imports.

US Poultry and Egg Export Council (Usapeec) president James Sumner said that if the South African Poultry Association (Sapa) and SA Pork Producers Organisation (Sappo) won their court case “it probably would – and should – trigger another out-of-cycle review under Agoa”.

The African Growth and Opportunity Act (Agoa) is the US law which allows eligible African countries to export many products to the US duty-free. It has been particularly beneficial to South African automobile, wine, and fruit exporters.

But South Africa nearly lost its key Agoa benefits last year as a result of an “out-of-cycle” review triggered by US poultry, pork, and beef producers who complained that South Africa was violating Agoa by blocking imports of their products.

South Africa eventually negotiated its continued participation in Agoa by lifting 15-year-old anti-dumping duties for a quota of 65,000 tons of chicken parts a year and also lifted health restrictions which continued to block poultry, pork, and beef imports.

But Sapa and Sappo have now appealed the lifting of the health restrictions on imported US poultry and pork. Sappo CEO Simon Streicher has been quoted in South African media saying his organisation was not convinced the US was doing enough to prevent its pork bringing porcine reproductive and respiratory syndrome (PRRS) into the country.

Streicher told The Poultry Site that South Africa was one of only a few countries in the world where PRRS had been eliminated and Sappo was wary of allowing it back in. He said about 500kg of US pork shoulders had already been blocked since the concession was made because of PRRS concerns.

Sapa is appealing against concessions by the government concerning the standard salmonella protocol for testing imported products, because of the risk of people getting sick if contaminated poultry enters the country.

Sapa CEO Kevin Lovell said Sapa and Sappo’s appeals should not have a negative impact on the Agoa agreement, as it was not an attack on agreed quotas. “All we want is for the United States to follow the same protocols as any other country.”

However, Sumner was convinced that if Sapa and Sappo won their court appeals South Africa’s Agoa participation would once again be challenged. He also acknowledged that because of various problems, the US had so far only met about 10 percent of the 65,000 tons quota and was likely to fall far short of it by the end of the year.

Another major obstacle has been that two major supermarket chains, Pick ‘n Pay and Checkers, have decided not to import US poultry. Jim Wayt managing director of Intervision Foods, one of the US companies exporting poultry to SA, said he was convinced that this was because the supermarkets were trying to avoid public perception of health problems rather than because of any real health concerns.

“If we get a level playing field, rather than a Lovell playing field, we will be able to compete,” he quipped, punning on the name of Sapa CEO Kevin Lovell, who has been the chief opponent of US poultry imports.

Sumner also expressed confidence that the US would eventually be able to meet its quota once it had made the necessary contacts and got back into the market from which it had been excluded for 17 years.

The US could benefit from a possible imposition of tariffs on poultry imports from the European Union (EU), which now enter the South African market tariff-free under the EU-SA free trade agreement. Wayt said he was expecting the South African trade authorities to make a determination on this on 21 October. The protection which SAPA is seeking for what is says has been a surge of EU poultry imports is a 13.4 percent safeguard duty.

One of the major US complaints has been that it is not only competing with South African poultry producers but also with EU producers who had a huge price advantage

Sumner noted that even after the prohibitive anti-dumping duties on US poultry imports had been lifted for the 65,000 tons a year quota, US poultry producers were still paying normal duties of 37 percent versus zero for the EU.

“If South African poultry producers can’t compete with us after that duty, coming on top of our landed transport costs – South Africa is not next door to the US – then its not surprising chicken is so expensive in South Africa,” he said.

He also announced that the World Poultry Foundation would be coming to South Africa soon to discuss proposals for a programme to help and train disadvantaged South Africans to enter the poultry industry. Usapeec is funding that programme.

Assignment:

Use the AGOA case reported by Lovell (2016), above, to identify and discuss the most significant trade issues and their implications for economic growth and social welfare (on consumers and producers) in both countries concerned (RSA and US), given the rising protectionist sentiments in the US and the UK. In your economic discussion, use a combination of the economic theories and models listed below to identify and analyse the implications of a possible loss of the US’s AGOA benefits to South Africa – especially given the reported developments around meat products:

a. Production possibilities frontier; Trade gains and economic growth (relevant theories and models) (25%)

b. Government Intervention effects from instruments including import and exports (subsidies; tariffs (taxes), quotas, etc.) (25%)

c. Economic Welfare theories (Producer and Consumer Welfare models) (25%)

Answer 1

This case reflects trade relation between United states and South africa. South africa was enjoying the trade free access to many exporting markets. South african poultry and pork producers were fighting case against US poultry and egg export council, if south africa won this case then also it will loose the duty free trading in US. This will hamper the business of automobile wine and fruit exporters of the South Africa. As expected The US poultry , pork and beef producers complained againt south africa, that It violating the African growth and oppertunity act which is a US law.

The production possibilities frontier indicates the production possiblity of specific comodities which are polutry, pork and beef. This means the production of one affects the production of other commodities, due to availability of resources. Here the trader decides mix combination of comodities which is benificiery to the economy. the ppf assumes the technology is constant, resources are used efficiently, and their is only one choice between two comodities.

the production possibilities frontier gives the idea about the opertunity costs goes up when economic organizations must decided between two alternatives. Here ppf shows what number of comodity should be producied to get economic growth. the US not able to meet the whole requirement it fulfilled only the 10 % of the whole demand. Decreasing qulity of the product became the reson of public disatisfection. which lead to decreasing production. Due to this the economic welfare get hampered. Repetedly public complain againt the quality of the US polutry draged the business to down. most of the importes stood out from contracts. EU producers took the advantage of this situation they gain the price hike and whole market into their hands. the free duty advantage was given to EU producers while the US producers pays 37 % as duty.