Dumping of Chicken in South Africa – How tariffs on imported chicken affect consumers

The media reports on the Sunset Review (“SR”) on existing Anti-Dumping duties (AD) always causes a stir and finds importers and exporters pitted against each other almost at “scream” levels. Current duties on imports on whole birds are at 82%, this is the maximum duty allowed in accordance with World Trade Organisation commitments. The current duty on bone-in chicken portions is at about 37%. The Sunset Review is a legal process triggered by the expiry of the 5-year term for which AD duties are usually in place. This is an opportunity for both importers and exporters to present their case to the International Trade Administration Commission (“ITAC”) on why the existing AD duties should be increased, maintained or removed, depending on which side you are on. Usually the importers want the duties to be removed and vice-versa for the domestic industry.

Understanding Anti-Dumping

Anti-Dumping is what we call a trade remedy, which is a form of international price discrimination, it refers to the practice of a firm selling the same product at a lower price in an export market than it does in its domestic market. Dumping becomes an unfair business practice and actionable under domestic and international law when it causes or threatens to cause material injury to domestic manufacturers producing an identical or similar product to the dumped import. Material injury is measured in terms of declines in the prices, sales volume, profits, market share, employment and other factors for the domestic producers. There must therefore be a necessary link (“causal link”) between dumping and injury without which remedial action by national investigating authorities is not permissible.

Anti-dumping actions are narrowly targeted at specific products from specific countries and, in those countries, at specific producers or exporters. Anti-dumping duties are imposed as protection for a SACU (Southern African Customs Union,which includes the RSA) industry against unfair trade, where foreign producers export products to SACU at prices lower than their domestic selling prices, causing or threatening to cause material injury to the SACU industry.

The Chicken Sunset Review

ITAC has published a notice of initiation of the Sunset Review of the anti-dumping duties on frozen bone-in portions of fowls (chicken) exported from Germany, the Netherlands and the United Kingdom. Prior to this step, ITAC would’ve notified interest parties, at least 1 year before expiry of the AD duties, advising them that unless the SACU industry submits substantiated requests indicating that the expiry of anti-dumping duties against imported frozen bone-in portions from the said countries, would likely lead to the continuation or recurrence of dumping and material injury, the existing duties will expire. It is against this background that ITAC has now published a Sunset Review notice. ITAC will now receive comments and presentations from industry associations, companies etc, whereafter it will make a final determination which will either terminate, maintain or increase the current anti-dumping duties.

How is Dumping determined

The first step to determine whether dumping is present is by way of calculating the difference between the price of the product sold in its domestic market e.g. Germany against the selling price in the export market (import country) e.g. South Africa .For demonstration purposes: a specific chicken portion is sold for R100 in SA, and for R50 in Germany, the difference, which is normally expressed as a percentage of price is known as the dumping margin. It is important to note that the calculation is done at the point where the products leave the factory. The sale referred to herein must be on normal commercial terms. Where the price of a product cannot be determined in the ordinary course of business, then other methodologies may be employed i.e. third country comparisons and/or a constructed normal value. Other factors considered in terms of the AD Regulations are:

• Material injury / threat of material injury, this takes into account sales volumes, profit and loss, output, market share, productivity, return on investment and cash flow amongst others
• Causality, there must be a causal link between the dumping and the ensuing material injury e.g. change in volume of dumped imports, price undercutting etc

The imposition of anti-dumping duties happens on all products ranging from steel, aluminium and even potatoes. The chicken case however has far reaching consequences since chicken is an affordable main source of protein for the majority of the population and as such any increase in tariffs may impact the ordinary man on the street. It is for this reason that the “chicken conspiracy” takes centre-stage each time there is a Sunset Review or new duties are imposed on imported chicken. It is also important to note that Western countries mainly consume the breast portion of chicken “white meat”, whilst the rest of the chicken i.e. quarter legs and wings referred to as “dark meat” are consumed by the rest of the world, especially in Africa. They thus have to find markets to “dump” the rest of the portions somewhere.

If you require any assistance in relation to this application, please be at liberty to contact us.

Ronny Mkhwanazi is Corporate & Trade Lawyer based in Johannesburg, South Africa. He is a former part-time Commissioner at ITAC as well as a former part-time lecturer on International Trade Law on the Trade & Investment Masters programme at the University of Pretoria.