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SA lysine duty challanged - could open floodgates

by 5m Editor
17 July 2007, at 7:04am

SOUTH AFRICA - The way could be clear for cheap goods to flow into the country as SA clashes with trade partners. This follows a landmark court ruling against the state agency that administers trade tariffs, the International Trade Administration Commission (ITAC) of South Africa.

In May, ITAC controversially slapped a 160 per cent provisional safeguard duty on all countries importing lysine to SA. Lysine is an amino acid supplement used in animal feed, specifically for the production of poultry and pork.

The net of effect of the safeguard duty — one of the highest ever imposed by ITAC on any import — is that local consumers could be faced with further food price increases of chicken and pork, which could fuel higher inflation.

Jan Heukelman International Trade Consultants and Rainbow Chickens estimate that the 160 per cent duty could cost the broiler industry and other downstream industries more than R150-million a year, of which “the consumer will have to pick up the price tag”.

The Pretoria High Court has ordered ITAC to request that the South African Revenue Services, which publishes the duties, scrap the safeguard measure within two days. But ITAC has applied for leave to appeal the decision. Trade experts say the court ruling opens the door for an avalanche of court challenges against the ITAC and South Africa’s trade and tariff policies.

South Africa is now on a collision course with the US, EU and its Asian trade partners. Insiders have also warned that other industries could pay down the line , as South Africa’s trade partners could whack local exporters with high tariffs on their products in retaliation.

ITAC’s actions has also landed South Africa in hot water with the World Trade Organisation for breaching the trade body’s safeguard agreement. ITAC failed to inform the WTO or its trade partners of its intentions to impose the safeguard duty or prove that the circumstances are critical.

The controversy arose after several applications from local producer SA Bioproducts, which claimed that a rapid increase of imports was causing critical injury to the company. SA Bioproducts is the only producer of lysine in the South African Customs Union. It claimed it would be forced to close down if urgent action wasn’t taken against increased imports.

ITAC found that, at least for its preliminary decision, SA Bioproducts had shown sufficient evidence that a surge of imports had indeed taken place. Statistics show that imports of lysine increased 127 per cent between 2004 and 2006, and that import prices had dropped 45 per cent during that period because of global oversupply.

But German lysine importer Degussa, who is represented by Stephen Meltzer of Webber Wentzel Bowens, took the ITAC decision to court. They won on the basis that the 160 per cent duty was unlawful because the importers weren’t given a right to make representations.

Documents show that ITAC’s decision has effectively stopped all competition and created a monopoly, which SA Bioproducts is “starting to abuse”. Industry calculations show that SA Bioproducts has increased local market share by 6 per cent since the safeguard duty was imposed.

They’re also engaging in a form of import parity pricing, similar to that used by Mittal Steel — they’re exporting lysine at 20-25 per cent lower than the local price . “It’s worse than import parity pricing. The 160 per cent duty makes it 50 per cent more than import parity, making us the most expensive in the world,” said Gustav Brink, a trade consultant.

South Africa’s consumption of lysine is 9000 tons a year of which half is imported. It currently sells for around R13.50 per kilogram — just over R120-million a year . Imports last year accounted for 4500 tons of SA’s consumption, of which China’s share was 2500 tons.

Source: Legalbrief Today

5m Editor