Oral presentation by the EU Delegation to South Africa at the International Trade Administration Commission Safeguard investigation concerning imports of frozen bone-in portions of chicken of the species Gallus domesticus 8 August 2017, Pretoria

MAIN ARGUMENTS MADE IN EU SUBMISSIONS : The EU has complied with ITAC process… However, this is without prejudice to our position that: Provisional safeguard measures were not justified; Proceedings under Article 16 TDCA cannot simply be continued under Article 34 EU-SADC EPA; The conditions for imposition of a safeguard measure under Article 34 EU-SADC EPA are not met; Procedural and transparency rules have to be observed.

PROCEEDINGS UNDER ART 16 TDCA CANNOT BE CONTINUED UNDER ART 34 EU-SADC EPA EU-SADC EPA is a new, broader agreement (SACU-wide) with a set of safeguard provisions different from TDCA; Art 34 EU-SADC EPA implies causality between the increased import quantities and obligations incurred under EU-SADC EPA since its entry into force on 10 October 2016, notably: Increased importation into SACU as a whole; Resulting from the obligations stemming from the EU-SADC EPA; That had caused or threatens to cause serious injury or disturbances in SACU as a whole.

THE CONDITIONS FOR IMPOSITION OF A SAFEGUARD MEASURE UNDER ART 34 EU-SADC EPA ARE NOT MET No increase in imports has been demonstrated: No SACU-wide data has been shared. EU imports have steadily decreased since December 2016, with a 62% decrease in the 1st half of 2017 compared to 1st half of 2016; No increase as a result of obligations under EU-SADC EPA – SACU granted no further tariff concessions for bone-in frozen poultry portions under EPA in comparison to TDCA; No proof of serious injury or disturbances under EU-SADC EPA as it became provisionally applicable only on 10 October 2016.

EU POULTRY IMPORTS INTO SA cont. Since December 2016 – sharp decrease in EU imports; Overall, EU imports' share in domestic SA poultry consumption has not exceeded 14% in 2016; According to Country Bird, total bone-in portions imports account for 26% of SA poultry consumption – less than 1/3 of market; This is against a background of growing poultry consumption and demand globally; Consumption of breast meat expected to expand by 34% by 2023 – need to supplement domestic supply by imports.

EU POULTRY IMPORTS INTO SA cont. Domestic supply not enough – EU imports replaced by USA/BZ imports; Imports needed => despite the imposition of provisional safeguard duties on EU imports in 2016, total SA imports of frozen bone-in cuts have increased in 1st half of 2017 (133 600 t) compared to imports in 1st half 2016 (122 600 t); Clear indication that local production does not meet local demand.

OTHER FACTORS CONTRIBUTING TO ALLEGED INJURY HAVE NOT BEEN ADDRESSED 2016 hike in feed prices due to drought; Price competition – on average, EU prices are consistently above those of the other big importers – the US and Brazil; Brining - in the EU, if a poultry product is brined, it cannot be sold or exported as fresh/frozen meat but under a label "poultry preparation". SA industry has invested heavily in brining equipment, something they need to recoup; Fair trade – contrary to allegations, EU does not subsidize either production or exports Clearly, SA poultry industry faces multiple challenges:

SA POULTRY INDUSTRY CHALLENGES Challenges similar to the ones faced by EU poultry industry: high and volatile feed costs, changing demand patterns, need to adapt the value chains to fit new market reality and to optimise efficiency of the whole value chain; Challenges different from those faced by the EU industry: costs of electricity, fluctuating Rand, oligopolistic character of the national market with vertical integration marked by an inherent interest to maintain profit margins and resist change; The whole bird versus cuts myth – an artificial issue. Markets determine business and pricing models; All poultry producers in the EU adapt to demand and try to sell to markets where they can maximise price for the same product – normal competitive behaviour:

OPTIMISING VALUE CHAINS AND BUSINESS MODELS

Conclusions of SA Bureau for Food and Agricultural Policy and the National Agricultural Marketing Council poultry study "The inability to compete with these imported products is related to the value attached to different products by consumers in different parts of the world. Premiums obtained for chicken breasts in the EU allow producers to remain profitable even when a much lower price is obtained in the export market for bone-in portions. In South Africa however, the market is largely based on IQF pieces, which compete directly with imported bone-in portions, but the market for premium cuts is limited and producers therefore require a higher price for IQF pieces to remain profitable. Export possibilities for higher value products or whole birds could be considered, similar to the export of high value beef products into key Middle Eastern markets." Evaluating the competitiveness of the South African broiler value chain, BFAP/NAMC for IDC, 2017

EFFECT OF SAFEGUARDS ON CONSUMERS: "Under a safeguard duty, poor South African consumers who have a demand for less expensive sources of protein, will have to pay more for their protein, in effect subsidising inefficient poultry producers" Econex study commissioned by Shoprite, January 2017: http://econex.co.za/publication/research-note-43/ Poultry prices are already slightly on the rise compared to other elements of the basic food basket – NAMC June 2017; Current avian influenza outbreak in SA might further increase poultry prices.

PROCEDURAL AND TRANSPARENCY RULES HAVE TO BE OBSERVED Despite requests for clarification, still no indication if an Essential facts letter will be issued; ITAC's analysis of the arguments of all parties and ITAC's conclusions need to be shared to guarantee transparency and respect right of defence; Recent market data on imports and alleged injury should be reviewed, notably for 2017; SACU-wide dimension has not been substantiated by facts and figures.

CONCLUSIONS Art 34(7) EU-SADC EPA requires the Trade and Development Committee (TDC) to be supplied "with all relevant information required for a thorough examination of the situation" in this case in good time before the TDC convenes to examine the matter. This must include an Essential facts letter or equivalent. We trust that ITAC and DTI will take into account all arguments, facts and figures submitted to them and refrain from proposing imposition of definitive measures in referring this case to the TDC as they would clearly be in breach of the relevant EU-SADC EPA provisions.

Thank you for your attention! Dessislava Choumelova Trade and Economics Counsellor EU Delegation to South Africa Dessislava.Choumelova@eeas.europa.eu EU Delegation to South Africa http://eeas.europa.eu/delegations/south_africa Twitter: @EUinSA; @choumde; #SA_EUtalk