A Game of Chicken

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A business roundtable on agriculture was held in Johannesburg, where South African Deputy Minister of Agriculture Pieter Mulder addressed the US trade initiative. September 16, 2013. (Blake Woodhams/Flickr Creative Commons).

A business roundtable on agriculture was held in Johannesburg, where South African Deputy Minister of Agriculture Pieter Mulder addressed the US trade initiative. September 16, 2013. (Blake Woodhams/Flickr Creative Commons).

South Africa’s agriculture industry can breathe a sigh of relief. No, its farming exports will not lose preferential, duty-free access to the US market under the African Growth and Opportunities Act (AGOA)—but for a while, a tense trade dispute with the US cast a shadow over the agreement. The dispute’s aftermath and supposed resolution serves as a reminder that there are still rule makers and rule takers in international trade.

Implemented in 2000, AGOA allows over 7,000 goods produced in thirty-nine Sub-Saharan countries to flow tax-exempt into the US economy. As a reciprocal agreement, AGOA has brought the benefits of trade to growing African economies since enacted, including cheaper goods and access to US markets. So when the two countries announced a deal in June 2015 for 65,000 metric tons of frozen, bone-in poultry to enter South Africa (SA) duty-free, no one expected the ensuing dispute.

On November 6, Obama declared that SA’s preferential treatment under AGOA would be revoked in 60 days if they didn’t approve the first poultry quota—a clear threat. Despite the bilateral agreement, the process of receiving poultry shipments hadn’t moved forward since June, and US poultry producers and trade negotiators had lost patience. They tired of talking through round after round of what looked like red tape hurdles with little progress. Yet South Africa’s meat market harbors a growing and unmet demand—so why the holdup?

South Africa was by no means backing out. But lingering concerns over US issues with Salmonella and avian flu contamination remained unresolved. Periodic outbreaks of serious meat contamination – including recent incidents like E. coli at Chipotle – made South African officials question, but not explicitly reject, the safety risks involved in accepting US meat shipments. The delay was largely associated with technical minutiae as veterinary authorities in South Africa deliberated over affected US areas with the respective diseases, and whether American detection methods were adequate for preventing an epidemic.

But US negotiators were unrelenting. Pressure mounted on South Africa to open its market to US beef, pork and chicken; if they didn’t, the interruption of AGOA would cause key agriculture industries to suffer. Domestic South African groups were incensed, citing the US ultimatum as a coercive, bullying measure. One representative for the Congress of South African Trade Unions called Obama’s threats a “blatant attempt at extortion.” US annoyance with the lengthy health safety clearance process struck a distinct point of South African pride. The South African Poultry Association (SAPA) believes it is unfair for the US to pressure SA to simply accept “whatever lands on their shores,” when SA protocol includes a comprehensive assessment of the production chain.

This dispute and the US ultimatum demonstrate the persistence of Western-led international trade. Despite the rise of new players, and despite so-called reciprocal agreements, the economic interests of the US and other Western countries tend to be prioritized over the barebones survival and interests of others. Small states pay the consequences of unmitigated trade.

But a second trend in international trade might explain why the US is being so pushy. While classic protectionism – tariffs and quotas – is slowly dying, there are alternative measures fueling trade disputes. The root of the American reaction to SA’s health safety caution is a nagging suspicion of disguised protectionism. This can be anything that hurts another country’s commercial interests; it includes measures like government bailouts of domestic companies, wage subsidies, export and VAT rebates, export credits and financing from state-owned banks.

Thanks to these measures, protectionism continues to insidiously sway trade relations. Recent disputes have inspired policies to discourage covertly protectionist measures. Trade officials and regulating bodies like the WTO have a legal infrastructure in place to keep domestic industry laws in check. Many are even embedded in the very same administrative agencies that regulate US industries like food, drugs, agriculture and cosmetics.

Even hidden protectionism, however, does not necessarily afford small or emerging markets any leverage over the trade-dominating powers. While BRIC countries display high figures in covert protectionism, they are by no means the only offenders; larger economies commonly get away with it. For example, the EU rejects GMOs on the basis of uncertain long-term effects. France issued a loan guarantee to the financing arm of automaker PSA Peugeot Citroen. The US still has measures in place to prevent Mexican truck drivers from operating on their highways—not to mention all the padding that cushions domestic agriculture from the global market. In all of these cases there is a blurred line between industrial policy and export subsidy, much like in the AGOA dispute.

SA’s bargaining position is weak faced with the threat of losing the coveted US market. By comparison, the US is unfazed, unthreatened and therefore willing to turn up the heat. In a move reminiscent of a power-hungry time-out, the US is wielding a reminder that it is not to be disrespected. It’s clear who is setting the rules.

Even the most avid proponents of free trade (like the WTO) accept that health and safety standards will always be a trade hurdle. These barriers are necessary to guarantee consumer health and safety—after all, trade policies are influenced by security concerns. The WTO only stops supporting standards when they feel industry interest groups have influenced them beyond justifiable safety concerns or when the standards become discriminatory, i.e. baselessly harmful to one particular country’s industry. In South Africa’s case, though the poultry industry certainly spoke out, it was veterinary authorities who raised concern over the spread of bacteria.

On January 7, South Africa signed off on the meat quota and acquiesced to US pressure. Four days later the US announced it would nevertheless proceed to suspend SA agriculture’s AGOA benefits effective March 15, and would only reinstate them given the first meat shipment made it past customs by this date. Whether the concerns over avian flu and Salmonella contamination were founded or just a hurdle to foreign industry competitors can be argued either way, but the nature of international trade suggests similar friction will persist. Unfortunately, this development only reaffirms that countries with bigger, more powerful markets will continue to dictate the rules for those seeking access to them, whether or not hidden protectionism is employed.

 

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff, editors or governors.

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About Author

Alma Velazquez is an International Relations major with a double minor in Business Finance and Economics at the University of Southern California. She spent spring 2015 studying abroad in Paris at Sciences Po, where she completed French coursework on topics including Cosmopolitics and Contemporary Latin American affairs. Her primary interests are in Latin American economic development and in international trade and finance. She is particularly interested in the effects of the Southern Cone trade bloc and the political economies of non-state actors. Alma has conducted research on the Near Crises in World Politics Project with Dr. Patrick James. She is fluent in Spanish and French and works as a conversation leader at the International Academy on campus. She has also been a member of USC’s Teaching International Relations Program, and serves as a Global Initiatives Intern at the Los Angeles Area Chamber of Commerce.

 

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