Africa’s Limited Participation in Trade Remedy Actions

As reported by the below piece by ICTSD, Africa has limited participation in trade defense actions.

Africa’s limited participation in trade remedy actions (anti-dumping, countervailing and safeguards) is due to: the absence of national legal and institutional frameworks, the lack of expertise, the high cost of trade remedies, the availability of alternative instruments, the disorganization of the African business community, as well as political factors. 

National legal and institutional frameworks are the basic requirements for trade remedy actions but majority of African countries do not have such frameworks. Only five African countries have comprehensive national legislation on these trade remedies and only two countries – South Africa and Egypt – have fully fledged institutions. 

Putting in place national trade remedy legal frameworks and institutions can prove costly and time consuming as trade remedy investigations require a high level of expertise (well-trained specialized lawyers and economists), which many African countries can ill-afford. For instance, the WTO training programmes for poor countries have seen many beneficiaries of the programme leave government jobs to join the private sector or international institutions. This also remains a hurdle for African countries. 

Also the availability of substitute instruments such as tariff increment within WTO-bound limits, import prohibitions, and voluntary export restraint (VERs) arrangements is another reason for the low usage of trade remedies in Africa. For instance between 75 and 80 percent of African countries’ tariff lines are unbound, which means they could raise tariffs up to any rate without necessarily violating WTO law (WTO 2009). Also, though imports prohibition has been banned within the WTO, some African countries continue to resort to it with varied frequencies. 

Voluntary export restraints (VERs), which are banned within the framework of the WTO, are parts of some African countries’ trade defence strategy. In 2006, for instance, South African government struck a deal with China to restrict the latter’s textile exports to South Africa in order to relieve its beleaguered textile industry. 

Externally, African countries’ challenges also stem from the necessity to meet WTO standards and legal requirements. Many African countries do not have the economic and legal expertise, and the resources, to fully meet these requirements in carrying out investigations. Moreover, trade remedies are among the most challenged measures before the WTO Dispute Settlement Body and many African countries would have to hire international lawyers to defend their cases. In some cases, African countries producers and even trade officials have low knowledge about how to file a case, even where the laws exist. For instance, in the West African Economic and Monetary Union (WAEMU) countries, an anti-dumping regulation has existed since 2003 but only one case has been brought so far whilst many instances clearly show dumping red-flags could be raised. To avoid similar situations, Mauritius has incorporated a capacity building programme of the private sector in its trade remedy framework worth emulating in other African countries. 

Many African countries are also aid-dependent and this may influence their decision to resort to trade remedy actions against their trading partners, particularly if these partners are their main aid donors, source of investment, or former colonial powers. 

African countries also face the challenge of porous borders fraught with corrupt customs officers. Customs rules are circumvented or violated on a daily basis. 

Additionally, most African countries are part of regional economic communities. In this regard, adopting individual trade remedy schemes could be harmful to these customs unions or common markets. Indeed, the two key features of a customs union or common market are free movement of goods between the members and common external tariffs (CET) toward third countries. As a consequence, any border trade measure, such as anti-dumping or countervailing duties, has to be adopted and implemented by all the members at the same time.

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Kenya's Sugar Sector and COMESA Safeguards

According to sources, Kenya’s sugar sector faces a gloomy future as the end of the COMESA safeguards beckons.

In March 2004, the government requested a four-year cover that was granted with conditions from the Common Market for Eastern and Southern Africa (COMESA) council of ministers. However, Kenya is yet to meet any of the conditions, and the government now indicates it will be seeking another extension when the current one ends March 2014.

Agriculture secretary Felix Koskei says the government is keen on an extension of the protection. “We will explain to COMESA why we need an extension; we understand that we have exhausted our limits, but we still have the reasons to be given one more extension,” says Mr Koskei.

Kenya has exhausted the required allowance for the extensions as put in place by the COMESA treaty, and it is not clear whether the window will be extended.  The cover came into effect in 2003 and Kenya was given a four-year waiver that would see the importation of duty-free sugar from the COMESA market regulated. Kenya got extensions in 2007 and in 2011. Initially, the treaty would provide for a maximum of eight years, however, the waiver in December 2007 was amended to avoid contravening COMESA Trade Remedy Regulation which provide for a maximum eight years for the application of safeguards under the bloc’s terms.  COMESA reviewed the regulations to be in tandem with the World Trade Organisation’s agreement on safeguards which provides for a total of 10 years for developing economies.

A former chairman with the Kenya Sugar Board (KSB) and currently a director at the agency says political will shall override the COMESA treaty on the protection.  “At the end of the day, political will shall prevail over the treaty; each member country has own interest of protecting their sugar sectors which provides a source of livelihood for more than a million people,” says Mr Saulo Busolo.  Kenya is considered a large-scale consumer of industrial sugar, used in making cakes, sweets and pharmaceutical products, which are later sold within COMESA.  Mr Busolo says Kenyan consumers are paying exorbitant prices for sugar as a result of shielding the local manufacturers from increased competition from neighboring African nations.  “Consumers are parting with high prices in buying sugar compared to other African countries such as Mauritius,” he said, adding that Kenyans were paying more than two times the world average. Mauritius exports all the locally produced sugar and imports cheap sugar from the COMESA market to sell it to its citizens cheaply, he said. 

A World Bank report on Kenya released last week says the protection measures have contributed to making Kenya a high-cost sugar producer, hurting the consumer.The high cost of producing sugar in Kenya is attributed to high cost of farm inputs. Kenya’s average production cost stands at $950 per metric tonne compared to regional countries like Malawi where the cost is as low as $350 per metric tonne.  When the safeguards were granted Kenya was asked to, among other conditions, come up with a formula for paying farmers and sell the State-owned millers. Some of the State millers are Miwani, Muhoroni, Awendo-based Sony, Nzoia, and Chemelil. Currently, the payment is based on a farmer’s supplies and the industry average. According to the COMESA safeguards, the payment would be quality-based judged by sucrose content, not the bulk. The KSB, the industry watchdog, says a pilot is running in Sony and Nzoia. The impending sale of the millers has been delayed for years, the Cabinet having given it a nod in 2010. But it could not take off, partly because there was no law and having the Privatization Commission in place also took a while.

Critics and reviewers, however, have voted overwhelmingly for the sale of the former giants to inject efficiency backed by new investment, talent, and limited political interference.  Before the window closed in the first four years of the first extension, all these millers had a combined debt of Sh50 billion, one of the factors that delayed their sale.  The minister has blamed the delay in privatization on the last Parliament, that, he says, did not give the government the go-ahead. “Parliament did not give the Treasury the privatization go-ahead that would have started early this year,” said Mr Koskei. 

The government negotiated for the COMESA lifeline to allow the importation of 200,000 tonnes to meet the country’s deficit, whose total annual consumption stands at 700,000 tonnes against the local production of 500,000 tonnes.This comes even as the regulator has warned that it will cancel the licences of the sugar factories that would not comply with the sugar policy that requires all the millers to have more than one income generating project. The policy, to be implemented in the next 24 months by the KSB is aimed at protecting the local sugar industry from collapsing in the weight of cheap sugar once the COMESA window closes. KSB chief executive officer Rosemary M’kok says that the 24-month window period is enough time for all the sugar factories to have complied with the requirement. “The factories that would not have complied with our policy will definitely have their licences cancelled as KSB will not renew them,” Ms M’kok said. It would be mandatory for all the millers to produce sugar, ethanol and electricity as a different source of generating income, instead of relying on sugar alone.

The Year in Trade 2010

A good resource for anyone working in or covering the field of international trade. The USITC’s Year in Trade 2010 is one of the US government’s most comprehensive reports on U.S. trade-related activities, covering major multilateral, regional, and bilateral developments.

The publication reviews U.S. international trade laws and actions under these laws, activities of the World Trade Organization (WTO), U.S. free trade agreements and negotiations, and U.S. bilateral trade relations with major trading partners. The Year in Trade 2010 also includes complete listings of antidumping, countervailing duty, safeguards, intellectual property rights infringement, and section 301 cases undertaken by the U.S. government in 2009.