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Way could be clear for cheap goods to flow into the country as SA clashes with trade partners. Sharda Naidoo reports.

South Africa's trade barriers, which are used to safeguard local industries from a flood of cheap food and other imports, are in jeopardy.

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% 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% 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 on May 11 when ITAC launched a safeguard investigation into lysine imports and simultaneously imposed the duty.

This was 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% between 2004 and 2006, and that import prices had dropped 45% 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% 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% 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% lower than the local price . "It's worse than import parity pricing," said Gustav Brink, a trade consultant.

He explained: " The 160% duty makes it 50% more than import parity, making us the most expensive in the world."

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.

In public submissions to ITAC, the European Commission, in tandem with other importers and local downstream manufacturers affected by the lysine tariff, argued that the current case should rather be an antidumping investigation against China.

Lysine imports from China increased by 300%, while those from other countries by only about 10%. Prices from China were also about 30% lower than those of other countries.

"This is clearly an antidumping case against China, but we've penalised every other country because it's so difficult to succeed with these cases ," Brink said. "This will spark an avalanche of applications against ITAC if it goes through."

Over the years, South Africa has been an avid user of antidumping measures. This is the first time it has used safeguard measures. The closest it came to imposing safeguard measures was in the case of textiles and garments from China.

But, instead of imposing safeguard measures then, South Africa negotiated with the Chinese and they restricted their textile exports into the country.

Brink warned that South Africa is also in danger of reneging on its WTO concessions, which make it easier for the country's exporters .

"If any measure remains for more than three years, then we'll have to compensate our trade partners. Other industries will be punished at the expense of the lysine industry and could face additional tariffs on some of the products into those markets," he said.

- Sunday Times