Business Maverick

TARIFF TRAVAILS

Government foot-dragging deprives the SA economy of billions, says global trade consultancy

Government foot-dragging deprives the SA economy of billions, says global trade consultancy
(Photo: Unsplash / Andy Li)

Since 2013, the pace of investigations and completion of cases relating to trade tariffs has all but collapsed.

Tariff investigation delays – laid squarely at the doors of the International Trade Administration Commission (Itac) and the ministries of Finance, and Trade, Industry and Competition – are costing South Africa billions of rands and squeezing out the very local businesses they were intended to help.

Global Trade Advisors, an international trade consultancy, released its third XA Import Duty Investigations report on Wednesday, in which it highlighted inefficiencies and foot-dragging that had worsened over the past decade, extending by almost five-fold Itac’s promise of completing tariff investigations within six months. 

A decade ago, an import duty investigation would take, on average, five months from initiation to implementation of the decision: in 2023, it averages 25 months. In 2013, the oldest investigation was open for 17 months; in 2023, the oldest probe was open for 52 months.

Shockingly, Itac has managed to complete only a single investigation in the past six months.

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This latest measure of Itac’s dismal performance over the past 10 years reveals an untenable position in which billions of rands are tied up in overdue import duty decisions, with the number swelling each month. 

By their calculations, not completing investigations within the benchmarked six-month period unnecessarily cost R2.6-billion in duties paid for products that are not available locally, while R4-billion was not collected in duties where protection had been requested.

XA Global Trade Advisors’ CEO, Donald MacKay, says companies are opting out of using these important trade policy instruments at exactly the time they are most needed.

“We now have the lowest level of import duty investigations in a decade. These are important problems to solve before we completely lose the use of these instruments.”

He says if the situation is turned around, billions will flow back into the economy very quickly.

Likening SA’s trade policy to an ice cream cone, MacKay explains that when they kicked off their previous report six months ago, their opening paragraph was that if you love localisation more than you love ice cream, then getting trade policy working properly is for you.

“We discovered that no one loves ice cream.”

That’s because when looking at policy, the cone really matters: it’s the boring part; it’s the process.

“It’s all the things that have to happen to make the policies work. If you don’t have that working properly – the infrastructure of trade policy, if you like – it doesn’t matter what flavours of policy you pile on top… everything simply drops to the floor because nothing is holding it up.”

If localisation is at the heart of SA’s economic policy to drive growth, then duty changes are not working any more, he says. 

“If localisation matters, then you need to have an effective way to implement the policy, and waiting almost five years for a decision is not the way to do that.”

Import (or customs) duties – taxes on imports applied before goods are allowed to enter the country – are determined by the tariff classification of the product. South Africa has about 9,500 tariff codes in its tariff book – about half of which incur no duties. The other half incur duties of varying sizes, depending on the amount of protection afforded to the domestic industry.

If a company or industry (such as from the poultry or tyre sectors), struggles with import competition, they can approach Itac to request a duty increase. Where there is no local supply, they are encouraged to apply for duty relief from Itac.

Once the application is in, Itac verifies it and initiates an investigation. Interested parties usually respond within about six weeks. After that, the process appears to go pear-shaped.

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South Africa is unable to measure how successful its trade policies have been over the past 16 years – when the country adopted its first true industrial policy, the Industrial Policy Action Plan (Ipap) – because implementation is woefully deficient, MacKay says.

Comparing the effect of Ipap, journalist Michael Avery, the facilitator, noted that between 1960 and 1994, SA’s GDP grew at an average rate of just under 3.2% per annum. From 1994 to 2007, GDP grew at 3.47% and unemployment reached a low of 22.4%. From 2007 – the year in which the Ipap was introduced – to 2020, it grew by 0.89%.

On Tuesday, SA’s unemployment reached 32.6% – a global chart-topper, as Ed Stoddard has reported.

MacKay says there has been a precipitous drop in the number of tariff applications with Itac – “something we have been predicting for a while”.

Matters are sitting with the two ministries for far too long.

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In 2013, when Itac was still concluding its work within five months, matters were with the ministers for about a month. That situation has gradually worsened, with no investigations completed in the first half of 2022, and four matters stuck with ministers for more than 25 months in the latter part of that year.

During H1 of this year, one single matter took 36 months to complete, having been with Itac for more than 30 months and with the ministers for about five months. 

“We now have the lowest levels of tariff application by the private sector in a decade (reflected in the below graph in orange). Companies appear to have lost faith in the system and are opting out.

“It doesn’t matter if it’s duty increases or relief; the number of applications has dropped to its lowest level in 10 years. At times of economic distress, we should see the use of trade policy instruments rising, and yet we find the very opposite happening.” 

One such company caught up in the morass of trade investigations is Macsteel. Mike Benfield, its CEO, says his company applied for protection duty on black bar steel in its bright bar facility – a high quality steel used in automotive and other manufacture.

“It was for a measly 10% protection, really just to get us on to a level playing field against imported products that are coming in at a very reduced price. 

“The application went in and the reciprocal requirement was that we would pass on the benefit to the end customer and commit not to retrench any staff in that business for (a certain number of) years.”

It was a condition Benfield found to be unacceptable because he had no idea what the market dynamic would be tomorrow – let alone in six months.

“It’s only 10% (protection) and the market dynamic changes continually. So you can’t commit contractually to these things when it’s a very fluid market price, which changes dramatically all the time. The imported product’s base price could drop 30%, and then the 10% matters not.”

Benfield says he believes such reciprocal agreements can’t work in practice because they’re “illogical” – if China drops the underlying price by 50% through its own subsidies, whether through the support of free money, or free electricity, South African businesses cannot compete with that. 

To see more detailed graphs and other data, XA Trade Advisors has now launched its own free-to-use Tariff Tracker portal which reveals all the data used in its report, including for how long cases are open and where the delays are.

Itac was approached for comment, but was unable to respond by deadline. DM

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Comments - Please in order to comment.

  • Kev 1 says:

    Just unbelievable how destructive this administration has been and worse, that they can not see it !!!

  • Craig A says:

    They are dragging their feet in Gucci and Versace shoes.

  • Robert Pegg says:

    As illustrated in this article the tariff system doesn’t work. I have been trying for over 20 years to get the DTI to consider an exemption to allow used fire trucks to be imported into SA. The reply is the same every time, no matter if it’s a Municipality without a fire truck who do not have the financial means to purchase an overpriced locally built new fire truck. The standard letter sent out says “no used vehicles are allowed to be imported”.
    To make matters worse they have imposed a 30% local content on NEW fire trucks to “safeguard” the local industry, which is so small it hardly exists. It makes no sense when public safety is involved.

  • Geoff Coles says:

    Patel again of course. Can SA afford his interference.

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