Import Regulations: briefing by ITAC

Meeting report

The Chairperson said the International Trade Administration Commission (ITAC) would be briefing Members on import control and enforcement. They had requested for the briefing when they were considering ITACs’ annual report, because they needed to understand the status quo and also to understand what the efforts currently to curb anti-dumping were. Members wanted to know about ITAC’s experiences and also in what areas they wanted help. The Department had requested amendments to the International Trade Administration Act (ITA Act) during the current financial year, but due to time constraints, the Committee would not be able to do so. This was one piece of legislation that would be amended by the Sixth Parliament. However, it was important to know which areas needed policy adjustment.

ITAC on import control and enforcement

Mr Meluleki Nzimande, Chief Commissioner: International Trade Administration Commission (ITAC) said the Commission a body created by ITA Act, whose objective was to contribute to the growth of the economy in order to grow incomes and investment and employment. ITAC was charged with administering trade instruments set out in the Act, and primarily worked to contribute to growth in investments in the economy and employment. It carried out its work in two main ways:

• A permit-based system, in which a category of imports were allowed to enter a country, provided a person had permit; or
• Imports may enter the country, provided certain duties had been paid. The duties were imposed in order to support particular economic outcomes.

The same also applied to the export side, where ITAC gave exporters permits. The intention was to control the volume of products exported so as to retain enough of that product in South Africa and to support local industries that used or consumed that product. Alternatively, it imposed a duty which was intended to discourage the export of that product so that a certain quantity of that product was retained in South Africa for consumption to support public use of local goods.

ITAC also worked hand-in-hand with other departments to control or issue permits in respect of things and/or products that were of environmental concern. He had prepared the briefing document to talk primarily about the permit-based control of ITAC, but he would address what the Chairperson had referred to in her opening remarks.

Mr Nzimande said the permit-based system had to be distinguished from trade remedies, which were tariffs and, to an extent, countervailing duties. South Africa rarely used quotas, as mostly tariff measures were used. South Africa operated under the overarching framework of the World Trade Organisation (WTO) and specifically the General Agreement on Tariffs and Trade (GATT), which SA had ratified in 1993. The core of the agreements could be defined in two of its principles. One was free trade, which meant one treated domestic producers the same way as foreign producers of the same product. The second was the Most Favoured Nation principle (MFN), which stated if one gave a country an advantage, the MFN principle said that that advantage had to be extended to all members.

There were, however, exceptions where one was lawfully allowed to discriminate, such as if there was a free trade agreement (FTA) or a bilateral trade agreement (BTA). What South Africa had done in respect to duties was to state that there was a certain amount of duty beyond which it would not go. He gave the examples of cement and chicken. Cement had duties of 0%, while chicken had a maximum duty limit of 85%. All goods that were listed in the schedule of commitments had individual bound rates, and when SA used custom duties, it could not go beyond the binding commitments of WTO. For example, steel was charged between 10% and 15%, and tyres were 20% to 25%. Regarding policy, therefore, South Africa was limited as to what it could do. One had to look at whether products were being imported fairly or unfairly.

The WTO had a mechanism where one was able to go above the bound rate. For instance, in the case of cement which had a bound rate of 0%, South Africa could go above this in the following circumstances:

• If it could be shown cement was being dumped in South Africa. He gave the example of cement from Pakistan, which was being dumped. After investigations, anti-dumping duties of 60-64% had been imposed. Anti-dumping instruments were meant to curb unfair trade. He explained dumping, saying that if a bottle of water was sold in Pakistan at 100 dollars and came to South Africa at a price of 30 dollars, the difference between the two was called the margin of dumping. South Africa could impose duties only per margin of dumping. It also had to prove that those dumped goods were causing injury to the domestic industry.
• Subsidised products. An example of subsidised products was steel wire rope and cable from India. An ITAC investigation had determined the goods were being subsidised to the tune of 17%. So if the product was being made for R100 and government gave a R17 subsidy, the real cost of production was R83. SA was allowed to use countervailing duties to offset that subsidised margin. However, countervailing duty was more of a political issue. South Africa did not like using it, mostly because subsidies were mainly used by developing countries such as India and China in the BRICS economic community. However, if ITAC received complaints, it could not refuse, although when it made recommendations, they may not be taken up.
• A rapid sudden surge in increase in imports of particular goods. If, pursuant to WTO commitments, South Africa experienced a sudden increase in imports, it could use safeguard measures which were in the form of duties with an increasing rate. He gave the example of hot rolled steel from China. Safeguard duties applied evenly to all countries in the WTO, except for developing countries whose imports were insignificant, such as Taiwan. Safeguards, unlike anti-dumping duties, were used to counter either fair or unfair prices, as long as the industry was likely to get injury. Safeguards had not been common in South Africa, although they were now on the rise. This was also because most industries were not familiar with this duty. The instrument most recognised was customs duty.

Mr Nzimande responded to a question from the Chairperson, who had asked why anti-dumping duties were neither efficient nor sufficient. He explained that one of the causes, or rather ‘educated guesses,’ was that a significant portion of goods in the import basket came mainly from China. With China, one of the things South Africa had done a long time ago was to enter into a bilateral agreement which gave China a market economy status. The effect of that was that when ITAC conducted an anti-dumping investigation against China, it was a market in which the government played a dominant role, preventing it from operating under a free trade or free market regime. ITAC therefore looked at a country which operated under the same market conditions as China, such as Taiwan. In trade jargon, it was referred to as using a ‘surrogate country’. For example, when a bottle from China produces at a cost of R1 came into South Africa at R1, one could use the Taiwan economic situation to find it was actually being produced at a cost of R2, which meant it was being dumped in South Africa. However, China’s market status prevented South Africa from using Taiwan as an example. Notably, the viability of this approach expired after maturity of the accession protocol, when everybody was supposed to give China market economy status.

A lot of ITAC’s work came from industries approaching it to say an investigation was needed, so if an industry did not come forward, it was very difficult for it to perform its duty. While ITAC had the power to initiate investigations, in order for it to come to a reasoned and justifiable decision, it needed information. Without industry cooperating or providing information, it was difficult for ITAC to perform its work. There was some reluctance by industries to approach ITAC to requesting anti-dumping investigations, and the rate at which they were being approached had fallen significantly.

Discussion

Mr S Tleane (ANC) wondered whether the WTO regulations and conditions were tight enough to enable countries to know the pricing of goods in other countries in order to act whenever it was appropriate. In particular, he referred to the presentation on how China sold a particular product at a particular price, but lowered it when exporting. How easy was it for South Africa to know the pricing of other countries in order to act? What were the economic reasons or issues preventing ITAC from undertaking investigations, apart from when industries did not approach it?

The Chairperson took the opportunity to acknowledge stakeholders from the sugar industry who had walked in. and welcomed them to the meeting.

Ms A Mfulo (ANC) also needed clarity on a point raised in the presentation, that ITAC could not charge because of international obligations. Did that mean South Africa was allowing people to export products into the country that were already here? She could not understand why South Africa was taking products that it already had, because this would have the effect of limiting employment opportunities. She gave the example of clothes already here, while many more were being imported from China. She knew it was a free trade arrangement, but did it mean South Africans should be allowed to suffer?

The Chairperson said that trade issues were a little bit confusing, but it was important for the Members to understand what ITAC was talking about. Yes, China was a developing country, and South Africa owed it to them not to impose duties. However, the problem was that those goods coming in were harmful to South Africa. ITAC had pointed out that the primary function of import enforcement was to help with the growth of the economy. How then did one help products in domestic production that were struggling especially because of imports from international companies? What was SA doing to protect its industry? It had to accommodate other countries and develop friendships through bilateral agreements. South Africa’s’ history involved many people always being deprived and taken advantage of, and suppressing the ability of emerging entrepreneurs to thrive. That was not only a political issue, but also an administrative question.

Ms Mfulo also asked whether there was anything wrong when South Africa said it did not want a product. Was there any law prohibiting this? She gave the analogy of a home, where if someone did not want you in their home, that was that. However, in South Africa it was like everybody could get into one’s home and bed, and one could not do anything about it. ITAC was one of the country’s important economic bodies entrusted with running this important function, so import and enforcement controls had to be understood plainly. Why did South Africa not have a solution to this issue? Why had ITAC waited this long to research this area of anti-dumping duties? This would have helped in coming up with practical steps to ensured South Africa protected its local industries. When should Members anticipate a report from ITAC?

ITAC’s response

Mr Nzimande said it was not easy for South Africa to find information on pricing of a product in relation to a foreign country. As a result, ITAC’s regulations did not impose a tenably strict standard for an industry to provide prima facie information of price. If a simple invoice showing the domestic price in that country was provided, ITAC would start investigating. When ITAC started investigations, it engaged the foreign countries, who would give ITAC feedback.

On the question asking on what was preventing ITAC initiating investigations on its own accord, the ATA Act gave it the power to initiate on its own, but there was a question of practicality. For example, ITAC may approach a company with exposure in the US and asks it to give information on aluminium being dumped from the US. However, the company may export 50% of its output to the US, so this made the US a lucrative market for them, and would fear retaliatory measures that could cost it that market. They would refuse to give information on fear of retaliation. This impacted on ITAC’s operations as it would have no information to work with.

He gave another example of anti-dumping duties imposed on Pakistan cement. When ships came from Pakistan to drop cement, they took with them coal from South Africa on their way back. There was a threat that Pakistan would stop buying coal from SA.

He responded on the question concerning the consequences of South Africa being a signatory of the WTO multilateral trading system. South Africa benefited, as it could export its goods to other parts of the world. Other countries also wanted to export their goods to South Africa. South Africa was a small market, but most of the time local companies did not produce sufficient goods to meet the local demand of consumers and also export. He gave the example of the motor vehicle industry, where South Africa had an incentive to grow its exports. It allowed these companies to grow and this in turn led to an increase in revenue for South Africa, so in order for this to happen it needed this global multilateral system. However, this did not mean that South Africa’s industries should die. This had been a political choice, and the consequence of signing the WTO agreements.

ITAC did what was available within its means to protect industries. An example was the clothing and textiles sector, where maximum tariff South Africa could impose was 45%. However, even if one charged the total of 45%, clothes from China were still competitively sourced. Another example was white and brown chicken imported from Europe. In Europe, they preferred white chicken, while brown chicken had high preference in South Africa. Therefore, sometimes imports increased and ITAC had imposed up to 80% duties, but this cheap chicken was a source of protein for the poor in society. One had to balance between the EU as a cheap source of proteins to poor people, and protecting local industry. Furthermore, cheap chicken also forced local industries to moderate their prices.

The Chairperson commented on the example of chicken imports, and said that in South Africa there were sufficient producers. Was South Africa allowing additional chicken to enter the country in the name of encouraging competition and improving standards? How then did it promote and protect is industry? As Ms Mfulo had asked, could South Africa say no, because what ITAC was saying was that it was more interested in international relations? If ITAC said it was promoting competition, but at the same time this chicken was coming in with certain additives like brine, this puts the lives of local people in danger. Who was ITAC protecting at the end of the day?

Ms Mfulo said she had been studying the relationship between South Africa and China. Most of the time, China refused all products from South Africa whatsoever. An example was that of a screw that was made in South Africa -- China would refuse it, because it wanted a Chinese screw. They had also refused material while they were here in South Africa. When iron ore from the Northern Cape went to China they re-branded it and sold it back to the country. In her opinion, it would not be correct for China to be able tell South Africa where to go, but South Africa could not tell them where to go. South Africa should have a means of imposing conditions which China had to accept, even if it used tit-for-tat measures. She agreed that consequences were a result of political decisions, but as they were the administrative body, ITAC should always point out to politicians which way to go. It was their duty to advise.

The Chairperson added that what Ms Mfulo was saying was that ITAC was not the signatory to agreements, but the work of politicians was preceded by engagements by technocrats, who allowed or created the necessary environment for politicians to come in. If technocrats’ work was thoroughly done, politicians would base or use the advice that they were getting to have the information they needed when they signed agreements.

Mr Tleane said the population of South Africa was low compared China, which had over two billion people. Domestically, China’s market was huge compared to that of South Africa, so South Africa’s options were very limited. There was this thing in South Africa, where people were told that they needed to have small families so that they could survive economically. South Africa was starting from a disadvantaged point.

The Chairperson suggested that Members ought to look at Botswana -- its population and what was it doing to safeguard it. These were the issues that needed to be looked at, particularly with regard to the interests of the people. What came first? However, this was a debate for another time.

Mr Nzimande responded to the question of whether there were instances where South Africa could say ‘no,’ and said there were. For instance, one could not import second hand goods unless with an ITAC permit or unless one wanted to make rugs. Another example was the import of goods that were meant for poor people, where it would allocate a quota which meant a maximum level of goods. South Africa was a member of the WTO, so in some instances it could not say ‘no.’ This was because South Africa was bound by principles where they could not treat foreign products less favourably than domestic products. There were a limited number of circumstances which were exceptions, and South Africa could say ‘no’ to safeguard health standards and the national interest, for example.

On the contribution of technical advice by ITAC, he said that its technical advice was not always used. An example was the African Growth and Opportunity Act (AGOA). ITAC had imposed a very high level of customs duties against US chicken imports. On top of that, it had anti-dumping duties which together were basically like a wall for a long time. However, in 2015/2016, when AGOA was up for renewal, politicians and lobby groups had said that South Africa must remove anti-dumping duties against US chicken up to a maximum of 65 000 tonnes. South Africa had been forced to accept a deal of 65 000 tonnes. ITAC had been on the side of the chicken industry, and had advocated against this agreement. However, the US had stated that if chicken was not allowed, South Africa would be excluded from AGOA, meaning that all other products from South Africa entering the US would be charged the same duties as other countries, such as those in Europe. South Africa had therefore agreed. This was after negotiators representing South Africa had taken into account all the necessary factors. So it was not always that ITAC’s technical advice was heeded. He agreed with the Chairperson that most times, these agreements were based on technical aspects.

Mr Nzimande then addressed the issue of China, and whether South Africa could say ‘no.’ From ITAC’s technical point of view, China was not given any special preference over another country, such as Australia. If one brought evidence that China was subsidising its products, ITAC would recommend the imposition of countervailing duties on that product. It was up to the Minister who had the final say on the imposition of the duties. There was some degree of political sensitivity with respect to China.

Chairperson asked whether Mr Nzimande was essentially saying was that ITAC was doing what it could, but in the end it all depended on the politicians.

Mr Nzimande said this was true.

Regarding what ITAC was doing to make sure that producers in South Africa were protected, he said ITAC operated within a rules-bound system. It could do only what was allowed by the law.

On the question of why ITAC had taken so long to start using anti-dumping measures, he said that that South Africa at one point was one of the most prolific users of anti-dumping duties in the world. Over time, the use of anti-dumping instruments was decreasing. There were a number of reasons for this. For example, when the global economy was doing well, anti-dumping duties were high, but when it was doing badly, they were low. Also, ITAC had increased its number of on-site visits, do it might seem it had started using anti-dumping measures right now.

Chairperson asked whether ITAC was able to cooperate with other agencies in its investigations.

Mr Nzimande replied that ITAC actually did this. An example was the South Africa Revenue Service (SARS) customs division, with which they worked a lot. They also worked with the National Regulator of Compulsory Standards when enforcing standards. ITAC valued cooperation.

He addressed the issue of whether ITAC had resource constraints in respect of how they did their work. Currently, it had a 9% vacancy rate. One of the key positions ITAC wanted to fill was that of chief economist who could give their perspective of the economic impact study of ITAC’s work. This was because ITAC was trying to restructure its budget. Certain posts were being left vacant because of the financial constraints being faced.

Chairperson asked what happened to the incumbent economist

Mr Nzimande said that he had resigned in November 2017, and was now working with the Egyptian Authority. South Africa and Egypt were the only two countries that had capability. Others on the continent were struggling. Zimbabwe and Nigeria were asking ITAC for technical help.

Chairperson asked what other positions ITAC was struggling with.

Mr Nzimande stated that apart from the chief economist, there was a litigious environment in which ITAC operated, and therefore it needed a legal manager. It also needed a special advisor.

Mr Tleane asked whether Members could be given an indication of the particular prevailing conditions in the country with regards to the Southern African Customs Union (SACU) and what the challenges in that environment were.

Mr Nzimande said the union was compromised of South Africa, Mozambique, Swaziland, Namibia, and Botswana. The current SACU document had been signed in 2002. There was a process now to renegotiate that agreement. ITAC had been requested to provide technical input into that process. Some of the issues concerning SACU were sugar. South Africa and Swaziland were the main producers of sugar, while Botswana and Namibia were consumers of sugar. They wanted to start producing sugar and South Africa wanted to protect local producers of sugar, so there was tension between South Africa on one side and Namibia and Botswana on the other side. But generally, ITAC involved all the member states when administering its work regarding any recommendations or duties to be imposed on the SACU, and even when conducting investigations. However, the other states did not approach ITAC regularly to conduct investigations. The only issue that came to mind involved soda ash from producers in Botswana and Swaziland.

Mr Dumisani Mbambo, Deputy Chief Commissioner: ITAC, added that in the current SACU negotiations, all member states had been complaining that South Africa was benefiting more from it they were. However, 90% of the industries were in South Africa. ITAC was doing tariff settlements, thereby negotiating with a view of democratising the SACU and making it more involved. That was what was on the agenda.

Chairperson asked what the update on the sugar industry was.

Mr Nzimande stated that there were two processes. One was an ordinary process, where there was one variable duty that went up and down, based on a trigger. The last trigger had resulted in a rise from 42% to 55%, which would be implemented shortly. The other was an extra-ordinary process, where the basis of the trigger would change. That process was on-going. ITAC had received input from industry, and that input was currently in process. What remained to be done was to make a decision. He could not give an exact date, but was confident that ITAC would not exceed six months.

Chairperson asked what would happen to the industry during that process.

Mr Nzimande replied that there was relief in the 55% duty in the meantime.

The Chairperson asked whether that was sufficient, as she had observed that representatives of the sugar industry were shaking their heads. Further, she asked what the maximum duty ITAC could impose on sugar was.

He was not sure. He believed it was 85%, but it could be close enough to 100%.

Mr Tleane said that a few years ago there had been some talk about the need to create a free trade area (FTA), which was at initiative of the African Union (AU). Given the example of Britain, which had decided to pull out of the EU, he asked whether that FTA process was continuing or not.

Mr Nzimande said that there were two processes. One was the Tripartite Free Trade Alliance (TFTA) which involved the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC) and the Continental Free Trade Area (CFTA). South Africa had signed the TFTA and it was being ratified in Parliament.

The Chairperson asked what that meant for South Africa.

Mr Nzimande responded by referring to Africa’s population, which he estimated to be over one billion. The proportion of South African exports that were sold in the rest of the continent amounted to 26%. Thus, as trade restrictions eased between South Africa and the rest of the continent, it would be able to increase its exports. This was more so, especially considering the comparative advantage. For example, China was 14 000 kilometers away, while the Democratic Republic of Congo (DRC) was only 1 400 kilometres away, so it was quite an opportunity.

The Chairperson said that she had received information that the maximum duty South Africa could charge on sugar was 105%.

She asked for information pertaining frameless mirrors.

Mr Nzimande replied that there have been some anti-dumping duties that had been quite effective against frameless mirrors. ITAC had received a request by industry to extend anti-dumping duties by five years, and had therefore initiated a formal investigation through the Gazette by inviting interested parties to make submissions. That investigation would take about 12 months. It seemed there was a basis for extending the duties, but ITAC would only know once it received information from all the interested parties.

The Chairperson said that what was important was that ITAC was investigating the situation. She was asking this because most of the time, people said South Africa was lenient on China. The questions asked were not to undermine the efforts or the value of the work of ITAC. The Committee wanted to see South Africa supported at all times.

Because of the technical nature of ITAC, and the fact that the implementing actor was the Department of Trade and Industry, it was sometimes not easy for the Committee to really deal with these issues. However, she promised that the Committee would support ITAC fully to ensure the people of South African were protected. Members also wanted to know if there were in any areas where ITAC needed assistance from the Committee. The Committee could adjudicate this on ITAC’s behalf.

She concluded that the Committee had appreciated ITAC’s presentation, especially the plain language in which it had been presented for ease of understanding.

The meeting was adjourned.