International Trade Administration Commission of South Africa (ITAC) Q4 2021/22 Performance; Committee Oversight Report

Meeting report

Opening Remarks
The Chairperson welcomed the International Trade Administration Commission of South Africa (ITAC), reminding Members that the Committee was to assess its financial and non-financial performance against its allocation of resources in terms of section 5 of the Money Bills Amendment Procedure and Related Matters Act.

Presentation by ITAC on its financial and non-financial performance for fourth quarter of the 2021/22 financial year
Mr Dumisano Mambo, Deputy Chief Commissioner, ITAC, made the presentation as the position of Chief Commissioner was vacant.

He informed Members that in recent years, government had attempted to follow a coordinated approach to assist industry, using complementary measures to support growth and ITAC had administered trade instruments in a manner that contributed to inclusive economic growth, in particular, an increase in investment, employment and incomes. ITAC intended to intensify its monitoring of performance against reciprocal commitments by those industries which received support from ITAC.

To support the vision of the South African Automotive Masterplan of creating a “globally competitive and transformed automotive industry that actively contributed to the sustainable development of South Africa’s productive economy”, customs duties for components and vehicles had remained stable at 20% and 25%.  An incentive was afforded to the vehicle assemblers to offset the customs duty on imported original equipment components received. Calculation of benefits under the programme was complex and detailed, requiring on-site verification of financial information to ascertain compliance with requirements of the programme. Verification was necessary to ensure the integrity of the programme and prevent undue benefit to participants at the expense of the fiscus, but ITAC had conducted 100% of the verifications within the set timeframe of 90 days.

Mr Mambo provided details of trade remedies and anti-dumping actions taken by ITAC against companies as it was companies, not countries, that dumped goods. During the quarter under review, 4 788 import permits were issued against the target of 4 000. The majority of the permits were issued in respect of imported products used in the following sectors: marine resources, mineral fuels and oils, chemicals, rubber and tyres, metals, capital goods and mechanical appliances and automotive goods. Export permits issued in the quarter under review amounted to 4 146, against the target of 3 000. Most permits were issued for used motor vehicles, i.e. 2 515.

98 people were employed at ITAC. There were seven contract and two internship employees in the period under review. The employee-related costs were below budget as a result of a number of vacant positions.

ITAC’s finances were well controlled during the quarter under review, which assisted it in successfully navigating an extremely challenging financial environment.

(See presentation)

Discussion
Mr M Cuthbert (DA) was concerned about the poor presentation. It was sub-standard. He understood the staffing challenges at ITAC, but that did not excuse it from bringing a sub-standard presentation to the Committee.

Mr Cuthbert was horrified to hear about preserving policy space while there had been no mention of specialisation or comparative advantage in the tariff applications and the way in which the tariff applications were processed. It was, instead, to preserve as much policy space as possible. That was a line that the World Trade Organisation (WTO) Ambassador had used on the Committee repeatedly. There was no discernment as to whether SA was comparative in a group and whether or not an industry was self-competitive and did not need government protection to survive. Each of the technical slides spoke to protectionism and more protectionism without any understanding or consideration for the economics at play. That was particularly concerning. Things were not taken from an empirical or evidence-based point of view but taken by a lackey of the Minister’s whims.

He asked whether the Committee could be provided, within seven days, with a list of all of the goods that had been subject to the localisation policy, i.e. the 20% of non-petroleum goods, what tariffs had been applied for, what had been granted and the measures granted, and what the value of that was to the economy. Also how many jobs pledged for that application were actually either under consideration or had been approved? He would be satisfied if ITAC could respond orally, but he did want the information in writing as a document that Members could refer to later on down the line.

From a Human Resources perspective, he asked how far the process was in the recruitment of a new Chief Commissioner as he understood that Commissioner Nzimande had left to go back to the private sector. He believed that it had been a couple of months previously that he had announced that he was going back to PWC. When would the new person be appointed and what was the process? When would the position of Chief Economist be filled and how long had that position been vacant? He did not understand how an entity could operate with two key positions being vacant.

Mr D Macpherson (DA) echoed Mr Cuthbert’s views on the lack of preparation by ITAC. It was sub-standard and embarrassing. A presentation of 20 minutes was just not good enough for an important entity. It spoke to a lack of preparedness and tardiness.

He asked what the ITAC policy was on poultry tariffs on the importation of chicken and whether it assisted low income, poor South Africans that required poultry as the cheapest source of protein. Did ITAC not believe that they had to have the best interests of consumers at the centre of decisions on tariffs? Would ITAC support a reduction in tariffs on poultry?

Mr Macpherson also asked why the Commission continued to act with speed on tariffs related to politically expedient issues but took ages with other tariff matters that were not in the policy space?

Ms N Motaung (ANC) asked what role ITAC was playing in transforming the economy and in structural transformation. She noted that ITAC was an entity of government that should be contributing towards transformation and economic growth. 4788 import permits had been issued against the target of 4000; what was the reason for an excessive number of permits issued? How many women and youth were issued with permits?

Dr M Tshwaku (EFF) appreciated the short and to-the-point presentation. Long presentations were confusing. The Committee resolution tracker should get going, even when the Committee asked for more information. He could always ask for more clarity, if he wished.

He noted that government needed to protect labour-absorbing industry by increasing the tariffs. He wanted to know if it was the case that people bought local when tariffs were put on imports. When SA had opened up its economy in 1994, it had been a featherweight in the ring with heavyweights and everything had gone haywire.  SA production had dropped because it was easier to import than to manufacture when tariffs were imposed on specific goods. Had ITAC done a study to determine whether local production had increased? Why had dtic and ITAC allowed the USA to dump chickens in SA? Why was it necessary to import chickens from Brazil when it was easy to breed chickens locally?  He had bred chickens during the lockdown and it was easy, so why was the industry not protected by tariffs so that local jobs could be created in the poultry industry?

Dr Tshwaku asked why ITAC had not increased tariffs to promote the clothing industry in Cape Town. Currently, people were buying clothing from overseas via IT applications. SA could not compete with the first world as SA had not moved from the legacy of apartheid, so government had to protect labour-absorbing jobs. SA was a developing country.

He also asked what legal business or litigations ITAC had been involved in as he had seen that expenses included legal fees.

Prince Z Burns-Ncamashe (ANC) said that he had to put things into perspective. Everyone in the Committee and in SA was becoming impatient with, and intolerant of, reports on planning about planning and reports about reports, so ITAC had to be commended for changing that approach. There was an obsession with the ANC government as a devil, but there was a saying that went: ‘Give the devil his due’. The reality was thatthe opposition parties, especially the DA, would never be happy with anything and everything good done by the government, its department or their entities.

Mr Cuthbert called for a point of order. He asked if the point of the meeting was to put questions to ITAC and not to attack opposition political parties.

The Chairperson said that she would allow Prince Burns-Ncamashe’s statement as it was a political statement.

Prince Burns-Ncamashe thanked the Chairperson for her ruling. He said he was responding to a political statement. South Africans had the right to know about things without distortions.

He added that SA lost R250 million a day in illicit trade. What measures had been adopted to work with SARS to stop that? ITAC had an important role in dealing with illicit trade practices so that not a cent was lost to the SA purse.

Ms R Moatshe (ANC) agreed with Prince Burns-Ncamashe on under invoicing. She asked about counterfeiting invoices. What was ITAC doing to combat the issue?

Mr W Thring (ACDP) referred to slide 7: tariff investigations. The presenter had said that ITAC had done a lot with regards to investigations, but “a lot” was a relative term. Looking at the bar graph of the number of applications versus positive determinations for increases, he saw that the graph showed number “4”. Was that a lot or was it a dismal figure? Could Mr Mambo define “a lot”? Could ITAC name the countries that had been guilty of dumping and what measures had been taken against them?

He asked if ITAC had identified industries where there was a comparative as well as a competitive advantage and had SA been able to utilise those advantages to create economies of scale. If not, why? If so, in which sectors were those advantages evident?

Mr C Malematja (ANC) said that a long presentation did not always give the gist of the matters. With a short presentation Members would not be confused. Sometimes long presentations just used English to impress people who had been to good schools, but it was not always what Members wanted to hear. He noted that there was no reporting on the recruiting of interns or graduates. Did ITAC have a programme of recruiting graduates to make education fashionable?

He addressed Slide 7. He noted in 2007/8 when economic measures had led to the depression. In 2012-14, there had been a recovery. Was the dip in performance in 2021 due to Covid? If so, the Committee should not hammer ITAC when it appeared to be increasing its work post-Covid. He was just looking for confirmation of his assumption.

Mr S Mbuyane (ANC) stated that the presentation was extremely informative. He reiterated the mandate of ITAC. He asked about the rules of unfair trade: the anti-dumping measures, countervailing measures and safeguard of imports measures. What was the negative impact of dumping on the SA economy? How had ITAC been able to mitigate the unfair trade practice?

Regarding 2021/22 financial matters, he asked about the 21% underspend in the fourth quarter. Why was there underspending on staff costs and legal fees? Concerning the issue of the protectionist programme, he asked if there were companies in the protectionist programme and, if so, how many companies were there and which commodities did those companies deal with? The economy was concentrated and in the hands of the few who were grandstanding in the Committee. He asked how black industrialists were being assisted to transform the economy.

The Chairperson asked about the investigations into garlic and pasta. What was the reason for the delay in the trade remedy investigations? What was the outcome of the ITAC reports issued throughout the quarter and what was the impact of the reports on the economy?

Mr Mambo explained the “policy space”. When a country joined the WTO, the country committed to certain levels of import tariffs that could be imposed on any imports coming into the country. The “policy space” was the difference between the commitment to the WTO and the applied rate in the country. For instance, SA had committed to the WTO that it would not exceed 50% on automobile imports but the tariff currently stood at 45%, which meant that 5% was the policy space. Duties could be at the maximum level but one could still have policy space to counter unfair trade. When a country sold goods in SA at a lower price than on that country’s own markets, that was known as dumping. For example, Europeans and Americans took the chicken breast and shipped the rest of the bird to Africa. That was good for consumers but detrimental to producers and could kill industries. They were not trading fairly; they were just recovering what money they could for the other parts of the chicken. It was not price competitive. Policy space was moving away from the maximum rate, which was usually applied, and looking at anti-dumping measures as a more effective measure.

Mr Mambo said that it was rare that ITAC could initiate its own investigations. It had to respond to applications from companies or industries that required assistance. After the lockdown, ITAC had tried to reduce the timeframe for investigations. It had reduced investigations to six months and even four months for companies that were in distress. In addition, ITAC extended permits to assist companies to recover in the current economic state of the country. That was ITAC’s contribution to the economic recovery. Permits were regulated, but if a company was allowed to use a permit for a year and if that permit had not been fully utilised in the year, it could be extended. Sometimes it was decided at executive level to extend permits but ITAC still had to undertake a full investigation before implementing such an executive decision. ITAC usually supported dtic requests for support.

Regarding youth and women, Mr Mambo pointed out that ITAC did take into account the number of employees in a company but specific reference to youth and women was not the criteria. It was about the company and the needs of the company. Companies were not required to provide details about women and youth, but those details could be used as motivation.

ITAC did not have a policy to protect industry as it worked within SA’s commitments to WTO and did not go beyond those commitments, although it could go to the maximum of the commitment, e.g. it could go up to 50% import duty on cars. Most countries at SA’s level of development had higher tariff limitations. When SA had joined ITAC, the country had agreed to very low customs duties. Consequently, imported goods were frequently lower than SA prices, including those from China. Consumers went according to price, not product or producer, especially now that the quality of goods from China was much improved. It was difficult to protect industries. ITAC did not have a protectionist policy -  it was the market space. China could move to much higher import tariffs than SA could because of the WTO commitment.

ITAC was aware that under invoicing undermined tariff policy. Mr Mambo explained that there was a task team that was looking at combatting under invoicing. Government had come to a realisation of the extent of the problem and had created an inter-agency working team to combat the problem, but the team needed more resources. ITAC did support the SA Revenue Service (SARS).  A provision to allow second hand overcoats to be imported into SA was being abused so there were efforts to get rid of that provision. Cars were another example. If ITAC had not combatted the import of second hand cars, SA would be in the same position as neighbouring countries where it was very difficult to develop an automobile industry because some countries exported second hand cars when they had passed their permitted lifespan.

He addressed the question of which countries were dumping in SA. China was the main country that dumped manufactured goods because they could exercise economies of scale in China by mass producing. South Africa had been protected by the poor quality of goods but now South Africans bought the goods because the quality of goods from China had improved significantly, although they were still mass produced. Brazil dumped agricultural products, as did Europe and the US because their agricultural products were subsidised. The Americans and Europeans kept the breasts and exported the rest of the chicken, the brown meat. ITAC could take action to stop the goods coming into the country but SA had an interest in allowing things like chicken to be imported from the USA and Europe so that SA was able to export cars to them in return. The SA market could not absorb all the cars it produced. He reminded Members that they were talking about trade and so there was always a ‘give and take’.

Mr Mambo requested his colleague to respond to the question about interns, which he knew had been addressed on one of the slides.

Mr Phillip Semela, General Manager: Corporate Services, ITAC, informed the Committee that the process of employing the Chief Commissioner was a process controlled by dtic. However, ITAC had appointed an economist who would start the following day, 1 June 2022.

Regarding the intern programme, he stated that a lot of ITAC’s investigators and managers had come from the internship programme, but the programme had slowed down due to the constraints in finances. ITAC had recently employed two interns but was constrained from employing more by the high cost of employees at ITAC.

Mr Mambo referred to the trend analysis. He agreed that there was a dip in the number of investigations in 2007/08 because of the economic pressure. Numbers had increased from 2012/14 to 2019 but the dip in 2020/21 was a result of Covid. He stated that the economist went out and checked after two years whether instruments had been effective and had had an impact on the employee numbers and production, as well as the impact on the economy. Those reports guided the Commission. ITAC was trying to increase the reports but the financial situation had made life difficult. The Chief Economist had been employed at a high salary level which ITAC could no longer afford and so he had been replaced by an Economist. It was important to note that most employees in the core business of ITAC were economists and so the investigators had undertaken reviews while the Economist position was vacant. ITAC was again creating separate, dedicated units for investigations and reviews.

Ms Ntsobe Nkoana, Chief Financial Officer, ITAC, stated that ITAC had had a high staff vacancy rate of over 20% since 2020/21. Compensation of employees (CoE) was taking up too much of the budget and ITAC had to obtain a healthy balance between CoE and Goods and Services. There had been a decision to fill only critical positions and to redirect tasks. Some positions had been vacant for a long time but that had allowed for the shift of funds.

Resignations and retirements in the past year were significantly higher than usual. Retirement had certain cost implications for the entity. Ongoing legal cases that ITAC was involved in related largely to challenges of decisions taken by ITAC regarding tariffs. A number of cases had been finalised in 2021/22 and so the number was currently lower than the number carried over the previous year.

Mr Mambo said that most of the trade reviews were with the ministry, although the timelines for reviews were included in ITAC’s plan. The ministry was responsible for negotiating with industry in terms of industry’s contribution to the economy. An investigation into anti-dumping took 18 months and so when the investigation was reaching its completion date, ITAC communicated with the ministry and suggested the process be speeded up. ITAC made recommendations to the ministry, but the Minister usually requested a report from dtic, although sometimes ITAC was asked to supply an explanation as to how particular decisions had been reached.

Ms Niki Kruger, Chief Director, Trade Negotiations, International Trade and Economic Development Division, dtic, responded to the question about the protection of industries by ITAC and whether the industries were competitive. Members were aware that the SA Government had chosen a growth and development path that prioritised industrial upgrading to more labour intensive businesses to generate sustainable employment. Upgrading SA manufacturing would encourage the export of value-added products. That required a purposeful intervention in the industrial economy to give industries a competitive advantage. That was why when ITAC made a recommendation and the Minister had to take a decision, there was no presumption of a benefit for a specific industry or product - in each case there had to be a detailed investigation and an analysis and then a recommendation could be made. There was a general guideline in that they looked at upstream and the downstream industries to determine whether there were labour-intensive industries involved and if so, the tariff could be increased.  There was no instruction to ITAC to increase duties on particular industries. All tariffs were subject to investigations and ITAC undertook its own research.

Regarding dumping, Ms Kruger explained that it was a company that dumped, not the country. However, because the company would be in one or more specific countries, imposition of a duty had to be against the company and not against the entire country.

Regarding under-invoicing, Ms Kruger explained that the inter-agency working team looking at under-invoicing was a critically important initiative and their work included specific interventions at the harbour, etc. where the agencies engaged in joint operations. The inter-agency working on under invoicing was making significant progress.

She added that the tariff duties on garlic and pasta had been approved by the Minister and implemented earlier in the year.

Ms Nontombi Matomela, Acting Chief Operating Officer, dtic, indicated that a call for nominations for Chief Commissioner at ITAC had been published in the government gazette and in the media. Shortlisting was taking place and it was hoped that the process would be finalised in the next few months.

Mr Semela indicated that ITAC had missed the question on counterfeit. He explained that the Counterfeit Goods Act was administered by SARS but ITAC assisted as part of the inter-agency group. Regarding the negative impact of dumping that caused injury to SA producers, he stressed that ITAC had various instruments that it could use, such as duties at the point of duty to increase the cost of goods at the point of import, making them more expensive in SA and allowing local products to compete.

Mr Cuthbert repeated his request for a list of tariffs that had been applied since the Minister had announced localisation as the key industrial policy. That would be 20% of the non-oil imports. He also wanted to know the measures that had been applied and required all the information in a written format within 7 days.

He asked if ITAC had agreed to remove any of the steel tariffs because China had, in 2021, removed a 15% rebate on steel in line with China’s greening programme? China would not be focussing on the export of steel as they had done in the past 15 to 20 years. Regarding the export of scrap metals, he mentioned that Ministers Patel, Gordhan and Mbalula had been toting a ban on scrap metal exports and asked what ITAC’s thinking was on a possible ban? Were there any other bans on exports and, if so, what were they?

Dr Tshwaku asked if the tariffs in the WTO Agreement could be reviewed because it was hurting the economy. Why had SA settled for such low tariffs as opposed to the high tariffs agreed to by other countries? Was SA exporting any goods or cars or car parts, or any manufactured items? He did think there was anything that SA exported that provided jobs? Except maybe wine and the odd fruit here and there. So if the tariff was increased, what would SA lose? What was the trade balance? Did SA have any trade?

He reminded the Chairperson that he wanted the resolution tracker because he had requested a workshop for things to be properly unpacked and nothing had been said about that.

The Chairperson said that she was aware of Dr Tshwaku’s request for a workshop and it would be discussed by the Portfolio Committee management committee.

Ms Kruger responded to the question about the WTO and the reason for the low binding in WTO. The Apartheid government had negotiated and made commitments as a developed country. Some adjustments had been made in 1995, but SA was now a developing country and no longer a developed country. Other countries had not changed status from developed to developing, so other countries were not affected. It would require an extensive negotiating process to change the tariffs and that was not something that SA could initiate on its own.

She added that when it came to exports, SA had a positive trade balance. SA’s biggest export market was the European Union and the main product exported to the EU was SA-made cars. Minerals and basic resources were large exports but manufactured goods were increasing. The African Continental Free Trade Area (AfCTA) agreement was important to SA because the majority of exports would be value-added products and so that agreement held a huge advantage for SA.

Mr Mambo informed Mr Cuthbert that he would provide the lists as requested within seven days. He stated that the tariffs on scrap metal would be handled on a case by case basis and there would be proper investigation into each case, which would then be submitted to Minister. There would not be a blanket ban. He also informed Mr Cuthbert that, to his knowledge, there had been no other export bans as ITAC did not have the power to place a ban on exports.

The Chairperson requested that the list be sent to the Committee Secretary and not directly to Mr Cuthbert.

Ms Kruger confirmed that no products had been subjected to an export ban, except for the two-month ban on scrap metal in 2020. The issue of scrap metal was being discussed widely in government and also in the media but she could not say what the outcome would be.

The Chairperson thanked ITAC and the Department and moved on to the next item.

Report on Portfolio Committee Oversight Visit
The Committee Secretary stated that no further inputs had been received and there were no recommendations. He addressed minor stylistic changes that the support staff had made to improve the flow of sentences. The substantive change was in Concluding Remark point 9.15. The original statement referred to the fact that “the South African Bureau of Standards (SABS) could not insure its facilities without a CEO and urged the appointment process of the board and CEO to begin”. However, SABS had alerted the Committee to the fact that it was the Chief Financial Officer and the Administrators who could not obtain insurance and not SABS as an organisation, but that meant that they could be held personally liable for any matters, and that was a concern. The sentence was amended.

As no further recommendations and no resolutions had been received, and the clean document had been sent to Members, the report was put before the Committee for its consideration and adoption.

Mr Cuthbert commended Mr Mbuyane on the concept behind the oversight trip which had been really useful and had helped to highlight the challenges that the dtic faced, particularly in the Nkomazi Special Economic Zone. He encouraged Members of opposition parties to have similar fact finding missions where they had issues of concern. There was nothing principally wrong in the contents of the report; it reflected what Members had seen and heard. The DA was happy to agree to the report and, in terms of oversight, he suggested that there be further cooperation down the line, which could be of use to the Committee as well as the Department.

He proposed the adoption of the report.

Mr Mbuyane asked for an acknowledgement of Mr Tenda Madima, Committee Secretary, in the report. He had not attended but he should be included as he had supported the visit by conducting research prior to the oversight visit.

The Chairperson noted that the Oversight Report was adopted unanimously with amendments as discussed. It did not contain any recommendations.

Consideration of minutes
The minutes of 6 May 2022, 10 May 2022, 11 May 2022, 17 May 2022 and 18 May 2022 were presented to the Committee, proposed and adopted with no amendments and no objections.

The Chairperson requested that the resolution tracker proposed by Dr Tshwaku be activated.

The minutes of 24 May 2022 were presented.

Mr Cuthbert noted that he had asked that the Committee capture the reason why the DA had proposed three names, i.e. as per the original Committee decision.

The Chairperson asked the Secretary to capture the reason why the DA had proposed three names.

The reason was included in section 3.14 and the minutes of 24 May 2022 were adopted as amended, with no objections.

Closing Remarks
The Committee Secretary informed Members that the following meeting would be on Tuesday 7 June 2022, with stakeholders, in respect of the implementation of the Retail Clothing, Textiles, Footwear and Leather Value Chain Master Plan. On Wednesday, 8 June 2022, the Committee would formally consider the C and D Bills of the Copyright and the Performers’ Protection Amendment Bills. The Committee would also give consideration to the first draft report on the Fourth Quarter financial and non-financial performance of the DTIC for the 2021/22 financial year.

The meeting was adjourned.