International Trade Administration Commission of South Africa (ITAC) on their revised Strategic Plan

Economic Development

16 August 2010
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

In its first interaction with the Economic Development Portfolio Committee, the International Trade Administration Commission (ITAC) identified its core functions as tariff investigations, trade remedies, and import and export control. There was an international agreement with the World Trade Organisation (WTO), and bilateral agreements with the European Union, the European Free Trade Association (EFTA) and the Common Market of the South (Mercosur). ITAC was committed to support industry through tariff increases. Outcomes were geared towards domestic production and jobs. Anti-dumping measures were taken against injurious imports. Import controls had to enforce health, safety and environmental standards. Export controls related to minerals like tigers eye, scrap metal and motor parts.

In discussion there were remarks and questions about who benefited from protection of industry, and criticism of restrictions against second hand imports such as cars and clothing. There were questions about the ability of ITAC to quantify jobs retained and created, and its ability to assist in the creation of a cushion against recession. It was asked how offensive ITAC was, and whether industry had to initiate action. The threat of illegal imports received attention, as well as the difficulties import restrictions could pose to industry, as experienced by Tedelex in Atlantis.

ITAC had to field probing questions about its position in a holistic context. The Chairperson told ITAC that it had not yet been able to give a clear picture of what it was. That interrogation was linked to the perceived absence of a detailed strategic plan and budget. There was doubt about the ability of ITAC to measure the impact of the work it performed. The Trade and Industry Portfolio Committee Chairperson noted that ITAC performance indicators could not measure performance. She concluded that ITAC still had to establish the authenticity of its projected work.

Meeting report

Introduction by the Chairperson
Ms E Coleman (ANC) noted that it would be the first interaction between ITAC and the Economic Development Portfolio Committee. She welcomed members of the Trade and Industry Portfolio Committee, saying the two committees would have joint oversight over ITAC.

International Trade Administration Commission (ITAC) briefing

Mr Siyabulela Tsengiwe, Chief Commissioner of ITAC, identified the core functions of ITAC as tariff investigations
, trade remedies, and import and export control. The movement of goods through trade was seen as beneficial, but an imbalanced movement could have adverse effects on the domestic economy. ITAC was committed to infrastructure development. There was an international agreement with the World Trade Organisation (WTO). Regional integration was achieved through the South African Customs Union (SACU) and the Southern African Developing Countries (SADC). There were bilateral agreements with the European Union (EU), the European Free Trade Association (EFTA) and the Common Market of the South (Mercosur). ITAC could increase tariffs within agreements. Industry could be supported through tariff increases. In agriculture tariff setting was more complex, profitability of producers had to be balanced against consumer prices.

Outcomes were geared to domestic production and jobs. The ITAC methodology was evidence based. Anti-dumping measures were taken against injurious imports. Dumping referred to a situation where goods were sold to a foreign market at prices less than in the country of origin. Countervailing measures were used against subsidized imports that cause injury to domestic manufacturers. Safeguards were used against an unforeseen surge of products that caused injury to domestic producers.

With regard to import and export control, Mr Tsengiwe noted that such were governed by the WTO agreement. From 1985 import controls were withdrawn from 2400 tariff lines to 276 tariff items. Controls had to enforce health, safety and environmental standards, and to prevent erosion of the local market. Export control applied to minerals like tigers eye, scrap metals, and motor vehicles.  ITAC cooperated with South African Revenue Services (SARS) to combat the export of stolen vehicles, and stolen cables.

Mr M Oriani-Ambrosini (IFP) said that within the context of international trade, a country imported whenever it could not manufacture a product more cheaply. He said that free trade was good in principle, when an industry was being protected, the question arose who would benefit. He asked who would benefit from South Africans paying too much for wheat, for instance. He could not agree with the decision that South Africa should not export waste and scrap metals.

Mr Tsengiwe replied that the agricultural tariff was based on a review of products with high, moderate or zero tariffs, depending on the sensitivity of the product. Meat and grain tariffs were high. There were tariffs on whatever could be supplied locally, especially food. Food tariffs led to price increases. Protection and support for farmers had to be balanced. High tariffs on wheat and sugar had been deemed unacceptable, and support had been requested.

Mr Oriani-Ambrosini said that South Africans paid twice as much for cars as they should, because of restrictions against the import of second hand cars. He could not see how second hand clothing could not be imported supposedly because it posed a health risk. He asked if tigers eye would pose a challenge to the curio market. The question remained who was being served. To him it seemed like established industry.

Mr Tsengiwe replied that trade policy and implementation implied hard policy choices. Cost benefit analyses had to be made. Interests had to be balanced in the value chain. What was being served was the national interest, and that in terms of a policy framework. There was a choice between a consumerist economy, or support for productive capacity. Zero tariffs for motor parts could mean the loss of investors. The restrictions on scrap metal were not prohibitive - it was related to reasons of safety and the environment. Restrictions on second hand goods were for the protection of health and the environment, and to protect domestic manufacturers.

Mr Z Ntuli (ANC) asked about jobs retention measures that ITAC could create during the recession. Could ITAC quantify jobs retained and created? There had been a big loss of jobs and increased unemployment.

Mr Tsengiwe answered that ITAC instruments could not estimate how many jobs had been created. Tariffs complemented other government tools to build jobs.

Mr B Radebe (ANC) asked how offensive ITAC was. A four-months response time for vulnerable industries was too long. He referred to the European Union (EU) and the European Free Trade Agreement (EFTA). The Southern African Development Community (SADC) and the South African Customs Union (SACU) had signed EU agreements that could prove to undermine local development. He asked if industry had to initiate the ITAC process.

Mr Tsengiwe responded that there was a procedure based on the outcome of investigations. If procedures were not fair, all interests would not be represented. Accurate information was needed. ITAC could initiate anti-dumping actions, through investigating finance information withheld by industry. Only injured industries took the initiative to approach ITAC.

Mr S Huang (ANC) said that dumping had caused great damage during the preceding three years. Customs and border police had to analyse damage to the economy. The question was how to control anti-dumping.

Mr Tsengiwe responded that anti-dumping measures were chiefly to curb imports from East Asia. Curbing instruments were not easy to use. Requirements of the World Trade Organisation had to be met. If an application did not meet said requirements, it could not be recommended to the Minister. If instruments were not used in terms of the WTO, there could be litigation. Yet the measures were successful.

Ms C September (ANC) referred to the stated three objectives of ITAC, and asked how those related to administrative positioning. The contribution of ITAC to economic development had to be practically unpacked. She asked what internal instruments where available at the domestic level.

Ms September asked if the ITAC strategic plan could address structural problems of the economy. There had to be less reliance on financial markets. She asked if ITAC could help adjust the trade balance, and whether it took into account that trade imbalance was bad for an economy. Too much import or export alike could damage an economy.

Ms September noted that there had been reference to an international crisis. The working class in South Africa had known crisis for many years. South Africa had been able to cushion the impact of the finance crisis because of the World Cup and the resultant infrastructure spending. She asked what the next cushion could be. She found the EU agreement imbalanced. One had to ask if the partners were really on a level. She agreed with Mr Oriani-Ambrosini about the second-hand industry. It had been virtually wiped out.

Mr Tsengiwe replied that ITAC could contribute to employment. It would be involved with infrastructure programmes, and the emergence of new industries. ITAC would provide developmental tariffs for the local manufacture of products. There would be structural programmes and policy responses. ITAC instruments were one of a range of tools. South Africa exported more to the EU than vice versa. The problem was that once locked into an agreement with the EU, tariffs could not be increased because of the bilateral agreement.

Mr P Rabie (DA) said that he had recently attended a seminar of the automotive components industry. The South African market had been swamped by illegal imports. He asked how serious the threat was, and whether imports could be monitored. Windows and tyres were imported that were not fit for South African conditions.

Ms D Tsotetsi (ANC) said that progress had to be monitored, and the recession cushioned. She asked how progress could be monitored.

Mr S Ngonyama (COPE) agreed with Ms September about inequalities between trading parties. In the Eastern Cape, the sale of cheap tyres had to be curbed.

Mr Tsengiwe responded that concerning tyres, there were high tariffs and dumped imports. Such practices were against the WTO requirements of free trade. Applications in such matters were brought by consultants and lawyers, and could be highly complex.

Mr Tsengiwe said that Customs and the SARS had to deal with serious problems of under-invoicing. There were only import permits for windows and tyres, under South African Bureau of Standards (SABS) guidance. ITAC had limited enforcement capacity over second hand goods, yet non-compliers had been caught.

Ms J Fubbs ANC), Chairperson of the Trade and Industry Portfolio Committee, asked what ITAC could do about dumping, when it was not clear whether China was selling t-shirts cheaper in South Africa than in China. There had to be more action against dumping than countervailing measures. There had to be safeguards. Some trade practices in the West were deemed acceptable, but were in fact unfair. It could undermine the domestic economy.

Mr Tsengiwe agreed that the Chinese use of exchange rate had led to monetary policy debates. The problem was that the Rand was volatile. The Chinese export strategy was based on their exchange rate. It posed a problem for anyone that feared competition. The USA had fought fierce battles with China. China had the advantage in accessing the market. Regarding cheap imports, there was the problem of under-invoicing that eroded tariff protection. That was a SARS matter. Subsidies were unfair in terms of competition with domestic producers. Countervailing measures were underused. Government aid had to be interrogated, as well as the policies of foreign governments.

Mr S Njikelana (ANC) said that the problem of access to information was modified by the emergence of on-line information. He referred to the skirmish between the Department of Trade and Industry (DTI) and the textile industry. The question was if incentives had been used properly. The Tedelex plant in Atlantis had experienced problems with importing electronic parts. Business had been harmed, and local jobs undermined by tariffs on electrical components. Importing was cheaper than building locally, in that case. Delays were caused, and the plant was on the verge of being closed down. Tedelex could serve as a case study to point out areas where improvement was in order. The relaxation of tariffs could have created jobs in Atlantis. Tedelex went as far as to say that their competitors had the same complaint.

Mr Tsengiwe responded that ITAC had been pro-active. There had been a tariff review on intermediate inputs to lower production costs downstream. There was the problem of confidential information kept by domestic manufacturers. Tedelex had been a challenge. Tedelex approached ITAC with the request that it be differentiated as a knockdown operation, from others.

Mr Oriani-Ambrosini said that consumer needs and trade development had to be balanced. He asked how the voice of consumers could be heard locally, seeing that there was a lack of consumer groups in South Africa. South Africans were paying two or three times too much for products like tyres.

Mr Ngonyama remarked that there had to be an ability to follow the strategy behind tariff adjustment. He said that balance was discussed, but not facts.

Mr Tsengiwe replied that in agriculture, tariffs had a role to play because the sector could absorb unskilled labour. There had to be an analysis of the current regime for the agricultural sector. ITAC could restrict imports only for the 276 designated categories. For purposes of food security, wheat was investigated. There was a variable tariff formula for wheat. Changes in the international price brought adjustments.

Mr Radebe said that remedies were part of an economy. Russia had had to withdraw wheat from the international market, which would be costly.

Ms Coleman told ITAC that members did not know the reasons for its existence, or what ITAC really was. As Ms September and Mr Ntuli had indicated, the question was how the impact of ITAC’s work could be measured. She asked how jobs could be created and investment promoted. The Economic Development Ministry supported jobs.

Ms Coleman said that it was not enough to merely deal with the basis for issuing permits. She asked what had informed the issuing of the current 12 000 permits, and how many would be issued that year. There had to be a breakdown according to quarter. The Amendment Bill had to be taken to Parliament by 31 October. ITAC had to state what aspects of the Bill had to be amended, and why. There had to be performance indicator areas for business support. She added that ITAC lacked HR policy as an institution. With regard to finance policy, she asked if it augmented the Public Finance Management Act (PFMA). ITAC had to deal with administrative issues to support its strategic plan.

Ms Coleman said that ITAC had to re-look the measuring of impact on employment. The number of investments could serve as performance indicators. She asked about HR policies, and business support.

Mr Noni Khuse, General Manager of Corporate Services for ITAC, said that there were a host of approved policies. There was a commitment to improve accountability, and a policy framework.

Ms Coleman asked that requested documents be provided. She was convinced that it was possible for ITAC to measure impact, and that it was the right thing to do. ITAC had to be clear and explicit about what it was doing to save jobs. ITAC had to provide a holistic picture. An annual strategic plan was required. The authenticity of projected work had to be established. ITAC had to educate the Portfolio Committee on its concepts. It would move with the Economic Development Portfolio Committee from then on.

Ms September said that two parts of her question had remained unanswered. She referred to what Ms Fubbs had asked about the submission of a strategic plan and budget. If not submitted, the question was what the object of that day’s meeting had been. She reiterated that ITAC had to define its position.

Ms Coleman said that under national legislation the PFMA had to be followed, regarding documents. The Portfolio Committee could not accept summaries of documents it had not been privy to. It was not clear what ITAC was about. There had to be workshops and presentations. ITAC had to return with detailed documents.

Ms Fubbs said that she concurred. There were gazetted reports that had to be consulted. A budget was important. The Appropriations Act gave Parliament the right to change budgets. ITAC had implied that there was insufficient funding. That could only be reviewed if there was a budget aligned to a strategic plan and objectives. The question remained what ITAC had done. ITAC performance could not be measured by the stated performance indicators.

The meeting was adjourned.


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