International Trade and Administration Commission on its Annual Report 2010/11

Meeting report

International Trade and Administration Commission (ITAC) Annual Report 2010/11
Mr Siyabulela Tsengiwe, ITAC Chief Commissioner, gave a brief introduction. Jobs continued to lag behind growth in the post financial crisis and economic recession. The developmental approach to tariff setting was aimed at promoting domestic manufacturing, employment creation and international competitiveness. ITAC had met new turnaround times in its customs tariff and trade remedies investigations without compromising on quality. A key strategic objectives included ensuring employment-creating growth and development through effective delivery of international trade instruments. A summary of its tariff investigations was provided. It included the applicant, product, approved amendment and the type of amendment. Examples were Bell equipment that dealt in articulated dump trucks had requested an increase that was declined. Other companies subject to investigation were Mondi Ltd and Nissan SA which both managed to receive a rebate.

A summary of the Motor Industry Development Program (MIDP) was presented to the Committee. The MIDP was a rebate scheme based on customs duties that were phased down over time that could be rebated using the Import Rebate Credit Certificates that were used on the basis of economic performance of qualifying motor vehicles and components thereof. The Department of Trade and Industry was the policy-making authority for the MIDP and ITAC administered the program. There was also the Textile and Clothing Industry Development Program (TCIDP) that aimed to assist the textile and clothing manufacturing industry in the Southern African Customs Union to obtain efficiency and to compete internationally. Specialization in export products was encouraged whilst the participants’ domestic product range could be broadened by importation of certain prescribed textile and clothing products duty free using the credit certificate. The TCIDP expired on March 31 2010 but due to the 18 months qualifying period, certificates would be processed until September 2012. Its anti-dumping investigations were outlined and this included acrylic blankets, unframed mirrors, paracetamol and picks. The Committee was also made aware of the import and export permits that had been issued. 893 export permits had been issued for ferrous waste and scrap, 942 for cooper waste and scrap, 2255 for used motor vehicles and only 8 for ore, slag and ash and human blood.

Discussion
Mr S Marais (DA) asked if there was a way that authorities could intervene and work together so that they did not promote stolen items such as cooper and aluminum waste and scrap. He asked if people knew what the credits were on the motor vehicles that they imported. This was based on a personal experience where he had to import a car and the dealership could not tell him the amount for the credit hence he had to liaise with the South African Revenue Service (SARS) and ITAC. It seemed as if there were not any proper checks and balances. He asked who controlled what government was supposed to get in terms of revenue.

Dr P Rabie (DA) asked if officials were aware of the illegal imports of motor vehicle glass window and if so where they doing anything about it.

Mr X Mabasa (ANC) asked if ITAC had mechanisms to differentiate between SMME, cooperatives and long standing big businesses. He asked why the Association of Meat Importers and Exporters had been declined a permit.

Mr Z Ntuli (ANC) noted that there were car manufacturers in SA who imported parts. He asked if they were treated as companies that imported or whether they were given a leverage.

The Chairperson was concerned about the acrylic blanket investigation and that none of the importers and exporters were cooperating. She asked what role the regulatory authorities played in preventing imported goods from entering the local market at the expense of local goods and if they were working with customs authorities.

Mr Tsengiwe responded that ITAC administer the export permits in respect of copper waste and scrap in partnership with the South African Police Service (SAPS) and SARS. ITAC’s role was to verify that the exporter was an authentic exporter. The inspection of containers was the responsibility of customs. ITAC’s role ended after verifying the authenticity of the exporters. He agreed that there was a problem of stolen copper being exported. The problem was also being addressed by Business Against Crime. The Committee would be provided with a full briefing in the future. SARS and ITAC experts were supposed to advise on the duties and credits that were supposed to be levied out. Government agents were supposed to know but whether or not consumers knew was another issue. In addition, company officials were supposed to know.

The Chairperson asked for more clarity on the issue raised by Mr Marais.

Mr Marais responded that where a person imported a specific vehicle for the transportation of a person with disabilities a rebate was given by the government.

The Chairperson said the lack of knowledge on the part of consumers showed a gap that ITAC was supposed to address.

Mr Mabasa suggested that ITAC work closely with the consumer agency that conducted workshops on matters that affected consumers.

Mr Tsengiwe responded that automotive glass was one of the products that was protected by Anti-dumping Duties. The Association of Component Manufacturers had not brought anything to the attention of ITAC with regards to the illegal importation of glass. ITAC did not differentiate between the big players and the small players. There were cases under import control where they tried to differentiate between big and small players. They were restricting the importation of second hand agriculture machinery and equipment but the restriction was relaxed for small-scale farmers so that they could obtain machinery and equipment. He responded to Mr Ntuli's question that in terms of the Motor Industry Development Programme (MIDP), based on a company's exports, the company would be able to receive an import rebate credit which was used to import components or motor vehicles duty free.

Mr Ntuli asked if a company could be able to benefit if a company made cars in South Africa and the majority of the cars were made elsewhere.

Mr Tsengiwe responded that the company could benefit. The MIDP encouraged the reduction of models that were produced by an assembler. For models that were not produced domestically a manufacturer could use the certificate to import those models. In relation to acrylic blankets anti-dumping duties were said to have a lifespan of five years. If they were not reviewed in five years, they would expire. The Textiles Federation of South Africa responded to the Sunset Review and they argued that if the duties were removed, then dumping would continue and that they would continue to be injured. When an industry responded to a Sunset Review, they were supposed to present ITAC evidence or information on injury and dumping.

The Chairperson asked if the lack of response was because the duties were not making any impact or companies felt that it was a waste of time.

Mr Tsengiwe responded that if they were exporters who exported into South Africa, they would be faced with the high anti-dumping duties. Their product would not be able to be sold at low prices hence South Africa blanket manufacturers were protected. There was no dumping from China and Turkey because they had to pay anti-dumping duties.

The Chairperson asked if blankets could not be imported into South Africa via South African neighbours and what was ITAC doing about Customs Union regulations and laws.

Mr Tsengiwe responded that there were customs control procedures that would try and curb any fraudulent or illegal transportation of goods and there was cooperation between custom authorities within the Southern African Customs Union (SACU). Trade within Southern African Development Community (SADC) was regulated by rules of origin that set specified standards.

The Chairperson asked how effective the rules of origin were. It was brought to her attention that there were some countries in SADC that did not want to cooperate with South Africa. With this gap in mind, how would it be possible that the rules would be applied fully?

Mr Ntuli stressed that he was concerned about motor vehicle assemblers reducing their production line.

Mr Tsengiwe agreed that there was a problem of fraudulent and illegal importation of clothing. There was need for a government intervention. There was a task team under NEDLAC that included ITAC and SARS. SARS intended to establish dedicated ports for clothing and textiles. There were a number of companies that were caught on the wrong side of the law as a result of the measures that customs put in place. There was a 45% duty on clothing and 22% duty on textiles. In addition the biggest problem they faced was that of under-invoicing. As such lesser duties were being paid and collected. The MIDP was structured in such a way that it encouraged rationalisation and specialisation in special models that would be produced in high volumes particularly for export markets. The MIDP was looking at producing for the domestic market. For models that were not produced domestically, they would be imported. The automotive sector was the biggest contributor to GDP in the manufacturing sector and this was attributed to the MIDP. As such the economic performance of the industry was not in decline.

ITAC Corporate Governance, Audit Report and Financial Performance
Mr Justin Daniel, ITAC Chief Financial Officer, said ITAC adhered to a comprehensive set of policies designed with input from all appropriate stakeholders. This contributed towards the effectiveness of corporate governance strategies in accordance with the Public Finance Management Act (PFMA). There was some internal financial control that focused on the critical risk areas which had been identified by management and reviewed by the audit committee. An independent risk management process was in place to enable management to effectively identify, evaluate and assess risks. The internal auditors monitored the prescribed procedures of risk in line with Treasury Regulations.

ITAC received an unqualified audit report. The Auditor-General’s findings were that the reported indicators against predetermined objectives were not consistent with the approved strategic plan as 47% of the planned and reported indicators were not clear, as unambiguous data definitions were not available to allow for data to be collected consistently.

Mr Daniel presented the financial performance of ITAC including the current assets, non-current assets, current liabilities and non-current liabilities. For the year 2011 ITAC had a surplus of R2 675 920, up from R1 733 493 in 2010. Most of their revenue came from government grants and most of their expenses were on personnel.

ITAC incurred some expenditure that it considered as fruitless and wasteful expenditure. This was R2 858 that SARS charged as interest and penalties. This was as a result of a calculation error in the VIP payroll generated report, hence SARS charged interest and penalty on a short payment of R13 000.
Lastly all recommendations that related to the 2009/10 audit findings had been implemented and all matters were resolved in the financial period under review. All the audit recommendations relating to the 2010/11 financial year were addressed were applicable.

Discussion
Mr Marais asked how it was possible that ITAC failed to comply with SARS that eventually led them to paying R2 858 in interest and penalties.

Mr Mabasa congratulated ITAC on unqualified report. He asked what had caused the non-compliance.

Mr Daniel responded that non-compliance related to three suppliers who were contracted to ITAC for services. ITAC elected to use the sole supplier option and approval was done after and not before the consultants came in. In order to remedy the situation, ITAC had upfront approvals and make use of the services as when it became necessary. ITAC had compiled their report for payment to SARS and had been assisted by the VIP consultants who understood the reporting. SARS notified ITAC that they had short paid them by R13 000. And hence they were charged interest and penalties. ITAC paid the interest and penalties and then challenged SARS on their reconciliation. The process had been slow from SARS and the response had been late.

The Chairperson asked what recourse ITAC had.

Mr Daniel said that ITAC would continue to engage with SARS. The difficulty was that one had to phone a call centre and then hold for a long time.

The Chairperson urged ITAC to exercise caution in light of the fact that they had been charged interest and penalties by SARS. ITAC was not supposed to be in the bad books of SARS and was supposed to comply with SARS. ITAC was congratulated for their unqualified report.

The meeting was adjourned.