International Trade Agreement Council (ITAC) on import tariffs and remedies

Economic Development

20 August 2012
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The International Trade Agreement Council of South Africa (ITAC) briefed the Committee on Import Tariffs, looking at policy and legal frameworks and how it was aligned to the New Growth Path (NGP), existing tariff structures, sectors recently investigated and the methodology used in investigations. The briefing moved on to cover trade remedies, looking at dumping, current measures to prevent dumping, judicial reviews, and World Trade Organisation (WTO) dispute settlements.

ITAC conducted tariff investigations and trade remedies within a policy framework and the instruments were aligned to the NGP, the Industrial Policy Action Plan (IPAP2) and SA trade strategies and policy frameworks. Tariff investigations had to be compliant with all domestic laws and regulations. Notwithstanding this, it had to be consistent with WTO agreements, to which the country was a signatory. In addition it was party to a number of regional and international trade agreements with the SA Customs Union (SACU), SADC, the European Union (EU), European Free Trade Area (EFTA) and Mercosur. SACU was currently in the process of establishing a tariff board and when it was completed, the ITAC investigation process would, of necessity, change.  The establishment of the tariff board was currently a challenge. South Arica had bilateral trade agreements with countries where tariff reductions were agreed to so as to gain market access.

ITAC’s main concern was the direction of trade policy and the sectors that had been prioritised for job creation. Sustained growth and development could not rely on commodity exports and the economy needed to diversify and therefore the call for exports of value added goods. Hence ITAC addressed unfair competition against domestic producers. Sectors of particular relevance to ITAC and which had a direct bearing on ITAC policy were labour intensive, value added job creation sectors like infrastructure, the Green economy, the agriculture value chain, the mining value chain and the manufacturing sectors . These sectors would see tariff increases. Mature capital intensive industries might have tariff reductions to lower input costs. 

Strategic and significant tariff reforms had occurred under the previous Uruguay round of WTO trade talks, the current Doha round being in a stalemate. The agriculture sector had seen a deregulation with tariff reductions for the sector dropping from 24% to 8%. SA tariff structures had been simplified to reduce the number of tariff lines from 12500 to 6650. 86% of EU exports to South Africa were duty free and SA companies were feeling the pressure. Under SACU, 97% of their imports were duty free. Under the Mercosur treaty there was a limited preferential trade agreement consisting of a 1000 products. The SA- EFTA trade agreement was similar to the SA – EU agreement. Tariff reforms since 1994 included complex duties being replaced by simple percentages (ad valorem duties) and duty free lines had increased from 45% to 54%.

ITAC had a standard methodology when considering tariff applications, which was transparent, consistent and used in all sectors. The methodology covered production, trade and financial analysis. The methodology encompassed differing and conflicting interest groups throughout the value chain.

Sectors it had investigated recently were basic chemicals, notably polymers which were a Sasol by-product. Duties had been reduced to lower input costs as there was a significant plastics converter industry. Primary aluminium had lower duties but power pylons had attracted higher duties. Some textiles received rebates for clothing while fabrics for home textiles received rebates to improve the performance of the home textile industry.  Clothing tariffs had increased from 40% to 45% because the local industry was struggling against cheap foreign imports from China. Wheat and sugar tariffs had increased.  In general the ITAC's focus had been of a pragmatic, evidence based nature to attain particular outcomes.  ITAC had reduced the investigation time from 12 months to six months.

Trade remedies encompassed anti-dumping, countervailing measures used against subsidised imports for its effect on domestic products and safeguards used against unforeseen import surges to protect domestic production. On the global level, by far the vast majority of remedies in the period between 1995 and 2011 were anti-dumping initiatives which totalled 4005 out of 4513. Safeguards accounted for 229 and countervailing measures for 279. Only 20 out of a total of 148 members of the WTO were active users of the anti-dumping measures. In Africa, only Egypt and South Africa used them. The presentation included a table detailing the anti-dumping measures instituted as at 30 April 2012. The table detailed the country, the product, the SACU industry, and the date of original imposition. Most of the measures were against China and some of the measures had been in place since 1993.

The procedure for investigation which was used in anti-dumping cases was more involved and the stakes were high as the results would have a direct impact on prices, on profits and on share prices. Turnaround time for these investigations were 10 months which compared favourably with global best practise trends. Mainly developed countries had used the anti-dumping regulations, but since 1995 it had changed to developing countries, with India leading the way. 

There had been judicial reviews on trade remedies because value chains had differing and opposing interests and unhappy parties had taken the ITAC to court. Some countries like the USA had specialised courts for international trade while Canada had a tribunal. ITAC had made a submission proposing a specialised division to deal with trade and administration matters.

Members asked if ITAC checked if there was improvement in competitive exports after supporting manufacturers in adding value to the goods it produced. Members asked to what degree ITAC was gaining from infrastructure development in Africa. Members said that the mining value chain was trying to improve beneficiated product but there was stiff competition. South Africa needed to identify niche markets.
Members said that there was talk of co-operatives being developed to supply Government. What could be done to comply? Members asked to what extent the textile industry was protected from cheap Chinese imports. Members asked if the amendments relating to the special courts had been sent to the Department of Justice. Why did the Commission give a final determination before the Minister and what was the role of the Minister? Members asked if the specialised court would affect the Act.

Meeting report

Briefing
Siyabulela Tsengiwe, Chief Commissioner of the International Trade Agreement Council of South Africa (ITAC), said that international trade was one of the critical components of growth and development. If the international trade was unbalanced or unfair then Government intervened though the use of instruments such as tariffs and remedies. The presentation would focus on import tariffs by looking at policy and legal frameworks and how it was aligned to the New Growth Path (NGP), existing tariff structures, sectors recently investigated and the methodology used in investigations. The presentation would also focus on trade remedies by looking at dumping, current measures to prevent dumping, judicial reviews, and World Trade Organisation (WTO) dispute settlements.

ITAC conducted tariff investigations and trade remedies within a policy framework and the instruments were aligned to the NGP, the Industrial Policy Action Plan (IPAP2) and SA trade strategies and policy frameworks. The investigations had to be compliant with all domestic laws and regulations. Notwithstanding this, it had to be consistent with WTO agreements, to which the country was a signatory.

South Africa was part of the regional SA Customs Union (SACU), which allowed for the free movement of goods and a common external tariff. SACU was currently in the process of establishing a tariff board and when it was completed the ITAC investigation process would of necessity change.  The establishment of the tariff board was currently a challenge. South Arica had bilateral trade agreements with countries where tariff reductions were agreed to so as to gain market access.

ITAC was different from the Department of Trade and Industry (dti) International Trade and Economic Development (ITED) unit. The dti was responsible for negotiating trade agreements, while ITAC introduced unilateral trade remedies. ITAC gave technical advice and participated in trade negotiations as part of the dti team.

ITAC’s main concern was the direction of trade policy and the sectors that had been prioritised for job creation. Sustained growth and development could not rely on commodity exports and the economy needed to diversify and therefore the call for exports of value added goods. Hence ITAC addressed unfair competition against domestic producers. Sectors of particular relevance to ITAC and which had a direct bearing on ITAC policy were labour intensive, value added job creation sectors like infrastructure, the Green economy, the agriculture value chain, the mining value chain and the manufacturing sectors . These sectors would see tariff increases. Mature capital intensive industries might have tariff reductions to lower input costs. 

He said strategic and significant tariff reforms had occurred under the Uruguay round of WTO trade talks, the current Doha round being in a stalemate. The Uruguay round had seen a deregulation of the agriculture sector with tariff reductions for the sector dropping from 24% to 8%. SA tariff structures had been simplified to reduce the number of tariff lines from 12500 to 6650. 86% of European Union (EU) exports to South Africa were duty free and SA companies were feeling the pressure. Under SACU, 97% of their imports were duty free. Under the Mercosur treaty, which included Brazil, there was a limited preferential trade agreement consisting of a 1000 products. The SA- European Free Trade Area (EFTA) trade agreement was similar to the SA – EU agreement. Tariff reforms since 1994 included complex duties being replaced by simple percentages (ad valorem duties) and duty free lines had increased from 45% to 54%.

ITAC had a standard methodology when considering tariff applications, which was transparent, consistent and used in all sectors. The methodology covered production, trade and financial analysis. The methodology encompassed differing and conflicting interest groups throughout the value chain.

Sectors it had investigated recently were basic chemicals, notably polymers which were a Sasol by-product. Duties had been reduced to lower input costs as there was a significant plastics converter industry. Primary aluminium had lower duties but power pylons had attracted higher duties. Some textiles received rebates for clothing while fabrics for home textiles received rebates to improve the performance of the home textile industry.  Clothing tariffs had increased from 40% to 45% because the local industry was struggling against cheap foreign imports from China. Wheat and sugar tariffs had increased.  In general the ITAC's focus had been of a pragmatic, evidence based nature to attain particular outcomes. There were regulations which outlined the procedure to follow in conducting tariff investigations to ensure fairness.  ITAC had reduced the investigation time from 12 months to six months.

Trade remedies encompassed anti-dumping, countervailing measures used against subsidised imports for its effect on domestic products and safeguards used against unforeseen import surges to protect domestic production. On the global level, by far the vast majority of remedies in the period between 1995 and 2011 were anti-dumping initiatives which totalled 4005 out of 4513. Safeguards accounted for 229 and countervailing measures for 279. Only 20 out of a total of 148 members of the WTO were active users of the anti-dumping measures. In Africa, only Egypt and South Africa used them although Ghana and Uganda had sent delegations to South Africa on study tours. The presentation included a table detailing the anti-dumping measures instituted as at 30 April 2012. The table detailed the country, the product, the SACU industry, and the date of original imposition. Most of the measures were against China and some of the measures had been in place since 1993.

The procedure for investigation which was used in anti-dumping cases was more involved and the stakes were high as the results would have a direct impact on prices, on profits and on share prices. Turnaround time for these investigations were 10 months which compared favourably as EU countries took 14 months, Brazil 12 months, America 9 months and Canada 7 months. The top users of antidumping were India, USA, Argentina, the EU, Australia and South Africa, Mainly developed countries had used the anti-dumping regulations but since 1995 it had changed to developing countries, with India leading the way. 

There had been judicial reviews on trade remedies because value chains had differing and opposing interests and unhappy parties had taken the ITAC to court. Some countries like the USA had specialised courts for international trade while Canada had a tribunal. ITAC had made a submission proposing a specialised division to deal with trade and administration matters. In the period 2008-2010 it had made 30 recommendations to the Minister and two had been the subject of a high court review. One case had subsequently been withdrawn and the other was still on-going. Prior to 2008 two cases were pending. Recently one case had been ruled in favour of ITAC.

In respect of WTO disputes concerning trade remedies, half of the disputes were settled using the WTO dispute settlement process and three cases had been resolved at a government to government level. There had recently been an anti-dumping investigation against poultry from Brazil. Government to government consultation had taken place and the matter was under consideration by the Minister.
 
Discussion
Mr N Gcwabaza (ANC) asked if ITAC checked if there was improvement in competitive exports after supporting manufacturers in adding value to the goods it produced.

Mr X Mabasa (ANC) asked to what degree ITAC was gaining from infrastructure development in Africa.

Ms S van Der Merwe (ANC) said that the mining value chain was trying to improve beneficiated product but there was stiff competition. South Africa needed to identify niche markets.

Mr Z Ntuli (ANC) said that there was talk of co-operatives being developed to supply Government. What could be done to comply?

Mr K Mubu (DA), in connection with the decline in the textile industries, asked to what extent the textile industry was protected from cheap Chinese imports.

The Chairperson asked if the amendments relating to the special courts had been sent to the Department of Justice. Why did the Commission give a final determination before the Minister, what was the role of the Minister?

Mr Tsengiwe replied that ITAC did an impact assessment study of support given to individuals. This was something that had not been done by them before and was as a result of the NGP. Support had to be tied to conditionality’s. For example it had provided textile manufacturers with rebates on imports which made the fabrics duty free as the fabrics were a big percentage of the cost. Textile imports as a result had dropped and it had caused the industry to sustain the levels of employment. ITAC had only started these impact assessments and it would be intensifying it.

ITAC could only reduce tariffs on intermediate inputs of components used in infrastructure development.
There were limited instruments to influence infrastructure development.

He said there were lots of scrap metal exports mainly to China and India. There was no disincentive to collect and export scrap. An export duty on scrap metal was currently under discussion. He said that jewellery tariffs were high. Platinum had a global niche market in catalytic converters.

ITAC could do nothing as that matter dealt with internal competition. Domestic competition was the area of authority of the competition authorities

He said that cheap Chinese textile imports were a big problem. In the textile value chain, there was no duty on material fibres, yarn attracted 8% duty, fabric 22% and clothing 45%, the highest permissible under the WTO agreement. It was still a problem because of enforcement was a major challenge and there was huge under invoicing and illegal importation taking place

Regarding the Chairperson’s question, he said that it was a joint effort by ITAC with SARS.  He took note of the suggestion to use the office of the Committee to motivate for the establishment of special courts division and would give a full briefing to the Committee on the ITAC’s submission. He said the Commission gave a determination before the Minister, so that the Minister could make the final determination. The Minister of Trade and Industry had the power to make the final determination, ITAC could only recommend.

The Chairperson asked if the specialised court would affect the Act.

Mr Tsengiwe replied that it would not.

The meeting was adjourned.

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