ITAC on its 2014 Annual Performance Plan

Economic Development

07 July 2014
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Committees on Small Business and Economic Development met jointly for a briefing by the International Trade Administration Commission (ITAC) on its Annual Performance Plan. The Chief Commissioner of ITAC gave a presentation on the Annual Performance Plan of the entity.

The presentation outline covered the establishment of ITAC, organisational structure, core business units, mandate, and key strategic objectives, policy and legal framework, import tariffs and targets, trade remedies and targets, import and export control and targets.

ITAC was established by the International Trade Administration Act of 2002, which came into effect in June 2003. The Commission had two fulltime Commissioners, a Chief Commissioner and Deputy Chief Commissioner, and six part-time Commissioners. In terms of reporting lines, the administration of the ITA Act was transferred to the Minister of Economic Development for policy development and oversight, . Decision-making powers on individual tariffs and trade remedy investigations had been retained by the Minister of Trade and Industry.

The core functions of the Commission were tariff investigations; trade remedies; and import and export control. The business units for tariff investigations included agriculture; chemicals; textiles; clothing and footwear; Textiles and Clothing Industry Development Programme (TCDIP). Its policy and legal framework had the National Development Plan (NDP) to provide the long term vision with implementation driven through the New Growth Path (NGP), the Industrial Policy Action Plan (IPAP) and the South African Trade Policy and Strategy Framework (SATPSF).

The import tariff targets for 2014/15 included that 85% of final decisions should be made within 6 months of initiation. With regard to trade remedy targets for 2014/15, 85% of preliminary determination should be completed within 6 months of initiation; and 85% of final determination should be completed within 10 months of initiation.

Members asked questions of clarity which included what the actual achievements of the investigation targets were because setting targets was one thing but looking at what was happening in reality was another scenario. It was pointed out that ITAC seemed demand and supply-driven according to producers' interests rather than thinking of consumers' interests or in terms of the mandate to create job opportunities. Other topics were whether there was a specific relationship between BRICS countries since China was the biggest problem in terms of sector investigations, would anti-dumping measures not be a means of supporting inefficiency in the South African market, to what extent ITAC established fairness for the local players, whether ITAC had what it takes to run the ship with its current staff, given its current challenges.

Meeting report

ITAC Annual Performance Plan
Mr Siyabulela Tsengiwe, Chief Commissioner: ITAC, said that ITAC was relatively a new institution established by the ITA Act of 2002, which came into effect in June 2003. The predecessors of ITAC were the Board of Tariffs and Trade (BTT) and the Board of Trade and Industry (BTI) which dated back to 1923. ITAC was established to streamline, nationalise and modernise an institution with a long history.

The Commissioner said that the Commission had two fulltime Commissioners, a Chief Commissioner and Deputy Chief Commissioner, and six part-time Commissioners. The Commission was a body of experts that met monthly to evaluate investigations and make recommendations to the Minister of Trade and Industry. The administrative arm of the Commission has a staff complement of 131.

The Commissioner said that with regard to the reporting lines, the administration of the ITA Act was transferred to the Minister of Economic Development for policy development and oversight, . Decision-making powers on individual tariffs and trade remedy investigations had been retained by the Minister of Trade and Industry.

The core functions of the Commission were tariff investigations; trade remedies; and import and export control. The core business units for tariff investigations it included agriculture; chemicals; textiles; clothing and footwear; Textiles and Clothing Industry Development Programme (TCDIP). And in tariff investigations 2 it included motors; metals and machinery; and Motor Industry Development Programme (MIDP). In trade remedies it included anti-dumping; countervailing; and safeguards. In trade remedies 2 it included anti-dumping; countervailing; and safeguards. In import and export it included import permits; export permits; and enforcement.

The Commissioner said that in terms of the ITAC’s mandate, vision, mission and key strategic objectives the aim of ITAC as stated in the Act was to foster economic growth and development in order to raise incomes and promote investment and employment in South Africa, and within the Common Customs Union Area by establishing an efficient and effective system for administration of international trade subject to this Act and the SACU agreement. The vision was to be an institution of excellence in international trade administration, enhancing economic growth and development. The mission was to create an enabling environment for the trade through: efficient and effective administration of its trade instruments; and technical advice to the Economic Development Department and the DTI. The strategic objectives of ITAC were to ensure appropriate contribution to employment creation growth and development through provision of its international trade instruments; ensure strategic alignment and continued relevance within the Economic Development Department and national agenda; and ensure organisational efficiency and effectiveness through business support services.

The Commissioner said that in terms of policy and legal framework the National Development Plan (NDP) provided a long term vision with implementation driven through the New Growth Path (NGP), the Industrial Policy Action Plan (IPAP) and the South African Trade Policy and Strategy Framework (SATPSF). The NGP placed employment creation at the centre of economic policy. In light of the unacceptable levels of unemployment, huge inequalities and poverty existed. The NGP placed employment creation at the centre of economic policy. Importantly for ITAC, it provided direction on trade policy and prioritised sectors for job creation (job drivers). The NGP advocated developmental trade policies: promoting exports of value added manufacturing; addressing unfair competition against domestic manufacturers; active support for new trade opportunities including newly established industries; reciprocal commitments on applicants for tariff changes and related at addressing areas of investment and employment creation; pragmatic and evidenced based approach in pursuing socio-economic objectives; and avoid unnecessary accession to narrow interests or failure to respond to real economic needs.

The Commission had set the following import tariff targets for 2014/15: 85% of final decisions should be made within six months of initiation. For trade remedy targets, 85% of preliminary determination should be completed within 6 months of initiation; and 85% of final determination should be completed within 10 months of initiation. In comparison with other jurisdictions South Africa was 10 months, USA 9 months, EU 14 months, Canada 7 months, India 12 months, Brazil 12 months, and Australia 5 months. Import and export control targets: import control permits were 13 500, export control permits were 7 500, schedule import and export control permit was 500, unscheduled import and export control permit was also 500, and the number of import and export control investigations were 16.

The Commissioner commented that with judicial reviews, there were different and opposing interests in the value chain.

Discussion
Mr S Marais (DA) thanked the Chief Commissioner for the presentation. He said it must be difficult for the Commissioner to have different reporting lines since he had to deal with different personalities. He reported to the Minister of Trade and Industry for tariff decisions, to the Minister of Economic Development for policies and principles, and to customs and even sometimes Home Affairs for the implementation of tariffs at points of entry - which was rather interesting.

He noted that scrap metal had a lot of different categories for duties and measures which did not seem to be successful because looking at the theft of copper and cables, it seem the scrap metal business was flourishing. ITAC had a major role to play not only for supporting trade but also in preventing crime. Such crime was costing government lot more than the successes they have seen. He asked how ITAC could play a much bigger role, and was it possible to prevent this situation.

He asked what the actual achievements of the investigation targets were because setting targets was one thing but looking at what was happening in reality was another scenario.

He asked whether there was any specific relationship between BRICS countries or formation between BRICS countries since China was the biggest problem in the sector investigations. Looking at the strategic partnership of BRICS countries, how have they approached the benefits of the BRICS relationship versus the importance of protecting local businesses.

Mr R Chance (DA) commented that it appeared there was a balancing act between competing interests. But one thing he did not see in the report on the ITAC mandate was the role of the consumer. Its work seemed to be very much demand and supply-driven according to producers' interests rather than in terms of its mandate towards consumers and for creating job opportunities.

He asked whether consumer choice and price came into the picture. One of the things the chicken debate had been about was the price of chicken going up. Local producers were protected as opposed to the interests of the consumer who wanted to buy the product at the cheapest possible price. Was that debate contained in the mandate of ITAC because it was not described in the presentation? How has ITAC determined tariff imposition if this will cause a medium to long term impact on consumer price and choice?

Mr P Atkinson (DA) thanked the Commissioner for the presentation. He referred to the anti-dumping measures, asking if that would not be supporting inefficiency in the South African market. He referred specifically to  Scaw Metals who had a problem with the cost of wire rope coming into the country and asked for an interdict on the sale of wire ropes from China, United Kingdom, Korea, Germany and India. Does ITAC investigate the situation to see if Scaw has fair pricing in the South African market or if it is a bit inflated and is using this as a protectionist measure to entrench inefficiencies in the local market?

Mr M Mbatha (EFF) said that three years before the 2010 World Cup there was a lot of activity amongst industry players in the manipulation of prices - both steel corporations inside the country and international steel companies who were interested in selling into the South African market during that period. To assist with the local manufacturing and infrastructure programme, to what extent did ITAC establish fairness for local players which might have had objections in particular from former ISCOR which was now Mittal Steel and arrogantly bullying everyone around internationally including themselves and were major players in the South African market since they were the host country to Mittal Steel before its registration on the London Stock Exchange. Such things had led to unscrupulous price bidding.

Mr S Bekwa (ANC) thanked the Commissioner for a very straightforward presentation. He asked the Commissioner to comment on some of the key court in which the Commission was involved and to clarify if those companies in court were still freely continuing to operate.

He asked what the relationship was between ITAC and regional institutions such as Southern African Community Development Community (SADC) as well as the World Trade Organisation (WTO) in the implementation of these agreements - was it a useful, friendly environment in which they were able to operate freely or were there many constraints?

He asked how ITAC was regarded especially in the SADC region. From their own experience, what level of cooperation they did get?

The Chairperson said that ITAC should be 12 years old by now and its turnaround time had been questioned before. This was not alluded to as any challenge within the institution but it had mentioned only external factors. He asked if ITAC was facing any litigation or other issues that were related to time. She asked if ITAC had what it takes to run the ship with its current staffing, especially looking at its current challenges and with more challenges that would confront the Commission in the development of new industries and having new role players within the market. This was going to be tougher especially with the speed they should be moving at.

She asked about the vacant Chief Deputy Commissioner position because it was early last year when the Committee was told that the Minister was going to appoint a Deputy Commissioner.

She asked about the ‘imposition of increased tariffs for the three countries” because normally hears from the media that there were those issues especially when it related to the BRICS countries. However, but when it involved European Union countries, there was no hullabaloo about it.

She asked what did the numbers in the procedure for conducting tariff investigations represent.

She asked if they always waited for applications for investigations – or could they initiate their own investigation because that might reduce the burden amongst small businesses in filling in those complicated forms? She asked how often the executive sub-committee met because they were crucial in looking into and making preliminary determinations on those investigations. What was the turnaround time for those determinations against the 6 months and 12 months which were still indicated as a challenge?

She asked what the purpose of gazetting was, and what the role of the consumer was in the whole process. What was ITAC’s role in considering consumers views before it made a final determination?

She asked how its relationship was with the Competition Commission and on which issues they have collaborated on, and what their relationship was with the South African Revenue Service (SARS).

She asked what it was that the South African Customs Union (SACU) could do to ensure that member states of SACU collaborated and cooperated.

Mr Marais said that the problem in the past with regard to SACU was that it had tax free imports via South Africa. But then there were problems of goods and services migrating from other countries into South Africa which amounted to unfair competition and where taxes were not being collected which related to SACU.

The Commissioner replied about copper and scrap metal theft, saying they thought that when those prices go down do to the restrictions it has placed on scrap metal exports, it would have some effect in discouraging their theft. The effect of reducing the price for scrap since the international prices were quite good especially in the Asian countries. Ultimately, theft was a criminal matter which fell outside ITAC’s scope and was within the scope of the South African Police Service (SAPS).

The Commissioner replied that their comment about the balancing act in weighing up competing interests was very true. There was nothing in the ITAC mandate that spoke to consumers. However, in their tariff policy they did consider the price-raising effects of increasing custom duties. Therefore, in each and every investigation they would do a price impact to gauge what the price effect would be. It might just be on intermediate goods and so the price might pass on to the finished goods manufacturer which might or not be passed on to the consumer. For example, with the recent investigation into chicken, the South African Poultry Association (SAPA) requested very high tariffs, but in terms of the investigation they conducted as the Commission they had to disaggregate various meat types, the carcases, and boneless cuts and what they found was that there were meat types that would be consumed by the high end of the market. The tariffs were increased significantly, but not the level that had been required by the poultry association. They had to find an appropriate level where the impact was not as huge as it would have been if they had given in to the SAPA request. Then with carcases and other such meat, the increases were very marginal because these products were largely consumed by the poor. Therefore, yes, there was that challenging balancing they were doing as the overall objective in agriculture was food security. So, they have got to balance the profitability of farmers and processors with consumer affordability which was always a challenge in those investigations.

The Commissioner answered about the key court cases, saying there was a list of court cases which basically were specific firms that had taken the Commission to court and some cases had been finalised. There were currently two to three cases in court – on scrap metal, second-hand goods, and forklift trucks.

The Commissioner replied about the relationship ITAC has with SADC, SACU and the WTO. In terms of the WTO, South Africa was a signatory to the WTO agreement and it had binding commitments. They could not increase tariffs beyond the binding commitment made under the WTO agreement. They also have agreements on trade remedies and they cannot conduct their investigations on trade remedies outside the rules that were set out in those agreements. If they violated the WTO agreement, countries were entitled to take them for WTO dispute settlement.

With regards to SACU, it was a customs union which dealt with the movements of goods within the union and it had a common external tariff. The biggest challenge within SACU was the full implementation of the SACU agreement which included amongst other things, the establishment of SACU institutions that would be responsible for the joint determination of tariff policy and setting of tariffs. Currently, ITAC is mandated by the SACU Council of Ministers to continue to do investigations on behalf of the whole of SACU. Therefore, the tariffs decided by the Minister and imposed by SARS apply to the union, not just South Africa. Until such time that the SACU institutions with the SACU Tariff Board and the national bodies within the various member states (Botswana, Lesotho, Swaziland, Namibia) were in place, ITAC continued to do investigations that were SACU-wide.

The Commissioner said that for the first time they had been requested to do an anti-dumping investigation for Botswana against the dumping of soda ash from the USA. This investigation they conducted and completed successfully. Soda ash was an input used in glass manufacturing imported from the USA and used in the main by South African companies, including Consol. The producers of soda ash in Botswana had lodged a complaint that they could not compete with the soda ash prices of the USA and therefore, their market share in South Africa was taken by American producers and exporters.
 
Ms Carina van Vuuren, Senior Manager: ITAC, pointed out that with normal customs duty investigations of tariffs, one of the major issue the Commission would look at was the capacity of the local manufacturer. They did not necessarily want to protect a firm that could only supply a small amount of goods to the market without having the potential to develop and carry the required capacity.

Ms van Vuuren said that remedies for unfair trade – like the anti-dumping measure – played a smaller role because they were not really protecting the industry but merely raising the price so that it became a fair trade, since there was an unfair trade element. Once ITAC has found that dumping has taken place, what they were saying was that they were not going to punish the practice and impose a duty in excess of what was needed but only make it equal to the domestic price. So, the consumer or the dumping user had a choice whether to buy the local product or the imported product at the same price. Therefore, the volume produced locally becomes a lesser factor because one can still import – they were not preventing imports by imposing a duty but one had to bring the price to a fair level.

The Chairperson thanked the Commissioner and his delegation for the presentation and responses. Due to time constraints, ITAC would not be able to answer all the questions that were asked. However, she was looking forward to further engagements with the Commission so as to iron out all the issues that they have discussed and highlighted.

The meeting was adjourned.

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