International Trade Instruments: workshop with International Trade Administration Commission & Department of Trade and Industry

Economic Development

17 August 2015
Chairperson: Mr M Cele (ANC)
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Meeting Summary

The Department of Trade and Industry provided the Committee with information on the status of many trade negotiations currently taking place. Most of these programmes aimed to increase African participation in international trade, as well as intra-regional trade within Africa. Global trade was rapidly evolving to include both intermediate goods and services, and the developing world was growing rapidly in influence.

The Department was negotiating the Tripartite Free Trade Agreement (TFTA), a preferential trade agreement (PTA) with India, a PTA with a grouping of South American countries (MERCOSUR), and a partnership between the South African Customs Union (SACU) signatories and the European Union (EU), among others. The TFTA was a proposed African free trade agreement between the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC) and the East African Community (EAC).

Among SADC and TFTA countries, the DTI was focused on industrial and infrastructure development. TFTA negotiations were a priority -- 16 countries out of 26 had already signed and South Africa should sign within the next 12 months. The EU remained South Africa’s largest trading partner, though the growth in trade had declined in recent years. Trade with China had grown significantly. South Africa aimed to increase access to EU markets, especially for agriculture, while both parties intended to safeguard local products.

Members asked questions about border issues within Africa, tariffs and deadlines. The Department responded that the TFTA aimed to address infrastructure issues and that this would help facilitate movement across borders. The Department assured the Committee that any changes in tariffs were being considered carefully, with input from other Departments and stakeholders. It explained that historically, these negotiations had been more difficult to complete and were thus time-consuming, so the Department had set very conservative deadlines.

The International Trade Administration Commission (ITAC) gave three short presentations on its core functions and customs trade amendments, trade remedies, and import controls. The first presentation explained that the ITAC took three main actions on tariffs – it either increased, decreased, or waived customs duties. It gave examples of each action from the past year and explained the application process for companies to merit such government action. The second presentation detailed the processes in place to facilitate anti-dumping measures, countervailing measures, and safeguarding measures. Of the three, anti-dumping cases and actions happened most frequently and more prominently. The third presentation listed the actions taken by ITAC in conjunction with the SAPS to enforce the relatively few tariffs in place by inspecting and, when necessary, investigating imports and exports.

The Committee asked questions about tariffs for the steel industry, allegations of steel dumping, the application for tariffs, and the US poultry ban situation. The Commission replied that both the steel industry tariffs and the US poultry situation were ongoing and the latter had not yet been reviewed by the ITAC. As for steel dumping, any allegations against the Chinese had not been confirmed. The US was attempting to regionalise the poultry ban, but this would be very difficult in practice. Questions were asked about the low number of import and export control inspectors and South Africa’s trade relationship with Brazil. The Commission responded that it was seeking additional funding, and that trade with Brazil had declined since more a more advantageous EU trade agreement had been passed in 2012. 

Meeting report

Briefing by Department of Trade and Industry (DTI)

Ms Niki Kruger, Chief Director: Trade Negotiations, DTI, opened the workshop with information on various policy environments. The objectives of the National Development Plan (NDP) focused on the growth of intra-regional trade, market penetration and infrastructure development. Specific chapters would focus on customs cooperation. The New Growth Path (NGP) had identified job drivers and emphasised partnerships with other countries on the continent to identify value chains, especially with regard to agriculture and electricity.

South Africa’s industrial policy aimed to diversify beyond traditional mineral revenue sources to more labour-absorbing industrialisation paths. There was movement away from narrow market integration and an emphasis on trade’s potential to foster rapid growth. Compared to areas like the European Union (EU) or the North American Free Trade Agreement (NAFTA), intra-regional trade was low, at ten percent currently. Africa was an important export market for most African countries, and this was on track to continue to grow. Most of this trade was in manufactured goods.

Referring South Africa’s trade policy, Ms Kruger explained that global trade had changed to reward non-resource based manufacturers. The emergence of global supply-chains had led to 60% of global trade now being in intermediate goods. This had helped developing countries grow faster than the world average, with Asian countries dominating. The Department of Trade and Industry (DTI) focused on the consolidation of developmental relationships with the Southern African Development Community (SADC), SA Customs Union (SACU) signatories and economies in the north, as well as potential deals with India and the World Trade Organisation (WTO).

Trade negotiations should not unduly limit development policy space -- in 1994, negotiations with the EU had limited development -- but should increase export opportunities and regional integration. Other governmental entities, such as the Department of Agriculture, Forestry and Fisheries (DAFF), the South African Revenue Service (SARS) and the International Trade Administration Commission (ITAC), were involved and consulted when having trade negotiations, lest any entities’ policy direction be hampered by a trade deal. In addition, SACU takes the lead on tariff issues.

The DTI’s developmental integration policy aimed to address problems dragging down intra-regional trade beyond undue regulations and tariffs, such as poor infrastructure and under-developed production capacities. This policy targeted complementary goods -- for example, car seats manufactured in Botswana for cars made in South Africa.

The Department was developing the Tripartite Free Trade Agreement (TFTA), an India preferential trade agreement (PTA), and a partnership between SACU and the EU, among others.

The South African Customs Union had been established in 1910 and democratised in 2002. SACU had a five-point plan:

  1. Promoting regional industrial development;
  2. Improving trade facilitation;
  3. Developing common SACU institutions;
  4. Promoting unified engagement in negotiations with third parties;
  5. Reviewing the revenue-sharing formula.

Another agreement was the SADC Trade Protocol. 12 out of 15 members had acceded to this Protocol since 2000. South Africa would grant duty free status to 99% of products from member countries; second hand clothing and certain automotive parts were excluded. Full implementation may be delayed due to economic issues in various countries. SADC was in service negotiations in six sectors – tourism, finance, construction, transport, communications and energy.

The TFTA negotiations, which started in 2011, had three pillars. These were market access, cross-border infrastructure and regional industrial development. Though legal wording had been concluded on 10 June 2015, many negotiations were ongoing, with the goal of a conclusion in twelve months. South Africa had a tariff office already established. These negotiations applied to Eastern African Community (EAC) members -- there would be no reopenings with SADC or Common Market for Eastern and Southern Africa (COMESA) members. Other countries targeted included Ethiopia and Sudan. The TFTA would combine the markets of 26 countries, creating a gross domestic product (GDP) of US$1.6 trillion.

The first phase of negotiations for a Continental Free Trade Agreement (CFTA) to include goods and services was set to conclude in 2017. This would be a far larger market than the TFTA, with over two billion people.

A SACU-India Preferential Trade Agreement (PTA) would help South Africa’s relationship with its sixth largest trading partner. The business community was concerned about non-tariff boundaries that made India a very difficult market to penetrate, and also India’s requests were in sensitive markets such as chemicals. These and other factors had made negotiations take over two years. However, this PTA would help enhance trade in the future.

The EU remained South Africa’s largest trading partner. South Africa had decided to join the Economic Partnership Agreement (EPA) negotiations in order to consolidate the trade relationships between SACU, SADC and the EU. South Africa aimed to increase access to EU markets, especially for agriculture. An agreement between SADC and the EU had been reached in 2014 for improved market access for both parties and enhanced trade rules. Both parties would be respectively protecting various product names -- the EU would provide protection for Rooibos, for example. The EPA had re-negotiated export taxes and allowed some to be imposed on products being exported to the EU. In addition, an automatic agricultural safeguard clause had been included. This agreement was undergoing a legal review, after which it would be signed by all parties. Preferential access for Botswana, Namibia, and Swaziland into the EU would fall away on 30 September 2016 if the EPA was not ratified by then.

The European Free Trade Association (EFTA) was comprised of Iceland, Liechtenstein, Norway, and Switzerland. South Africa traded with these countries in agricultural and marine products, but renewal of this agreement had been postponed until the conclusion of EPA negotiations.

South Africa’s PTA with MERCOSUR, which was comprised of Argentina, Brazil, Paraguay, and Uruguay, aimed to reduce tariffs and offered preferential margins between ten and one hundred percent. The PTA covered over one thousand tariff lines. SACU members had ratified this agreement, and it was awaiting ratification by MERCOSUR.

Discussion

Mr P Atkinson (DA) asked about the trade relationship with the EU. Had SA’s trade with them increased or decreased? He asked about the negotiations on borders, and noted that between countries like Zambia and the Democratic Republic of Congo (DRC), it could take a truck three days to cross the border, which was very harmful for produce. How much political will was there to fix such border issues?

Ms Kruger said that since 2000, SA’s trade with the EU had increased hugely. However, since 2008 EU trade had slowed down, and China was now the country’s biggest trade partner.

Mr Atkinson asked whether trade with the EU was still increasing.

Ms Kruger said that trade had declined in 2009 and was now increasing at a slower rater than pre-2008. Tariffs were also an issue. She agreed that borders were an issue for African trade. Referring to the trade facilitation agreement with the WTO in 2013 addressing this issue, she said that this agreement was meant to be in force by December 2015, but admitted that implementing this agreement would be difficult without infrastructure development for developing countries. The major issue was political will. Even in the TFTA negotiations that had taken place in Egypt, infrastructure and industrial development had been difficult to find agreement on.

Mr I Pikinini (ANC) asked about the consequences of a reduction in tariffs, and how it would impact on investment and our markets.

Dr J Cardo (DA) asked how many of the 26 countries had signed the TFTA, and if South Africa had signed it. Which products would South Africa want deemed sensitive in the negotiations over rules of origin?

Ms D Rantho (ANC) asked about trading duty free. What impact would this have in the future if the market was opened too much among SADC countries?

Ms Kruger replied to Mr Pikinini that this issue was why consultation with other governmental bodies was so important, and that government must carefully consider this issue. She emphasised the need for balance and the slow opening of markets, with the necessary protection. The government could not unduly limit its policy space. In SADC, South Africa had been able to develop a great number of exports, and though other SADC countries currently had not, they would develop. ITAC had an important role in overseeing these tariffs over time. Safeguards in these agreements were also in place in case these free trade policies did not work.

She said that South Africa had not yet signed the TFTA because it had not gone through the necessary legal scrubbing and domestic processes. 16 of the 26 countries had signed the agreement. However, SA had signed a declaration and did intend to sign. The negotiations were ongoing and would consider list rules in reference to rules of origin, not general rules, even though some countries liked general rules. SA wanted to look at each specific product to ensure that it was in fact born and bred in its country of origin before it was given preferential trade status. Clothing and textiles were a focus for South Africa on sensitive products. Among SADC countries, clothing and textiles were a double stage transformation, whereas in COMESA or the EAC clothing and textiles were a single stage transformation. SA was still researching and negotiating rules of origin in order to protect South African production.

Mr Atkinson asked whether SA was in trade negotiations with China.

The Chairperson asked about competing interests between SACU and the EU. He asked why the 2017 completion date for the CFTA was ambitious.

Ms Kruger said that the SACU had agreed that if a product was sensitive in one country, it was deemed sensitive in all member countries. Any offers that SA received would be passed on to the SACU, but the EU did not behave this way, and had given preference to other countries over South Africa. This created a conflict of interest, because other countries did not need to offer the EU anything, but South Africa did. South Africa had to offer Geographical Indications (GIs). As for the 2017 deadline, she pointed out that the TFTA had taken 18 months just to conclude the introductory phase, and the negotiations had not been concluded in three years and were still not finished. The CFTA included more than double the number of countries and also considered services in addition to goods.                                                                                                                            

Briefing by International Trade Administration Commission

Ms Nomonde Somdaka: Senior Manager, ITAC, presented on tariff investigations. She explained that ITAC’s mandate was to foster economic growth through international trade. Tariff Investigations were split into two units. The first focused on agriculture and textile industries; the second focused on the automotive industry and machinery. ITAC operated within the legal framework of the International Trade Administration (ITA) Act, various tariff regulations, WTO conventions, SACU and SADC, and domestic laws.

There were three types of customs tariffs amendments, all with the goal of protecting domestic products, and were done on a case-by-case basis:

  • Increase in customs duty- supports domestic producers facing import competition;
  • Reduction in customs duty- done when goods/services were not manufactured locally;
  • Rebate provision- waives customs duty fees

ITAC had prioritised certain sectors for job creation. When appropriate and in conjunction with other departments, tariffs or tariff relief and other measures would be enacted to aid these sectors, which were infrastructure, green economy, agriculture and mining value chains, and manufacturing.

ITAC had developed a questionnaire with comprehensive criteria for adjudicating customs duty applications and applications for tariff. ITAC strives to consider the full value chain and interviews all possible stakeholders in each of these situations in order to enact policies that promote market competition. ITAC considers, for example, market shares, demand and supply conditions, and many other factors. This process takes around six months and involves the ministers of both the DTI and Finance. Evaluation of the result of the decision, based on the sensitivity of the market, could last from one year to five years.

Ms Somdaka presented a chart of many past applicants to the ITAC for customs tariff amendments. For example, Grain SA, a non-profit organisation, had been granted an increase in the customs duty on wheat, from US$215 to US$294, to bring the price more in line with international competition. Another example was Colas (Pty) Ltd of the Western Cape, which had applied for and received a rebate provision on petroleum bitumen.

Ms Carina van Vuuren: Senior Manager at ITAC, explained that Trade Remedies had two parts as well, and was made up of 18 investigators and two administrators. Trade remedies had three instruments, all of which aimed to promote fair trade, job growth, international competitiveness and strong domestic products -- anti-dumping measures, countervailing measures and safeguard measures

The majority of ITAC’s investigations since 2003 had been on anti-dumping. She pointed out that since South Africa was a member of the WTO, ITAC was bound by their rules, as well as the ITA Act, the Administrative Justice Act, and the Access to Information Act, which all affected ITAC. Historically, very few countervailing and safeguard investigations had been initiated, but anti-dumping investigations had become more frequent both nationally and globally. Dumping was selling goods at a lower price in the export than in the domestic market. South Africa had had legislation against this practice since 1914. To act against dumping practices, ITAC must prove dumping, material injury, and causality were all taking place.

In these investigations, ITAC used information from the industry and created a year-by-year trend analysis. It also compared normal value to export price, and also as a percent of export price. Material injuries could be found in a variety of different areas, such as profits, inventories, and wages. These findings took place provisionally in six months, and final measures in ten months. Imposed duties stayed in place for five years, with the potential for extension. This timeline was on a par with other countries.

Countervailing aimed to prevent foreign subsidies from harming SACU industries. This was not company-based, like dumping, but rather involved governments. To enact countervailing practices, ITAC had to prove subsidies, material injury, and causality were all taking place.

In these investigations, ITAC received and reviewed a complaint, then consulted with the country in question. This process followed a similar time-table to dumping.

Safeguarding aimed to protect SACU industry from a surge of imports. This rarely happened, and had not happened since 1995. To enact safeguarding practices, ITAC must prove unforeseen developments, a surge of imports, serious injury, and causality were all taking place. These were not actions against unfair trade, and affected all countries. Safeguards were merely temporary measures to allow for adjustment. All steps taken were shared with the WTO and various stakeholders, and followed the same ten-month timeframe.

Ms van Vuuren explained that measures generally lasted less than three years to avoid reviews and potential compensation to those affected. She then listed the investigations that had taken place since April 2014, including an anti-dumping investigation case involving frozen chicken portions. Ongoing investigations included an anti-dumping investigation involving cement.

These issues were always contentious and occasionally involved a judicial review. ITAC had never had a full dispute with the WTO.

Mr Marius Collins, Manager: Import and Export Control, ITAC, defined the International Trade Administration (ITA) Act as a framework for a permit system for the control of imports. Import regulation aimed to protect health and comply with international law. In handling these permits, ITAC worked with many other government bodies, including the Department of Environmental Affairs, SAPS and SARS. Currently only 276 tariff sub-headings were subject to import control measures. He detailed various chemical products, arms, and gambling machines that were subject to import controls.

The ITA Act also applied to exports. Export controls complied with WTO and other international agreements and aimed to assist law enforcement. Only 177 tariff lines were subject to export controls. These included metal waste and scrap, chemicals, and mineral fuels, among others. Enforcement actions within the mandate included proactive inspections and container inspections. Non-compliance resulted in investigation by police and potential for trial and seizure of goods. During the reporting period, 18 454 import permits and 14 181 export permits had been issued. In 2014, five officers had conducted 792 scheduled and 563 unscheduled inspections. These had resulted in 36 investigations.

Discussion

Dr Cardo asked whether Evraz Highveld Steel would get its 10% import tariff request. Would this be given to the whole steel industry? What progress had there been with similar requests -- for example, one from Mittal? What investigations had been undertaken to determine the extent of steel dumping by the Chinese? Did government agree on the desirability of import tariffs? He quoted various officials such as Trevor Emanuel and Jeff Radebe speaking out against import tariffs. He noted that South Africa had banned the import US chicken bone, including 65 000 tons of frozen bone-in chicken. He pointed out that South Africa had imported chicken from the EU, despite outbreaks of avian flu there. What was the likelihood of chicken bans being regionalised in the US?

Ms C Matsimbi (ANC) asked how import tariffs were chosen. Did the ITAC initiate these tariff supports, or did businesses apply? What if increasing a customs duty would negatively impact trade? What impacted ITAC’s investigations?

Mr Atkinson asked for clarity on whether SA would have to lift bans on US poultry.

Ms Somdaka responded that there were twelve applications for steel products to have customs duties increased. ITAC would follow the set process for these matters, and the ultimate decision would rest with the Minister.

Tariff support was important to ensure competition, but reviews had to take place after time went by. The ITAC operated on the principle of reciprocity, and one could understand why tariffs might be unpopular. ITAC emphasised supply side assistance and insisted on employment growth, skills development, and improved access to technology. As for the steel industry, tariff support would emphasise the developmental price strategy for the downstream industry. Allegations against Arcelor Mittal SA (AMSA) must be confirmed, and then AMSA must be legally bound not to raise their prices. She explained that parties did not always agree on tariff measures, but that tariff amendments still went through.

Mr SiyabulelaTsengiwe, Chief Commissioner, ITAC, said that allegations against the Chinese had not been substantiated at this time.

Ms Van Vuuren said that anti-dumping measures were in place against the US, but that 65 000 tons of chicken had been agreed upon, despite avian flu outbreaks. The EU was a different matter. Sanitary and PhytoSanitary (SPS) measures were enforced by the DAFF.

Ms Kruger said that the matter of the 65 000 tons and its distribution was an ongoing process, and was yet to be reviewed by ITAC. This was similar to previous issues with the US over pork and other products. It was very complicated to implement regionalisation. SA wanted to allow in US chicken, but could not if it posed a health risk.

Ms Matsimbi asked again what influenced tariff support? Did ITAC initiate tariffs or were they requested by industry? If SACU members did not support tariffs, would they be allowed?

Mr Pikinini asked how ITAC managed with so few inspectors. He noted that ITAC received help from SARS, but suggested that more resources would help ITAC close the gaps.

Mr Tsengiwe said that ITAC has applied for better funding to address this challenge.

Ms Somdaka responded to Ms Matsimbi that SACU members were considered, among the many factors studied, before creating a tariff amendment. Normally, industry applied to ITAC for tariffs.

Mr M Mbatha (EFF) asked if there were new trade negotiations among the BRICS countries? Did Brazilian orders affect SA’s markets?

The Chairperson said that the committee had made a visit in 2013 to observe the impact of tariffs, and had seen no benefit from tariff support. What should SA take from this?

Ms Somdaka said that she would have to follow up on the Chairperson’s question, because an impact assessment had not been conducted.

Mr Tsengiwe addressed the question about Brazil by explaining that the PTA for MERCOSUR was very limited by tariff lines. SA did not pursue free trade with China because it could not compete with China on price. Similarly, all BRICS members tended to be more cost-competitive than South Africa. When increasing tariffs, these tariffs would apply to Brazil. The costs of production made this issue very challenging.

Ms Kruger added that Brazil used to be the major exporter to the SACU until 2012 when trade from the EU became duty free, and thus EU had become the most major exporter. This was a challenge for domestic producers. Safeguards had expired in the Trade, Development and Cooperation Agreement (TDCA) in 2012, so ITAC needed to finish its current negotiations. She repeated that negotiations with Indian domestic industries were very difficult.

The Chairperson thanked the DTI for the information and noted that more information would be requested in the future.

The meeting was adjourned. 

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