Commission for International Trade Affairs: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE AND ECONOMIC AFFAIRS SELECT COMMITTEE: JOINT MEETING
5 June 2001
COMMISSION FOR INTERNATIONAL TRADE AFFAIRS (CITA) ON ITS POLICY
 

International Trade Administration

Relevant documents:
Midterm Review/Extension of Motor Industry Development Programme for Light Motor Vehicles
Review of Customs Tariff Policy (June 2000)
Review of Customs Tariff Policy with Regard to Agricultural Products (June 2000)
(email [email protected] for these documents)

SUMMARY
The Board on Tariffs and Trade is undergoing transformation and will become the Commission for International Trade Affairs . Ms Diseko (Deputy Director General: Commission for International Trade Affairs) highlighted BTT’s key performance areas, core functions and objectives and explained how these aspects will be incorporated and improved in the formation of CITA. A specific area of transformation is BTT’s relationship with South Africa’s South African Customs Union partners.

In essence, Ms Diseko explained that whilst liberalising its trade policies, CITA will ensure that it protects the country’s sector industries from unfair practices as a result of lowering tariffs. CITA will also ensure that the country’s industries are informed of global trade policies and developments and CITA will assist them when antidumping measures are brought against them.

MINUTES
Presentation
Ms Diseko, Deputy Director General: Commission for International Trade Affairs (CITA), addressed the Committee on the bill relating to the establishment of an international trade administration system. Further, she indicated that her presentation was intended to prepare parliamentary mandate for changes underway in the institutions of the Southern African Customs Union (SACU).

She provided a brief historical background on the Board on Tariffs and Trade (BTT), which was established in 1925, and currently runs under the Board on Tariffs and Trade Act of 1986.

Ms Diseko said that the mandate of BTT extends beyond South Africa to include SACU, which administers the common external tariff (CET). In effect South Africa has ceded its economic sovereignty to the customs union.

She said South Africa has a different approach to CET as opposed to its SACU partners. SACU partners view CET as a means for pursuing fiscal objectives, whereas South Africa does not.

BTT Objectives
Ms Diseko said the primary objective of the BTT since 1994 was to manage the relationship between South Africa and SACU on the one hand and global trade on the other. In essence the purpose of managing this relationship is to ensure that poverty, unemployment and inequality are not entrenched. She insisted that mechanisms are needed to manage uncertainties implicit in the global trading system.

The second objective, said Ms Diseko, is to facilitate the development of new sources of comparative and competitive advantage in South Africa and the SACU region. Ms Diseko said gold alone could not be the source of export earnings for the region if the region is to achieve sustainable economic growth.

The third objective, she said, is to ensure that South Africa abides by the rules of the international trading system and ensure that South Africa use these rules to her advantage.

BTT – Core Functions
Ms Diseko said that the core function of BTT is to ensure that the lowering of the tariffs is in line with the country’s obligations to the WTO agreements, without undermining the country’s industrial and economic growth. This is of particular importance with regards to the Uruguay Round.

The second core function is to manage a moderate system of protection in order to encourage the development of industrial capacity in South Africa and the SACU region.

The third function is to provide a proactive, responsive and effective trade defense system for the South African and the SACU industry against predatory and unfair trade practices.

Ms Diseko explained that South Africa is frequently regarded as a "user of this facility" (a trade defense system). She intimated that it is to South Africa’s advantage that we establish a strong trade defense system. Such a defense system is intended to protect the South African industry in situations where tariffs can no longer be used. She added that South Africa was not alone in using these trade remedies.

The fourth function is to administer the remaining tariff structure in a manner that is supportive of government efforts to boost exports and sharpen competitiveness.

Key instruments used by BTT
Ms Diseko explained that key instruments refer to tariffs in a broader sense. These tariffs are to ensure that the structure of the industry is not distorted by the fulfillment of obligations arising out of the Uruguay Round of tariff cuts and internal tariff reforms in South Africa. She emphasised that South Africa must maintain a balance between consumer and producer.

Other instruments include trade remedies such as antidumping, safeguards and countervailing measures.

She said BTT also operates a system of rebates that have been crucial in enabling the Motor Industry Development Programme (MIDP) to function and to find new sources of comparative advantage.

She said other instruments include duty credit certificates, import rebate credit certificates, and import and export permits.

Ms Diseko informed the Committee that BTT has conducted 150 tariff investigations last year and 19 trade remedies. She said that this limited number was due to the small size of the unit that relies heavily on the industry approaching it and requesting remedial action.

1200 Rebate permits relating to MIDP were issued last year while 20 000 import permits and 10 000 export permits were issued.

BTT - Projects
Ms Diseko said that a major project undertaken by BTT since 1994 is managing tariff cuts following the Uruguay negotiations and the Marrakech Agreement. She added that the challenge facing BTT now is to ensure that no major dislocations are caused when tariffs are removed.
A second project undertaken by BTT is the phase-down programme for the textile and clothing tariff structure. A third project is to administer the MIDP.

The Board also manages the tariff dispensation for agricultural products

The impact of the Uruguay Round and the Marrakech Agreement
Ms Diseko said that a perception is that South Africa is still heavily protected. She said that the Board felt that South Africa has moved significantly away from tariffs.

Ms Diseko referred to all products under the "Average Industrial Tariff Post Uruguay – All Lines" table. She indicated that in respect of under ‘All Goods’ South Africa reflects 6.9% whilst the GATT tariff weight is 15.7%. In terms of ‘Capital Goods’ South Africa reflects 7.1% and GATT 14.3%. In terms of ‘Intermediate Goods’ South Africa reflects 3.9% and GATT 10.7%, whilst in respect of ‘Consumption’ South Africa reflects 17.2% and GATT 26.3%. She insisted that these figures illustrate the significant move South Africa has made in departing from all the tariff lines.

Ms Diseko explained that the exclusion of zero rate lines from all tariff lines appears to depict slow progress. However, she said this is not the case. She said that global markets determine the extent to which South Africa can increase or decrease tariffs. Hence South Africa does not reflect a bad rate in respect of ‘Capital Goods’ (16.9%) in relation to GATT (20.8%). Further, South Africa’s ‘Intermediate Goods’ reflects a rate of 12% where as GATT is 13%.

Ms Diseko said that MIDP has been a major success in terms of foreign exchange earnings. These earnings have risen from R6.6 billion in 1997 to R17.0 billion in 2000.

South Africa has been accused of being a major user of antidumping action. She implied that there is nothing wrong with antidumping since it is a natural consequence of liberalising the economy."

She said in a context where tariff protection does not exist the likelihood is that a country will attract people who take advantage of the opportunities in the economy and do so in an unfair manner.

Ms Diseko insisted that compared to other developing countries, South Africa is not doing badly. She said last year India had 54 cases of antidumping and South Africa 19 while the EU and the USA maintained a higher level of antidumping action.

Ms Diseko said the industry would like BTT to do more but she explained that BTT has a limited capacity. The number of antidumping units have increased throughout the world, particularly in developing countries. Developing countries find antidumping action and countervailing measures useful whilst liberalising their economies.

Structure of the Board
The Board has two full-time members and three part-time members. They meet every Wednesday to consider applications for tariff changes, trade remedial action, import permits, and export permits and make recommendations to the Minister of Trade and Industry.

In the case of agricultural goods the Board must consult with the Minister of Agriculture before making any recommendations to the Minister of Trade and Industry.

The Board is supported by a small staff from the DTI that performs investigative work in accordance with WTO requirements. These stipulate that investigative work should be separate from decision-making.

The Future of BTT
Ms Diseko explained that BTT will be dissolved. This restructuring involves the separation of administrative and regulatory functions encompassing delivery and policy matters in order to enhance performance.

This restructuring is in compliance with the requirements of the WTO agreements. The new institution will be called the Commission for International Trade Affairs (CITA). Ms Diseko stressed that CITA needs the capacity to respond effectively to new challenges posed by globalisation particularly in relation to non-tariff barriers.

She said developed countries are using subtle forms of protection to prevent developing countries gaining access to their markets. At the same time it is essential to ensure that these forms of protection cannot be used against them by structures that monitor non-tariff barriers.

Changing BTT will also provide for the performance of additional functions - particularly the monitoring of the implementation of trade agreements between South Africa and her trading partners. Further, CITA will provide technical support to sectors of the industries that are charged with unfair practices by other countries.

She stressed the need to monitor trade agreements after trade agreements are concluded because often no mechanisms exist to monitor the impact of these agreements on relevant sector industries. Similarly, sector industries do not know where to seek assistance when relief is needed. Most of the concluded agreements have inherent safeguard measures that can be activated when sector industries become vulnerable. Currently BTT is unable to activate these safeguard measures.

This incapacity is coupled with BTT’s incapacity to assist companies when anti-dumping actions are brought against them.

In conclusion, Ms Diseko insisted that there are a number of reasons for dissolving the BTT. Although she preferred not to comment on all of these, she said that the most important reason is that the South African industry must be provided with a stable, predictable and transparent system of administering international trade. This system will provide industries with information that is crucial for decision making.

Discussion
Ms F Hajaig (ANC) asked whether any data was available from monitoring SADC’s Free Trade Agreement.

Ms Diseko responded that BTT is not empowered to deal with this matter.

Dr R Davies (ANC) queried how the SACU countries would be accommodated under CITA.

The DDG answered that SACU, as a member of the WTO, has to find a formula that is democratic and effective. She said the scope for using tariffs for fiscus was diminishing and that government must negotiate with SACU partners to find a formula for revenue sharing.

Ms C September (ANC) asked how CITA will be different from BTT.

Ms Diseko replied that BTT is small whilst CITA will be larger with increased capacity to offer a wide range of vital services to the South African industry. She said that the global shift had opened markets and hence there is a need to monitor the impact of other countries on South African trade. She said there is also a need to assist politicians get market access for South African industries.

Mr Fenyane (ANC) inquired whether the restructuring of CITA was done in consultation with SACU countries since there was a tendency to accuse South Africa of being hegemonic. Further, she asked if South Africa needs SACU more than SADC.

Ms Diseko responded that SACU partners have been consulted on the changes taking place. However, she added that the difficulty was transforming BTT structures whilst maintaining a global standard and negotiating with SACU. Further, she said Government’s commitment to the renaissance of Africa means that charity begins at home. In essence, South Africa needs SACU as a common economic area. She explained that the difference between SACU and SADC is that SADC is an entity where as South Africa under the WTO is regarded as part of SACU.

She denied that South Africa is marginalising her SACU partners and said that when the EU-SA Agreement was signed SACU partners were present. These partners have also been informed of the negotiations taking place between South Africa and Mercusor.

Mr Bruce (DP) asked who was going to take over the BTT.

Ms Diseko replied that the dissolution of BTT lays the ancient Board to rest. Instead a modern structure is being created. She said that the commission would be larger and specialised.

Mr D Lockey (ANC) asked for an example of a source of comparative advantage that South Africa has.

Ms Diseko responded that the Motor Industry Development Programme (MIDP) has a successful line of 3 Series BMW exports and that in the future the C Class Mercedes Benz is expected to join them.

Mr D Lockey observed that although South Africa has competitive advantage in certain sectors of the economy, 500 000 jobs have been shed and continue to be shed. He suggested that the country needs 50 of MIDP-type initiatives. He continued that the motor industry has also shed some jobs and proposed that the country should put more resources in the clothing, textile, agriculture and mineral beneficiations.

Ms Diseko agreed with Mr Lockey and informed the Committee that rebates are now being offered to the wine industry.

Dr Davies observed that a bulk of tariffs have gone through BTT and now the country’s tariffs were below the minimal compliance within the WTO. Further, he said that it was imperative for South Africa to defend herself in these circumstances. He asked if there is a shift towards this emphasis.

Ms Diseko responded that as the country lowers its tariffs, other countries are taking advantage of this. Hence South Africa is defending herself through antidumping measures allowed by WTO.
However, she added that despite the use of defensive mechanisms, South Africa has not shifted from its policy of trade liberalisation. She emphasised the need for South Africa to be competitive.

Mr M Moosa (ANC) who assessed whether trade relations are beneficial in order to maximise benefits.

Ms Diseko responded that the monitoring of trade agreements is not in force and that currently this is done informally.

Mr Bruce observed that the reason why tariffs were reduced was due to competitive pressures. Further he said that In the case of the motor industry this was due to a weakening of the rand.

Ms Diseko added that MIDP is in compliance with WTO requirements and that it yielded results post 1994 when sanctions were lifted.

Mr Theron asked what the relationship is like between CITA and the Department of Finance and who initiates the tax scheme.

Ms Diseko responded that the relationship between CITA and the Department of Finance is limited to tariffs and that the only incentives used by CITA are tariffs.

The meeting was adjourned.