International Trade and Administration Commission (ITAC) briefing on Role and Function

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Trade and Industry

20 February 2007
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
21 February 2007
INTERNATIONAL TRADE AND ADMINISTRATION COMMISSION (ITAC) BRIEFING ON ROLE AND FUNCTION

Chairperson: Mr B Martins (ANC)

Documents handed out:
ITAC Presentation: Introduction & Overview, Trade Remedies, Import and Export Control, Tariff Investigation and Southern African Customs Union (SACU)

Audio Recording of the Meeting


SUMMARY
The International Trade and Administration Commission briefed the Committee on its structure and strategic objectives. It set out the functions and purpose of trade remedies, the legislative framework, and the various trade remedies that were available. The process and time frames for the imposition of trade remedies were set out. Details were given of ITAC’s work over the past three years. Questions were raised by members on the current definition of dumping, and whether the industry, in particular the textile industry, would be able to prove dumping, on the current stance of the Department of Trade and Industry, and on the currently high costs of doing business. Enquiries were made about the tea industry, the possibility of amending the dumping definition, the problems in stopping imports, consultation with the business community, public interest, reduction of production costs, and the role of the Southern African Customs Union. Further questions related to whether growth was a result of the Commission’s core business, the framework that guided it, the current Constitutional Court challenge, the nature and character of the Commission, and its role in World Trade Organisation negotiations. Economic factors, the relationship with the Competitions Commission and its flexibility were examined.

The Commission gave a separate briefing on import and export control, tariffs and the Southern African Customs Union. The function and purpose of the Unit handling this work was outlined, and the distinctions between goods explained. Import and export control was discussed, together with the function of tariff investigations, the assessment criteria, the role of the instruments and the framework. The structure and operations of the Customs Union were set out, and the challenges were tabled. Questions from members related to the rules of the World Trade Organisation on imports and exports, the ban on second hand clothing being imported by charities for distribution in poor areas, the powers of the Commission to enforce agreements, the role of the Commission enforcing policy made by other organs of Government, the development of common customs policies, and the import controls on waste and scrap. South Africa’s dominant role in the Customs Union was outlined and explained. Further clarification was given on liberalisation, development of common economic policies, the policy directions since 1994 and the suggested formulation of a national industrial policy. Details were provided of the staff structure at the Commission, and its reactive or proactive nature. Members queried the procedure for goods destined for other countries, the Motor Industry Development Programme and the pricing structures.

The Committee discussed and adopted its Report on the Study Tour to China.

MINUTES
International Trade and Administration Commission (ITAC): Briefing
Mr Itumeleng Masege (ITAC - Deputy Chief Commissioner) gave a brief introduction and overview of ITAC. He discussed the ITAC structure and strategic objectives.

Ms Carina Grove (ITAC - Director: Trade Remedies I) discussed the functions and purpose of trade remedies, the legislative framework within which ITAC operated, and the various trade remedies that are available, namely dumping, countervailing measures, safeguard actions and the difference between dumping and subsidies. She also discussed the process and time frames for the imposition of trade remedies and provided statistics on what ITAC had done in the past three years. She then mentioned the industries that were involved in the various trade remedies investigations.

Discussion
Prof E Chang (IFP) referred to Mr Masege’s statement that little dumping took place in South Africa. ITAC should look at educating South African industries with the tools and knowledge to collect evidence of dumping, as happened in the United States. In her opinion, dumping did take place in South Africa, but South African industries did not themselves have sufficient knowledge to prove that the dumping had taken place. She said that the South African textile industry complained that they were being threatened by imports from China, but that industry probably would not be able to provide sufficient proof.

Mr D Oliphant (ANC) stated that the textile industry suffered from the effects of what was perceived as dumping in South Africa. However, he said that this was not really dumping. The Committee must be clear on what dumping was, and what exactly it entailed. When the industries started to complain about the dumping process, the Department of Trade and Industry (dti) took a very arrogant stance by saying that the industries must get their houses in order. South African industries did not previously pay attention to the practice of dumping because they were fairly protected. Suddenly, when the doors of trade were thrown open, the industries were on their own. Mr Oliphant agreed that companies must organise themselves, but also proposed that the dti must start talking to the various industries. It was very difficult to communicate with government departments, in particular dti. Satisfactory replies were not given. Some businesses failed even before they got off the ground because there was not a flow of communication between them and various units in the dti. Businesses needed to be exposed to the issues that the Committee had been briefed about at this workshop.

Mr Laubschagne (DA) said that he was concerned that industries, who were important because they employed many people, had to deal with South African business conditions, such as expensive telecommunications and fuel. In China, everything was very inexpensive and so the practice carried out by China was technically not dumping. However, this practice was killing the South African industries and thus putting many people out of work. South African industries could not become more competitive when they were faced with taxes and other constraints which were not found in other countries such as China. Factors such as working conditions, wages, absence of trade unions and indirect state subsidies contributed to these countries’ ability to export their product at a lower price than it would cost to manufacture in South Africa. This raised the question of what was fair.

Mr Maake (ANC) stated that the definition of dumping matched the World Trade Organisation (WTO) definition. The explanation by Ms Grove was that dumping, according to the WTO, was not illegal. He pointed out that one of the objectives of ITAC was economic growth. Economic growth without employment was not good for the country. Mr Maake believed the WTO definition caused South Africans to lose their jobs. South Africa was just following what the rest of the world was doing and was not being objective, thus harming its own citizens. Mr Maake noted that the agricultural industry was not mentioned as involved in the various trade remedies investigations. He wondered if people in the agricultural industry were not aware of ITAC’s objectives. He referred specifically to the tea industry, stating that some tea manufacturers had closed so South Africa was now importing tea from Kenya and Malawi. He enquired if this was the result of dumping. He also enquired if something could be done about the definition of dumping for the benefit of South African workers. Finally he wanted to know what the reference to public interest on Slide 11 of the presentation entailed.

The Chairperson pointed out that the issues were very complex. They were also pertinent to the economy of the country. He reminded the Committee that the function and role of ITAC was to carry out government policy as mandated by the dti. He stated that the issues dealt with by the ITAC delegation were also complex. He reminded the Committee that about four years ago public hearings were held in Parliament pertaining to the role players in the textile industry. The public hearings comprised of the challenges faced by the clothing and textile industry. Dti had then pointed out to the main players that there were assistance programmes provided by the dti in order to assist the industries to cope with international developments. Grant monies were given, but unfortunately these were often not used to improve the technology and infrastructure in order to compete internationally, but instead were used to purchase Chinese goods. Now it was being suggested that government must put a stop to the influx of Chinese goods. In 2006, during negotiations with the Chinese, the government said that it would limit the importation of Chinese goods. The same role players who attended the public hearings said that this would harm businesses’ profit margins. These role players had to be consistent. On the one hand they complained that importation was injurious to their industry, yet also complained when measures were put in place to limit the importation.

The Chairperson pointed out that the Committee must pay particular attention to the international protocols in which South Africa engaged. The dti engaged in international trade and entered into international agreements. However, those agreements had to be ratified by Parliament. The Portfolio Committee must give direction to the House of Assembly and thus had the responsibility to look critically at the agreements placed before it. Even after ratification unforeseen and unintended consequences might emanate from those agreements, and that must be addressed. This engagement with ITAC should keep the Committee alive to the complexities of all the issues, which must be looked at in their entirety. Several units would address the Committee in this year and at the end of this process there would also be engagement with dti, when the very issues now being discussed should be raised.

Mr Oliphant responded that the Committee understood that the point of ITAC’s presentation was to explain how ITAC carried out the policies mandated to it by the dti, but it was within that mandate that the Committee was making suggestions and questioning how the mandate was going to be executed. It was not the intention of the Committee to criticise ITAC.

Mr Laubschagne said that often the Committee was presented with agreements that had already been negotiated by the dti. He asked whether the DTI consulted the business community before it signed an agreement, as the business community was akin to dti clients. The unintended consequences of the agreements arose from the practical application by businesses in South Africa. In addition, he asked whether the specific unit would take concerns with wider impact to the departmental executive or to the Minister. Issues raised in the Committee meetings were often wider than the specific mandate of a particular unit.

The Chairperson responded that when matters were brought to the Committee, dti was obliged to engage the stakeholders, and that whenever a Bill was tabled dti had to indicate all the stakeholders consulted.

Mr Laubschagne clarified that he was referring to participation of the stakeholders before agreements came for ratification.

The Chairperson responded that dti did consult, but that he could not say how widely. The Committee could further engage with and request information on those issues.

Mr S Tsengiwe, General Manager: Core Business, ITAC remarked in general on the comments made by members. He said that ITAC was most often asked to act against China in terms of ITAC’s instruments, and other countries would be India and Brazil. It was rare that industries would approach ITAC to act against the European Union (EU) countries or the USA. The reason was that countries in Asia had lower costs of production as compared to the costs in South Africa. South Africa faced stiff competition from these countries. Therefore, rather than just focusing on the ITAC instruments, South Africa should rather use a multi-faceted strategy to deal with the problem of international competitiveness. The sector strategies that dti was working on would be useful in terms of a multi-faceted approach. There could perhaps also be a special strategy for China. This approach could address issues in the clothing and textile industry, such as equipment and machinery upgrades, skills, timeous delivery, quality, research and development.

Mr Tsengiwe clarified that dumping was defined as taking place when a foreign country or firm exported to another country at prices lower than those that applied to the product in the home country. Before China was granted market economy status by its government, China would have been regarded as dumping in terms of the WTO Agreement on Dumping. This kind of treatment had changed with China being granted market economic status. Now, ITAC would have to verify claims against firms on a case by case basis in China and assess whether these firms were operating on free market principles. ITAC had found that the firms against whom claims were lodged were indeed operating on free market principles were exporting their products to South Africa at the same prices that they were selling for in China. Once again this was the result of China’s low cost of production as compared to South Africa’s cost of production.

Mr Tsengiwe added that ITAC was in the process of including in its regulations a clause on public interest. ITAC might find that there had been injurious dumping in respect of a particular product. However, the Minister, in the public interest, might decide not to accept ITAC’s recommendation and might request ITAC to carry out a public interest investigation. For example, ITAC might be approached by the steel industry and might find that there was injurious dumping. However, it could be that downstream industries in South Africa were affected by the increasing cost of steel. The Minister could decide not to impose the anti-dumping duty as this would further increase the prices of steel downstream. In cases where ITAC found that there had been injurious dumping, it acted swiftly to protect jobs and investments.

Mr Masege noted that ITAC held road shows, had visited a number of provinces, and had recently held a workshop where all industries were represented. At this workshop the process pertaining to complaints in respect of dumping was explained to the industries.

Mr Masege responded to Professor Chang’s point by stating that although all WTO members used the WTO anti-dumping regulations, ITAC also had its own regulations. The processes followed in the US might not be applicable in South Africa. This was the reason for the International Trade Administration (ITA) Act. Consultants were employed by the industries. Therefore, by the time ITAC received a complaint, it was often brought by a consultant who might have informed or misinformed the industries. ITAC had therefore taken a decision to deal with the industries directly.

Mr Masege clarified the WTO definition on dumping. It had to be injurious and, more importantly, there had to be a causal link between the alleged dumping and the injury. If injury suffered by a company in South Africa was not a result of the dumping, but rather because of something like a bad merger, ITAC could not act. He confirmed that ITAC did go out and educate the industries.

Professor Chang alluded to the fact that ITAC carried out government policies. One of ITAC’s strategic objectives was the reduction of production costs. She asked for clarity on this statement. She enquired if ITAC was aware that in other countries, as well as in China, use was made of sub-contractors. Smaller factories might be used to help bigger factories do the research and development on more efficient production. However, in South Africa, if a buyer asked a textile company to produce one product, that company would have to stop all other production lines in order to produce to the buyer’s specification. There was no guarantee that the particular product could be copied exactly. South Africa was therefore unable to compete with China’s production turnaround time. She believed that the solution to this problem was for dti to negotiate a reduction in the costs of raw materials coming from China. There should be a joint venture between the Chinese textile industry and the South African textile industry. Presently South Africa had almost four times more investment in China than China had in South Africa.

Professor Chang said that a role was played by the Southern African Customs Union (SACU). If the other SACU countries had to comply with the import quotas from China as negotiated by South Africa, then South Africa should enter into bilateral agreements with other SACU members, and must be careful that agreements during trade negotiations did not contravene the SACU arrangements. South Africa should consult with the individual SACU members on how they may be able to assist South Africa.

Mr Laubschagne referred to the Committee’s recent tour to China in September 2006, when it was explained that the Chinese textile companies were no longer supported by government, and that their profit margin was under 3%. Mr Laubschagne suggested that a Chinese textile company might, in the past, maybe have received a 15 year government subsidy in order to put it in its current trade position. He enquired if ITAC looked only at the company’s present situation, or if they would look to its past history. South African textile companies had never had that kind of support. He asked if this was then fair competition, especially in light of perceived dumping practices.

Mr M Nonkonyane (ANC) said that he understood that the core mandate of ITAC was to encourage economic growth and employment in South Africa as well as to effect the administration of trade regulations. South Africa did have business entities that were stimulating growth, as well as international businesses that had direct investment in South Africa. All were trying to boost the South African economy. He understood growth as emanating from direct investment and from the South African side, but was not clear whether growth was a direct result of ITAC’s core business, which as a consequence should boost employment.

Mr Sisa enquired about the framework that guided ITAC when it carried out its mandate, particularly as it had mentioned terms such as fair trade, enhancement of competitiveness, as well as trade liberalization or management. He enquired to what extent ITAC had taken these terms on board when looking at trade remedies.

Mr Tsengiwe stated that he would address both questions together. In terms of its instruments, ITAC contributed to economic growth and employment. However, the difficulty was how to measure this contribution and allocate a figure to it. ITAC was now more circumspect than it had been previously in applying its trade remedies instruments. Instead of looking at the applicant only, ITAC looked now at the wider economic interest. This meant that for upstream products that were used as inputs for downstream products, ITAC would not impose punitive measures provided there was no evidence of injurious dumping. Downstream manufacturers could then use their inputs at internationally competitive prices. There was more value added to the products, and the increase in domestic manufacturing would result in an increase in employment and investment. In terms of ordinary customs duties, the approach was to reduce duties upstream so as to know what the cost of production was downstream. ITAC also would protect domestic industries where there was economic justification for the protection of jobs and investment, using anti-dumping duties and countervailing measures. ITAC would use an increase in an ordinary customs duty to protect domestic manufacturers, subject to there being economic justification. In terms of ITAC’s import and export control measures, it had restrictions on second hand goods, and these were in fact banned in clothing and textiles, as they would erode the domestic markets. Hence, ITAC’s core functions made a significant contribution in terms of promoting growth and employment. Another instrument was rebates, which was a temporary waiver on duties on imports which manufacturers used domestically for the purpose of exporting the end product.

Mr Nonkonyane enquired about the Constitutional Court case mentioned in the presentation, in particular the issues involved, the impact of the case on ITAC’s mandate and when the matter would be decided.

Ms N Kruger ,Senior Manager: Legal Services, ITAC replied that in terms of Section 6 of the ITA Act, the Minister may issue a notice restricting imports and exports into South Africa; there could be a total ban or an import or export permit would be required. ITAC was administering the Chinese quotas through import and export control. There were also several other import restrictions that ITAC was currently administering. The constitutionality of Section 6 was currently being challenged in the Constitutional Court. It was suggested that Section 6 was unconstitutional because it was in conflict with Section 23 of the Constitution, stating that everyone in South Africa had freedom of trade. This case was in its early stages. The constitutionality of the same provision had been challenged before under the Interim Constitution, at a time when this provision formed part of the Import and Export Control Act. In that case the Court had dismissed the application and held that the provision was not unconstitutional.

Mr Nonkonyane said that the perception of many South Africans was that poor quality goods were being dumped on the South African market. He asked how the importation of poor quality goods was controlled.

Mr G Sisa (ANC) enquired about the nature and the character of ITAC. He asked if ITAC was a technical institution, a policy foundation institution, a regulatory institution or a techno-development institution. He wanted to know to what extent ITAC played a tribunal role as complaints were submitted and decisions taken to impose punitive measures. He asked how it balanced its proactive character with its disciplinary functions. On the one hand ITAC was a reactive institution, but on the other hand it was a proactive institution in educating industries. He enquired how ITAC formulated its internal policies and to what extent it interacted with other trade institutions, and with the Ministry of Trade and Industry. He asked whether ITAC played any role within the WTO negotiations and generally in the negotiation of trade agreements.

Mr Tsengiwe said that ITAC was an administrative body established in terms of the ITA Act. It made recommendations to the Minister and the Minister made decisions, which were then communicated to the Minister of Finance and were finally implemented by the South African Revenue Services (SARS). ITAC was directly accountable to the Minister in terms of the Act. The broad trade and industrial policies were set by the dti. ITAC then developed operational policies within these broader policies. The operational policies were the customs tariff policies, the anti-dumping policies and import and export control policies. They were developed internally and were submitted to the Minister for approval. There was an interface between these operational policies and the broader policies. It was difficult to have a complete separation between the administrative role that ITAC played and the role played by the relevant divisions of the dti on trade and policy in industries. However the custodians of these policies were the relevant divisions in the dti.

Ms M Ntuli referred to the 14 various economic factors mentioned in the presentation. She enquired what kinds of economic factors were being referred to, and which had positive or negative effects.

Ms Grove responded that these economic factors were the normal economic factors that a business would run on. For example, for price, factors would be price undercutting, price depression or suppression, as well as sales, production, employment, wages, inventories, and so forth. The relevant factors would depend on the industry that was being investigated. For example, a glass industry could not afford to slow down production, so no matter what happened in the market they must keep on manufacturing glass. The injurious factors in this particular industry would not be the decline in sales or a decline in production, but a reduction in price in order to keep volume. Other industries that could slow down production and that were more inclined to keeping the price level and maintaining profits would not have price injury, but could be injured by a decline in production or a decline in sales. All factors were equally important but the specific injury would change depending on the industry.

Ms Ntuli enquired about the relationship between ITAC and the Competitions Commission, asking whether they were not duplicating each other’s work, or if they were working together.

Mr Tsengiwe explained that there was a relationship between the two. The Competitions Commission looked at price differentiation in the domestic market, whereas ITAC looked at price differentiation across borders. The Competitions Commission regarded domestic price fixing as uncompetitive behaviour. However, in terms of anti-dumping, there was a clause named “Price Undertaking”. In terms of this clause, if dispute arose between a domestic manufacturer and an exporter, the exporter undertook not to export at prices less than the selling price of the product in its domestic market. The exporter thus fixed the price. This was quite an interesting comparison of the difference between the two bodies. In terms of the quota institutions, ITAC fell into the category of Regulatory Bodies, together with the Competitions Commission.

Mr Maake said that in his constituency most of the corner shops were owned by foreigners and that the majority of the goods that were sold in these shops were imported goods. He wanted to know what role ITAC played in that type of situation.

Mr Laubschagne took note of the fact that ITAC was an administrative organ, and enquired if it could then be flexible. He referred to ITAC’s Mission Statement, which was to create an enabling environment for fair trade through customs tariff amendments, trade remedies and import and export control. He asked if the mandate only extended to enabling fair trade through the three measures mentioned in the Mission Statement.

Mr Masege responded that ITAC was indeed limited, and only had flexibility through its trade instruments. ITAC was the only institution in the world that had the three tools mentioned in its Mission Statement under one umbrella. In other countries, these three tools were carried out by different institutions, but this in turn presented a challenge as the different institutions with different mandates would still need to work together. As an administrative body, ITAC only had flexibility in applying the broad policies, as mentioned by Mr Tsengiwe, which were within its mandate and which pertained to its operational policies.

Import & Export Control, Tariff Investigation and the Southern African Customs Union (SACU): ITAC Briefing
Mr Phillip Snyman, Director: Import & Export Control, ITAC gave a presentation on the import and export control unit. He discussed the function and the purpose of the unit, the legal framework and policies within which the unit operated. He also discussed the distinction between new goods, and used or second hand goods as well as waste and scrap and the purpose for control of these goods. He also went into detail to discuss import and export control.

Ms Brenda Mabaso, Senior Manager: Tariff Investigations, ITAC then discussed the function of tariff investigations. She explained what tariff amendments were as well as indicating their rebates and drawbacks. She discussed the assessment criteria for tariff investigations, the role of the instruments, and the legal framework. She alluded to the structure of the tariff investigations unit, the applications process and tabled a number of statistics.

Ms Mabaso explained the operationalisation of SACU institutions, the structure of SACU, the SACU process, the SACU roadmap and the challenges facing SACU.

Discussion
Mr Maake felt that Section 6 of the ITA Act was very effective, and enquired why it was not used in the textile industry, especially in the public interest where the loss of jobs was concerned.

Mr Tsengiwe responded that the area of import and export restrictions was governed by multilateral rules under the WTO. In the case of import restrictions, the restrictions that ITAC were able to enforce pertained to second hand goods. The competition that was faced by South Africa’s domestic industries pertained to new goods. Restrictions could only be placed on new goods for reasons of health, security and protection of the environment. They could not be imposed for the purposes of protecting the domestic industry from fair competition. All member states of the WTO were subjected to these rules and therefore their interests were protected across the board. If these rules were violated then the other member states could retaliate by taking the “guilty” party to WTO settlement dispute procedures.

Mr Laubschagne fully accepted and understood the prohibition on the import of second hand clothing. However, in two cases charitable organisations abroad had gathered clothing for the poor in South Africa, but were unable to export the clothing to South Africa. In one of these cases, customs had sold the clothes. Mr Laubschagne wanted to know if there were many applications in this regard, and, if so, who would make the decision and how it was made. In a bona fide case where a non-profit organisation was involved, he enquired if there was some way of assisting the organisation and reaching a compromise.

Mr Snyman responded that the importation of used clothing by charitable organisations had been a contentious issue for many years. There was a period during which it was allowed. However, the abuse of the system resulted in the rebate items, items 4 and 5 of Schedule Four of the Customs and Excise Act, being amended to exclude second hand clothing in particular. Therefore, ITAC did not entertain as many applications as it had in the past. The general perception was that the import would not be allowed. In fact, the importation of used clothing by charitable organisations was allowed in certain instances, such as natural disasters, when permission was given to import these goods and an import license could be obtained to do so. Used clothing that entered the country illegally was seized by SARS. These goods were then auctioned.

Ms Ntuli enquired how it was possible to facilitate “normal” trade especially within the context of the WTO agreements. As far as she was concerned, this related only to developing countries and not to developed countries. It appeared that developed countries could do as they pleased. Developing countries were not privy to discussions that took place in the Green Room. Ms Ntuli asked whether ITAC had the power had to insist that all countries should not violate the WTO agreements, or could merely make recommendations.

Mr Masege responded that the intention of the legislators was that ITAC only be administrative. Its authority would be constrained within its mandate. Therefore ITAC did make recommendations as stated in the Act. Most of the decisions finally made were political ones. Mr Masege wanted to emphasise the point that ITAC worked within the policies formulated by the dti. He said that the policy to liberalise trade was not a policy formulated by ITAC, but was a policy taken by Government, which ITAC would administer.

Mr D Dlali asked whether, in terms of imports and exports, ITAC was also linking up with the agricultural industry. If they were, then he asked if ITAC could determine whether goods coming into the country were Genetically Modified Organisms (GMOs). In certain circumstances goods were not labelled.

Mr Dlali enquired how far SACU was with the development of the common policies mentioned in the slide. He also wanted to know what the challenges were in developing those policies. He asked to know if the Customs and Excise Act of 1964 was still relevant or if the Act had been amended.

Mr Masege said that there were huge governance problems, as also policy and procedure problems with the Customs and Excise Act and within the next few months ITAC would be bringing proposed amendments to the Act to the Minister.

Mr Dlali asked if waste and scrap were accepted into the country as an import. He explained that he was raising this particular question because Africa was becoming a dumping ground for the waste discarded by the developing countries.

Mr Snyman responded that the flow of waste and scrap was controlled in terms of the Basel Convention, which aimed to regulate the trans-boundary movement of waste and scrap. Hence there was cooperation and coordination between ITAC and the Department of Environmental Affairs. Should a waste or scrap material not be restricted in terms of the Basel Convention, and if it was for recycling or manufacturing purposes, then it could be allowed. Waste paper and paper boards, which were usually in short supply in South Africa, were allowed to be imported for recycling purposes. However, scrap lead was environmentally a hazardous substance and an application to import this would generally be refused. Should the Department of Environmental Affairs be satisfied that the scrap lead would be recycled by accredited recyclers in terms of the Department’s programme then the Department could recommend the issuing of an import permit. Agricultural products were excluded from import control measures.

Mr Oliphant referred to Ms Mabasso’s statement that South Africa was a dominant force within the SACU due to its greater organizational capacity. He asked whether this was not currently causing tension within the SACU and if South Africa had an objective was to empower the other SACU member states.

Mr Tsengiwe responded that it was true that there was a huge imbalance within SACU. 95% of the economic activity took place in South Africa. The remaining members shared the 5%. These member states were dependent on their imports and 90% of their imports came from South Africa. South Africa had been in the forefront of democratising SACU. This would bring in a balance as well as more transparency in terms of decision making. ITAC was concerned, in regard to the democratisation of SACU, that the work that it would be doing would now go to the SACU Tariff Board and then the Council of Ministers. ITAC would like to ensure that decisions were taken rapidly so that it could continue to be as responsive to industry needs as it had been before. It had therefore taken these needs into account in the development of the rules of procedure of SACU.

Mr M Rasmeni asked for clarity on who made the decisions on the increase or decrease of tariffs. He asked if the mandate of the country, or that of ITAC, was geared towards total liberalisation or if there was a balance between protection and liberalisation. He was interested whether South Africa had an industrial policy within which it could start negotiations with other SACU member states in order to develop common policies.

Mr Masege responded that government took the decision to move from import substitution to export promotion. ITAC would then administer this policy. Mr Masege explained that ITAC did not help authorities outside its mandate. ITAC merely gave technical assistance to SACU. The development of common economic policies was left to the dti. Therefore he was not in the position to answer whether or not South Africa had an industrial policy as this was not within ITAC’s mandate.

Mr Tsengiwe clarified that the overall policy direction from 1994 had been to reduce duties. This had been done gradually and in a strategic manner depending on the complexities involved. In the South African tariff regime there were a number of tariff lines at zero, some lines had moderate duties of five to ten, but the most sensitive products would have the highest duties. There was not a blanket approach. This had happened as a result of South Africa’s commitments to the WTO, the SADC agreements and the EU agreements. In terms of the formulation of a national industrial policy there was a much more nuanced approach to trade policy. In terms of the ITAC instruments, duties would be reduced on primary products or raw materials that would used for downstream manufacturing,  so as to lower the costs of production downstream and to add more value to create jobs and to attract investments. Downstream duties that were currently in place should be maintained. This would be done on a case by case basis. There was more emphasis now on linking tariff amendments so that they were informed by the particular sector strategy. There was talk of further simplifying the tariff structure but in doing so it should be integrated with what was being done now under the Doha rounds. If the Doha round was successful, this would lead to the further reduction of duties. ITAC would not have the same policy space as it had now in terms of recusing duties, because the bound rates would decrease to the level of the applied rates.

Mr Sisa mentioned that it would have been beneficial if the presentation contained sample information on how some of the strategies were carried out by ITAC. He asked how and why tariff amendments were industry driven. He enquired about the number of cases handled by ITAC,  and the staff complement at ITAC, asking if ITAC out sourced its work or handled it internally He enquired whether there was sufficient capacity and information in order to take the correct decisions. He also enquired to what extent ITAC ensured its independence. Finally he asked how ITAC would balance aiding SACU and ensuring that there was regional economic integration.

Mr Masege explained that ITAC was a government institution funded through treasury. Therefore ITAC did not outsource and all of its work was done internally. From a risk management point of view ITAC had business processes that were managed by the relevant departmental and top managers. Consultants assisted the companies in putting together the information, using a questionnaire detailing the required information. Before any application was finalised, there was constant communication between the applicant, often represented by the consultant, and the ITAC unit concerned. This was to ensure that sufficiently detailed and correct information was received before ITAC decided whether to initiate an investigation.

Mr Tsengiwe responded to the question of why tariff amendments were industry driven, making ITAC a reactive institution. By and large he confirmed that ITAC was a reactive institution. However, there were cases where ITAC became proactive. Some investigations had been self-initiated out of ITAC’s own assessment of a particular industry. An example was the steel investigation that led to a reduction of all primary steel products from 5% to 0%. ITAC was now looking at proactively initiating an investigation on machinery and capital equipment,  in light of the huge infrastructure project that government would be engaged in, involving R400 billion over a period of three to five years. For all these projects, almost 50% of goods would be imports. ITAC was looking at what the duty implications were on this 50%. ITAC’s kind of work required very skilled people. It had a staff complement of around 120, and staff had to be skilled in accounting and economics. The verification of information from industries by ITAC’s investigators was very important as ultimately the decision taken was based on the numbers.

Mr Maake enquired whether ITAC had anything to do with goods that came through South African ports but were destined for landlocked countries, in terms of health and environment.

Mr Snyman responded that ITAC controlled certain goods destined for home consumption. If goods arrived at a port in South Africa but were destined for landlocked neighbouring countries, those goods were usually cleared by SARS in terms of a particular formality. ITAC had no control over this. However, if the goods were controlled under ITAC’s regulations, then the goods entered Lesotho, for example, and subsequently came back into South Africa, then those goods were once again subject to import control measures administered by ITAC.

Mr Rasmeni congratulated ITAC on its involvement in the Motor Industry Development Programme (MIDP) and the jobs that were created. He wanted to know whether ITAC was involved in the pricing, particularly in the domestic market, since the exported cars were cheaper abroad.

Mr Tsengiwe stated that ITAC’s objectives included the increasing of imports, investments and employment. IT had not been able to achieve affordable prices. Now that the MIDP was under review, it was one of the questions that would have to be answered. ITAC had nothing to do with the question of pricing.

Committee Report on Study Tour to the Peoples Republic of China (September 2006)
The Committee adopted this Report

The meeting was adjourned.

 

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