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Report highlights costs of South Africa’s ‘opaque and lethargic’ tariff investigations

tariff investigation
April 06, 2023

by nfdeklerk 0 comment

Report highlights costs of South Africa’s ‘opaque and lethargic’ tariff investigations

A new report into ongoing tariff investigations in South Africa indicates that it is taking an average of 22 months to finalise decisions on whether to either increase or remove an import duty, weakening the effectiveness of trade policy to either protect domestic producers or lower costs for consumers.

Compiled by XA Global Trade Advisors, the report states that 90% of the 39 cases that had been lodged with the International Trade Administration Commission of South Africa (Itac) by December 31 last year were overdue when measured against the six-month timeframe recommended by the Department of Trade, Industry and Competition (DTIC) for the resolution of such probes.

CEO Donald MacKay notes that 22 of those cases, representing 56% of all open cases, were overdue by more than 19 months, with two cases more than 43 months overdue.

In one case, an application lodged by Nature’s Garden on June 14, 2018 for a duty increase on mixed frozen vegetables was still not officially resolved, even though Itac initiated the investigation on February 22, 2019.

“It is impossible to manage trade in such a lethargic system. What applied in 2019 is very different to the real-world scenario in 2023 and trade decisions need to be based on the now, not the past,” MacKay asserts.

The report calculates the overall economic cost of these overdue investigations at more than R3-billion, including R1.4-billion that could have been injected should duty relief have been granted on goods not available locally and R1.6-billion in foregone revenue collections had requested duty increases been granted and import volumes remained roughly constant.

In addition, it argued that procedural delays were having a chilling effect on the use of trade instruments by South African companies, with the number of applications falling 62% last year when only eight applications were made compared with 21 in the previous year.

MacKay believes there are various reasons for the backlogs, but raises particular concern over the role that the DTIC’s insistence on ‘reciprocal agreements’ could be playing in extending timeframes.

These agreements arise when government insists that companies make jobs, investment and transformation commitments in return for a duty application being granted.

“These agreements are not transparent, or part of a formal process, nor do companies, in most instances, anticipate them, adding a further layer of complication and uncertainty to those industries applying for relief.

MacKay says the findings of the report have been canvassed with officials at both Itac and the DTIC, who have indicated a willingness to take steps to tackle the backlogs.

The report also makes several recommendations, including introducing a “hard” 12-month maximum time limit for the finalisation of duty decisions, as well as immediately removing duties on all overdue investigations where there is no local supply.

It also argues for a clarification of the respective roles of the Trade, Industry and Competition Minister and the Finance Minister in taking the final decision on a duty.

It also suggests that consideration be given to eliminating reciprocal agreements, or at least having these meet the standards of consistency and transparency.

“What is required is transparency and speed.

“It is critical that the impasse is resolved as quickly as possible, given the current economic realities facing our country, including rising interest rates, the increased cost of food, and the President’s urgent need to attract foreign and domestic investment.

“An unpredictable and opaque process is a strong disincentive to investment, and one that the country can ill-afford,” MacKay argues.

In response to questions posed by Engineering News on the report’s findings, Itac said it was unable to comment on the purported delays referred to in the report as it was unclear how the authors arrived at the 22-month average timeframe for finalising applications.

“The commission undertakes tariff investigations speedily and with rigour.

“It takes the commission four months for sectors in distress and six months for normal investigations to arrive at a final determination and recommendation to the Minister of Trade, Industry and Competition.”

Itac said there might be instances where an investigation envisaged to unfold over six months took longer to finalise, but insisted that this was in no way irregular and could be attributable to a wide array of reasons. These could include the submission of deficient applications, requests for extensions on the part of applicants, or investigations being referred back to applicants so as to obtain additional information.

Itac also questioned the computation of the economic costs outlined in the report, arguing that they failed to account for the real policy function and discretion of the commission and ultimately the executive authorities, to arrive at determinations that consider for instance, the price-raising effects on consumers and downstream industry of policy decisions.

“As such, the statement is not factual or is at best speculative as the report itself acknowledges that ‘we do not have enough data to determine the full economic impact’.

“Despite this admission, the Report, goes to town in disseminating this metric which, concerningly, rests on very little engagement empirically or otherwise, with how trade policy is administered.”

Itac also stressed it was continuously reviewing its regulations, administrative and other processes, to ensure that its processes allowed for effective, prompt and comprehensive interventions.