The International Trade Administration Commission of South Africa (ITAC) is a schedule 3A Public Entity established in terms of the International Trade Administration Act, No 71 of 2002, and came into force on 1 June 2003. ITAC replaced its predecessor, the Board of Tariffs and Trade (BTT) that was established in 1986. The predecessor of the BTT is the Board on Trade and Industries (BTI) that dated back to 1924.
The aim of ITAC, as stated in the Act, is 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 the administration of international trade subject to this Act and the Southern African Customs Union (SACU) Agreement. The core functions are: customs tariff investigations; trade remedies; and import and export control.
Background to the establishment of ITAC
From the middle 1920s, South Africa adopted a trade strategy based on import substitution as a means to pursue industrialisation. The import substitution strategy required relatively high tariff walls and a complex tariff structure with various kinds of duties (ad-valorem; specific; compound; and formula duties) to develop, protect, and nurture domestic industries. In 1924, a permanent Board on Trade and Industries (BTI) was established and assigned the function of advising government on the implementation of this strategy.
Although the tariff policy adopted in 1924 also applied to agricultural products, the government support to the agricultural sector was driven through the Agricultural Marketing Act of 1937 and the Co-operatives Act of 1939. The government intervention in terms of these measures virtually eliminated foreign competition through the application of import and price controls.
Basic commodities continued to dominate South Africa’s exports. The first signs of change to the inward-looking strategy through tariff and trade reform began in the early 1970s, which was necessitated by a perceived need to diversify exports. Towards the mid-1980s, import substitution possibilities were exhausted and exports were increasingly seen as the vehicle to growth. Several studies recommended reform of the customs tariff policy aimed at reversing the anti-export bias inherent in a protected economy with its high cost structures.
The recommendations and subsequent reforms included implementation of structural adjustment programmes for selected sectors based on customs and excise duty rebates and drawback of duties, and export incentives. For example, the General Export Incentive Scheme (GEIS) was introduced to offset the price disadvantage experienced by exporters due to the cost-raising effects of protected intermediate inputs. Quantitative import controls were removed and replaced by import tariffs and a more flexible exchange rate was adopted to facilitate and cushion the effects of trade integration.
To support these changes, the mandate of the BTI was revisited. A new Board on Tariffs and Trade (BTT) was established, through the Board on Tariffs and Trade Act, 1986. The BTT was given a wide brief. It was to show a stronger commitment to liberalisation in a policy shift to be stricter in assessing requests for protection. It was also assigned the additional task of devising the structural adjustment programmes for selected industries with a view to export promotion. Later, the mandate of the BTT was narrowed through the enactment of the Board on Tariffs and Trade Amendment Act, 1992. In future, the BTT was to concentrate on import tariffs only.
The most significant changes to South Africa’s trade policy followed from the obligations South Africa undertook in the Uruguay Round of multilateral negotiations that culminated in the General Agreement on Tariffs and Trade (GATT 1994) and the establishment of the WTO in 1995. Impetus for additional changes came from the regional and bilateral trade agreements South Africa engaged in, following the establishment of the new democratic government in 1994.
In 2003, ITAC became operational as the successor to the BTT. The establishment of ITAC was meant to rationalise, streamline and modernise an organisation with a history that dates back to the 1920s. ITAC adopted a strategic use of international trade instruments in its alignment to prevailing trade and industrial policy imperatives.
The point of departure for both the Industrial Policy Action Plan (IPAP) and South Africa’s Trade Policy and Strategy Framework (TPSF) is that, for sustained growth and development, South Africa cannot rely on the export potential of its mineral resources and other commodities alone. There is a pressing need for more diversification. This requires promotion of increased value addition into non-traditional tradable goods that compete in export markets as well as against imports. High value-added goods, besides operating in dynamic high-growth markets, are also more labour-intensive. The NGP identifies manufacturing as one of the employment drivers.
The customs tariff implications of this premise are that, tariffs on mature capital-intensive upstream input industries may be reviewed and may be reduced or removed in the interest of lowering input costs into labour-intensive employment creating downstream activities.
Tariffs on downstream industries, particularly those that are strategic from an employment perspective, may be retained on in some instances raised. Tariffs are instruments of industrial policy and have implications for capital accumulation, technological progress, productivity growth, and employment. Changes to the tariff structure need to be calibrated to the production possibilities of each sector. The tariff investigations based on applications received or self-initiated are conducted on a case-by-case basis informed by the peculiarities of each sector and supported by evidence.
ITAC is now placing more emphasis on the principle of reciprocity when granting tariff support to industries, varying from one sector to another. This means tariff amendments will be conditioned on a commitment by beneficiaries on how they will perform against government’s set policy objectives, in particular employment and investment. Tariff increases will also be tied to a specific period of time after which tariffs may be reviewed. Therefore, ITAC takes a strategic approach to customs tariffs. It is an approach that is also sensitive to employment outcomes.
In light of the unique production and trade conditions for agricultural products, ITAC has adopted a differentiated approach compared to industrial goods. Subsidies and domestic support offered in developed countries to their agriculture sector have the effect of depressing world prices to the disadvantage of domestic farmers. In addition, farmers do not have bargaining power as they are price takers in the food value chain.
The fluctuation in world prices has to be factored in, when determining an appropriate level of the tariff. Tariff setting for agricultural products is more challenging in that not only the profitability of farmers must be taken into account but also the price ramifications down the value chain and the price raising effects for consumers, in particular the poor.
Agro-processing contributes, not just to increase high value-added exports and employment, but also improves the geographical spread of economic activities to rural areas. Tariff support for agro-processing goods down the food value chain, will be considered on a case-by-case basis.
There are three Trade remedies instruments: Anti-dumping, countervailing measures and safeguards.
Anti-dumping measures are taken against injurious dumped imports. In an international trade context, dumping is used to refer to a situation where goods are sold in a foreign market at prices lower than in the country of origin. This is in contrast to the everyday use of the word, which may literally mean dumping of waste, or of inferior or defective goods.
Countervailing measures are used against subsidised imports that threaten and/or cause injury (i.e. decrease in prices; loss of market share; decrease in profits; decrease in sales volumes; job losses, etc.) to the domestic manufacturer.
Safeguards are actions against trade that may be regarded as fair but overwhelms domestic producers. Safeguards are used against an unforeseen surge of imports that threatens and/or causes injury to the domestic producers.
Out of the three remedies the one we are mostly active in is anti-dumping. There has been few countervailing measures and even less safeguards.
The specific objectives in trade remedies that are interconnected with the strategic objective of promoting growth and development are: Retention and creation of jobs, sustainable industrialisation, and international competitiveness.
ITAC will continue to be rigorous in its investigations and recommendations to the Minister, given the costs and benefits inherent in these instruments. The investigations have to be carried out in compliance with domestic law and consistent with the WTO Agreements. Regarding anti-dumping and countervailing measures, the purpose is to level the playing field to ensure that foreign firms compete fairly with domestic firms. Actions of unfair injurious dumping and subsidies are a critical intervention to protect jobs and sustain investments.
Import and Export Control
Out of the approximately 6 650 tariff lines in the South African version of the International Harmonised Commodity Description and Coding System, there are 276 tariff lines under import control and 177 tariff lines under export control. Import and export control measures are essentially meant to enforce health, environment, security and safety, and technical standards that arise from domestic laws and international agreements.