Fashion's tax dodge tactics wear thin for ITAC

26 Jun 2023

25 June 2023
Sunday Times/Business Times
by Dineo Faku

The fast fashion business model poses new challenges to South Africa's tax and tariff regime, as seen in the case of China's low-cost apparel supplier Shein, says Ayabonga Cawe, chief commissioner at the International Trade Administration Commission (ITAC). The department of trade, industry & competition, acting on complaints from organized labour and local retail groups, launched an investigation three months ago into whether Shein is meeting its tax obligations.

Cawe told Business Times there are big question marks about the impact Shein is having on the domestic textile sector. "The textile sector is a major employer of black women and a major employer in many parts of the country that are very poor," he said. "This debate around Shein is not particular to Shein but to a business model around fast fashion.

Are the consignments of fast fashion products coming into the country at a level and volumes that correspond to obligations to customs and the receiver of revenue?

"It is a big question we are debating; I will not say whether we have a position on it at the moment." Local complaints against Shein focus on the way its goods enter the country in small packages that attract lower import duties, allowing it to keep prices unusually low.
"Where it is found that there is certain divergence from what firms ideally should be paying and what they are paying, then there will be an adequate institutional response," Cawe said. "At the moment our observation is the fast fashion model is presenting particular challenges and we need to be able, as ITAC and via the textile master plan, to respond to that," he said.

ITAC, the mandate of which is to create economic growth through trade, is responsible for the issuing of import-export permits and for implementing tariffs and antidumping investigations aimed at leveling the playing field for domestic industries against imports.
Cawe said tariffs, which importers complain push up costs for consumers, were a key part of helping domestic industries survive. "My genuine belief is that I don't think we would have certain diversity of production in the steel sector were it not for some of the tariffs," he said. "Nor do I think we would still have the diversity of production in the apparel or footwear sector if we did not have the tariffs." Without tariffs, many local businesses would have had to close their doors.

Cawe acknowledged "mixed" results from anti-dumping measures but said ITAC believed that overall they were beneficial. "We look at whether the instrument has disincentivised the massive deluge in volumes of imports coming in. We do find it is a mixed record, but in the main, certainly on the trade remedies, we do find some of the instruments give rise to a decline in imports.

"We have seen many firms in the manufacturing sector using the tariffs as an opportunity to start to invest in their operations. There are sub-sectors of manufacturing where we have seen growth in investment. If you check between 2009 and 2022, sectors like the automotive [industry] and food and beverages have grown jobs and investment, although some sectors have lost jobs." Measures taken by ITAC include the reinstatement of import duties on frozen potato chips last month, the imposition of import tariffs on steel products and the implementation of anti-dumping measures against poultry imports from the US, Brazil and parts of Europe.

Cawe said ITAC needed to educate the public about its policies, which are often blamed for pushing up prices. "There are a lot of narratives out there. Some are saying our processes are too slow, our processes take too much time, and we are in the pockets of sectors who come to us for tariffs and we generously give them those tariffs. All of those things arise from a big misunderstanding of our work.