If the price ain't right, Itac attacks

21 Nov 2014
Mail and Guardian
Thalia Holmes


Now that there's a new tariff in town, it's worth checking in on those whose work is the line on duty. It has been at the centre of the chicken-dumping saga, it has felt the rage of heavyweight retailers importing frozen potato chips and garlic, and it has been in the middle of a spat between the state and scrap metal yards. It is the International Trade Admin­istration Commission of South Africa (Itac). Never heard of it? Neither have many other South Africans. But this little-known organisation affects the lives of just about everyone. And, according to its chief commissioner, current economic conditions mean it is busier now than ever before.

What is Itac?

The commission was officially established in June 2003. Its mandate, according to chief commissioner Siyabulela Tsengiwe, is to enable fair trade and a beneficial interaction between South Africa and its trading partners. Although the commission has just celebrated its 10th anniversary, its origins date back almost a century. Itac replaced the Board on Tariffs and Trade, started under the apartheid regime in 1986. That body, in turn, had replaced the Board of Trade and Industries, established in 1920. "So Itac is relatively young but it is an institute with a long history," Tsen­giwe said. But its directive is substantially different to that of its predecessors.

"Under the old regime, the trade environment was quite a protected one. We now have a much more open economy," he said. Its aims are aligned with economic growth policy such as raising incomes and employment. It also promotes investment in South Africa and its Southern African Customs Union partners: Botswana, Namibia, Lesotho and Swaziland.

Modernising an old institution

"The idea was to modernise, rationalise, transform and, ultimately, align an institution with a history of 90 years to the post-1994 trade policy trajectory," Tsengiwe said. Special task teams in the department of trade and industry, Itac's parent body, formulate policy. Itac's responsibility is to administer it once it has been promulgated. That means investigating industries that could be falling prey to global price distortions, looking into allegations of "dumping", and making a decision when local industries ask for an increase in tariffs to protect local production. It investigates trade remedies for afflicted sectors. (Are you a chicken farmer, worried that your business is doomed unless the playing fields are evened out? It will try to fix that for you.) It looks at import duties and rebates. (Have you seen the price of sugar lately? That could change at Itac's bidding.)

And it determines ways to safeguard local businesses against surges of imports that could harm local production. (Have you noticed that the Belgian equivalent of McCain's oven-baked chips have been a dime a dozen since the recession? Itac has.) After carrying out extensive research in an affected area, consulting experts, hearing arguments from both sides and debating a decision, Itac makes a recommendation to the department. The minister then considers it and makes the final announcement. 

Battle lines 

Inevitably, there are powerful interest groups playing tug-of-war over the issues being investigated. On one side are the representatives of local production. They argue for higher import tariffs and more protection in the name of job creation and the broadening of the local economy. The South African Poultry Asso­ciation, in its application for a tariff increase on imports, put forward a strong argument. In 2011, South Africa imported 370 000 tonnes of chicken but exported only a few thousand tonnes. South Africa is also not exporting to the countries from which it buys the bulk of its imports, which have erected steep trade barriers.
Developed countries are selling white chicken meat in their own markets and "dumping" the dark meat in countries like ours. "A generally unfair trading environment"

The combination is "a generally unfair trading environment", according to Kevin Lovell, chief executive of the poultry association. Itac could help to rectify this by increasing tariffs on South Africa's favourite protein by up to 82%. The protection could help the industry to provide an extra 20 000 jobs. Local chicken producers, the sugar industry and local potato chip manufacturers have all voiced a similar complaint. It's not that South African producers are inefficient; it's that South African legislation does not protect them from global price distortions or subsidise local production. The scales need to be balanced by hiking up protection against imports, they argue.

"Imports into South Africa have reached alarming levels, causing losses of more than R50-million per month to the industry, threatening its sustainability," Trix Trikam, the director of the South African Sugar Association told the Mail & Guardian recently.

SA sugar growers efficient

"The South African sugar growers and producers are both efficient and profitable given fair trading conditions. "However, nobody can be profitable nor compete with sugar that is being sold below the cost of production due to government subsidies." An Itac investigation into the sugar industry is currently under way. Independent analysts bolster such arguments. "The reality is that South Africa has one of the least-protected agricultural sectors in the world," said Tracy Ledger, a research fellow at the Public Affairs Research Institute.

Tsengiwe acknowledges that trade in the country is considerably less protected than it was pre-1994. In fact, he estimates that South Africa is also less protected than other comparative economies.
"Look, as a result of the trade reforms that we embarked upon after 1994 and the commitments we made to the World Trade Organisation in 1994, we have seen a significant reduction in tariff protection."

Slashed tariffs

Tariffs have been slashed from an average of 24% to an average of 8% over the past 19 years — "a significant reduction", said Tsengiwe. "This places us as a relatively open economy compared to other emerging economies." Although these trading conditions are a source of concern for local industries, they are welcomed by importers, retailers and manufacturing companies that import commodities for production.
They invariably line up on the other side of the field when an application is made to Itac. They argue for the need to keep prices low to protect consumers in a country where the average salary is about R3 000 a month.

During the chicken tariff battle, which the department recently ended by announcing that tariffs would be raised, the Association of Meat Importers and Exporters voiced concern for shoppers. "We are genuinely fearful that South African consumers are going to be facing heavy increases on the price of chicken," the chief executive of the association, David Wolpert, told the M&G. Shoppers could expect price increases of between 30% and 50%, he said — an amount that proponents of the increase argued was vastly overestimated. Itac has the onerous task of finding a solution that takes the interests of both sides into account.
"It's a delicate balancing act," Tsengiwe said. That he is required to dedicate time to responding to complaints in court is unsurprising. "This is not just mainstream economics; it's the political economy," he said.

Busier than ever 

Knowing that at least one group is likely to be disgruntled by a recommendation, the team goes about its work "very carefully". Itac employs 121 staff members, including 65 investigators and support staff who "go through the books" of companies in the industry being investigated and probe claims made by the applicants. Ten part-time commissioners, with backgrounds in business, agriculture, law and finance, meet every month to evaluate investigation outcomes. The committee invites input from main players in the affected sector before making proposals, and then considers public feedback before making a final recommendation to the minister. It takes about a year to complete this process for trade remedy recommendations; for tariff increase issues, it takes half the time.

Industries in distress often complain this is unreasonably long. In one case, recently ruled on by the Supreme Court of Appeal, the organisation took about three years to serve notices to about 70 respondents involving several industries. But Tsengiwe said he doubts they understand the in-depth nature of the investigations. And the workload has become considerably heavier since the global recession hit in 2008, he says.
"Only once the world economy improves, and we also address our domestic economic challenges, then there will be a lesser need for our instruments," Tsengiwe said. "While we still have this huge trade deficit, while we continue to import much more than we export, you will continue to see industries knocking at the doors of Itac."