No winds of change at ITAC

06 Mar 2018

NEASA, 06 March 2018
By Gerhard Papenfus

The winds of change sweeping over South Africa have definitely not filled the sails of South Africa’s International Trade Administration Commission (ITAC).

Following ArcelorMittal South Africa’s (AMSA) failure to comply with the conditions under which the 10 percent customs duties were granted in 2015, in order to protect AMSA, the National Employers’ Association of South Africa (NEASA) insisted that ITAC institute proceedings to review and set aside these duties. It ultimately required resorting to legal avenues by NEASA to compel ITAC to disclose its justification for refusing to review the duties on imported steel products.

In securing the protection AMSA so desperately required, it had to, among others, invest substantially to upgrade their 70 year old antiquated steel plant. Instead of investing in their plant to the benefit of the Steel Downstream, AMSA withdrew a further R3.2 billion from South Africa. Now, two and a half years later, ITAC is satisfied with AMSA’s explanation that they have ‘…commenced investing in additional plant and machinery…’. We have no evidence of this and, in fact, doubt the veracity of this claim. We consequently demand that both AMSA and ITAC release specific information indicating ‘investment’ – not only maintenance – which will, in ITAC’s words, amount to ‘substantial compliance’.

ITAC’s acceptance of this explanation casts further doubt over its objectivity, especially concerning decisions affecting AMSA and the Steel Downstream. It also increases suspicion that ITAC undervalue the interests of the Steel Downstream and also completely underestimates the collective intelligence of the Steel Downstream.

A further condition that Government imposed in exchange for the introduction of the customs duties in 2015, was that AMSA was prohibited from increasing prices on the items affected by the duties. Quite the opposite transpired: multiple price increases were implemented, with the result that steel is now 40 percent, on average, more expensive than before the introduction of duties in 2015. ITAC, however, found that AMSA complied with this condition since they (AMSA) followed the so-called ‘weighted basket’ pricing model, which is extremely disingenuous as a pricing model of any nature never formed part of the original decision by the Minister.

This pricing model, which is, in view of the original decision, irrelevant, was blatantly drafted to favour AMSA, by only including countries with higher prices, but excluding China, which is generally producing higher quality steel at the best price. China produces half of the world’s steel with the latest modern technology, thereby being able to offer high-quality, cost-effective raw material for the manufacturing sector in South Africa.

If we want to industrialise the Steel Sector, in line with President Ramaphosa’s vision, access to affordable, top-quality steel, among others, is exactly what the Steel Downstream needs.

It is noteworthy that the Department of Trade and Industry (the dti) was fiercely opposed to AMSA’s import parity pricing model which existed shortly before the introduction of the duties in 2015. The dti even removed the duties which existed at the time. However, all of that changed following a meeting between President Zuma and Mr Lakshmi Mittal, the foreign owner of AMSA. The current dispensation, which amounts to a 180 degree about turn by the dti from its previous position, was introduced soon after that meeting.

With the dawn of a new and open political dispensation, promised to South Africa during SONA 2018, the events since that meeting, and the outcomes, need to be investigated.

However, ITAC does not need to be concerned. NEASA will not, of its own accord, review any of the following two decisions:

  • not to review the implementation of the customs duties in 2015, notwithstanding sufficient evidence that a review is required; and
  • refusing to disclose the full record containing the reasons which caused them to come to their conclusion, namely not to review these duties.

Litigation of this nature will take years to conclude. The costs of this litigation, on our side, will have to be carried by NEASA members. ITAC will use taxpayers’ money for that purpose. This, however, is not the main reason for not challenging their decisions.

The gradual demise of the Industry, brought about by the current steel (duties) dispensation, as well as the current unsustainable and unconstitutional bargaining council dispensation, will demand serious political intervention long before a court case of this nature will be concluded.