Trade Policy: Call of duties

28 Sep 2015

Financial Mail, 24 September 2015
By Nicky Smith

SA BUSINESSES have never felt this threatened by foreign companies. The International Trade Administration Commission (Itac) has seen an unprecedented “peak” in applications for tariff protection from businesses exposed to competition from imported products.

The weak economic activity globally and falling demand led to a flood of applications from steel and aluminium producers seeking the maximum allowable import duty on more than 100 product lines.

Thousands of jobs are at risk and SA’s ability to manufacture industrial goods domestically is under threat.

The demand for protection comes at a time government is hamstrung by low growth and low investment in production capacity.

The commission has a daunting task. Its mandate is to “foster economic growth and development” to “raise incomes and promote investment and employment” and it has to do this with an “effective administration of international trade”. But it must do it by the judicious use of import tariffs and through an assortment of trade remedies such as antidumping duties, countervailing (antisubsidy) duties and safeguard measures.

The issues are not clear cut, as increasing the duties comes at an economic cost as well as in terms of price.

“There is a much broader picture here,” Trade Law Centre executive director Trudi Hartzenberg says. “It is about the trade policy mood in SA, in that our industries are seeking protection and not just in one sector of the economy.”

The clamour for protection has led to a reversal of the trend to reduce duties because local industry and policy are becoming more protectionist, says Itac commissioner Siyabulela Tsengiwe. This change comes after government attempted to stimulate trade by sharply reducing tariffs since the mid-1990s.

Increasing tariff duties are not a permanent solution, as they are only meant to buy an industry a short reprieve from overseas competitors. The idea is that it will give a company or industry a chance to focus on improving its efficiencies and competitiveness; so that once the duty is removed it is better able to compete.

Itac is in an unenviable position because it is caught between the competing needs of the private sector (both upstream and downstream) and the hopelessly blunt instruments of policy wielded by the departments of trade & industry, and economic development.

Right now the commission is running investigations into steel in the most foreshortened way possible, giving half of the four weeks usually afforded to affected companies to respond to an application, to see how the state can support steel producers.

Itac cannot afford to cut corners because it can be taken on review; increasingly, it is finding itself having to defend its decisions in court, Tsengiwe says.

There is also the complication of government wanting to introduce a “developmental price” for steel — a decades-long quest — that could complicate pricing and saddle downstream industries with higher costs.

Apart from the metals sector a range of other industries are also crying for help. Last year the sugar industry asked for an increase in the domestic dollar-based reference price.

Hartzenberg points out that tariffs are seen as a “panacea” for struggling businesses but they have “nothing to do with that particular trade policy instrument, this is an unfortunate situation.”

Tsengiwe has a similar view. Many of the applicants point to broader economic issues for their inability to compete. He says, for example, the major trend that has emerged over the past year has been companies citing the problem of rapidly rising input costs, more specifically electricity.

Hartzenberg says pushing up tariffs is not the answer. “The bigger picture is that we face important constraints on our competitiveness that cut across all sectors. The energy crisis is possibly the most obvious one, but there are others such as high transport costs and a skills shortage. SA’s use of import tariffs as a tool for industrial development is a real concern; if we are putting up a tariff we are not solving the problem.”

Hartzenberg says: “The real crisis is in the infrastructure services and network services. It is a collection of services that cuts across every sector in the economy.” On the trade front, she notes that it is also time for SA to rethink its approach.

“SA is facing an extreme set of circumstances ... [and] we have been applying a particular brand of trade and industrial policy. It is an ideology we [have been] following for the past decade and it is not working. We are actually shedding jobs.”