Lengthy delays by the Minister of Trade, Industry and Competition (Dtic), and the Minister of Finance, to make calls on the findings on dozens of International Trade Administration Commission (Itac) investigations have resulted in the loss of R1.25 billion in customs revenue a year, and have had material implications for affected industries.
Furthermore, Donald MacKay, the CEO and founder of XA Global Trade Advisors, said yesterday that Dtic Minister Ebrahim Patel’s indecision had tied up billions in overdue Itac customs duty investigations.
According to the firm’s first Open Cases Report, this has cost local consumers R2bn in import duties collected, on goods and services that could not be produced locally, because of outstanding issues taking up to two years to be resolved.
The report specifically outlines how long customs duty cases have taken to be finalised at present, how long they should actually take in terms of the law, and stipulates the opportunity cost to all trading partners. Most critically it makes recommendations to resolve and prevent future delays.
“We’ve put this report together because customs duty decisions are taking longer and longer, a process with fairly significant economic implications,” said MacKay, “so this report really attempts to quantify the impact of this and put forward recommendations on what can happen to what could be done.”
South Africa collects around R55bn a year in customs duties, so these delays are equivalent to more than 5 percent of the country’s total customs duty collections.
Import duties include customs, rebates, anti-dumping provisions and other safeguard measures. The guidelines on the Itac website prescribe that anti-dumping investigations have to be wrapped up within 18 months. Other custom duty investigations have to wrapped up between four and six months. These are hard cut-off requirements, whereas the other two are recommended periods.
So why is this open case report significant? Well, MacKay started off with a comment from Patel issued last year that a focus on localisation is at the heart of government strategy to create sustainable jobs for South Africa and build the economic base, for long-lasting prosperity.
“South Africa's economic policy has a couple of layers to it and certainly this is a quite a gross oversimplification but useful,” he said, “so in light of economic policy, we have industrial policy. And then inside of industrial policy, we have trade policy. In fact, it probably occupies most of the space inside industrial policy. And then within trade policy, the main lever used is import duties.
“So, if the process around investigating whether duties should be granted or removed, whatever the case might be, is not working well. Then the core part of our trade policy also begins to not work well. That means that industrial policy doesn't work well and has knock-on effects on the economic policy.
“The total number of cases open is 46, with the average number of days since initiation 580 and the average of years 1.75.
“Those are quite alarming numbers, and show that a significant portion of all of our customs duties collected are locked up in indecision,” said MacKay.
“If we have a look at how long it has taken for tariff investigations to run, if you’re going to start on the right here, so the right-hand side is when localisation becomes a proper formal policy. And this begins in 2015. And their investigations are averaging 320 days to completion.”
Said MacKay: “These delays are enormous and most importantly unnecessary, because the problem could be quickly resolved, since the majority of these cases have been fully investigated by the Itac, and simply need to be signed off by the ministers.
“The question is: Why are they delaying these decisions? While some recommendations are simply being left to gather dust, in many cases it would seem that applicant companies are being squeezed by Minister Patel through ‘reciprocal agreements’, for something in return for the duty or tariff concession; jobs, investment, training, transformation, price controls. But this squeeze has a cost.”
There is also confusion legally as to the minister of finance’s role in customs duties. When Malusi Gigaba was the finance minister, both the sugar and poultry industries went to court twice to defend his right to take the final decision in respect of implementing duties. The court found in his favour, but it’s also not clear if this has been implemented in practice by subsequent ministers of finance.
In an effort to address these delays, and reform the system, the XA Open Cases Report proposes that all cases which have been open for more than 18 months should be given three months to be finalised, or they terminate. There should be an 18-month time limit on tariff investigations to force them into completion and remove the uncertainty. Of the 43 tariff investigations and three anti-dumping investigations which are currently open, 27 are overdue (58 percent), so this time limit is important.
BUSINESS REPORT