Some R3 billion was being tied up in lengthy, delayed tariff investigations, which affected industries, jobs, the economy and investment, Donald MacKay, the CEO of XA Global Trade Advisors, said yesterday.
Speaking at the launch of the second XA Import Duty Investigations report, MacKay said the issues were relatively easy to solve, if there was political will.
“If the outstanding duty relief applications were granted on goods not available locally, it would put R1.4bn back into the economy, benefiting the relevant economic sectors directly.
“In addition, if the duty increases requested were granted and import volumes remained roughly constant, the government would collect a further R1.6bn in duties,” MacKay said.
He said the Industry Trade Advisory Committees (Itac) and the Department of Trade, Industry and Competition (Dtic) recommended that the application process, from initiation of an investigation by Itac to finalisation by SA Revenue Service (Sars), took no more than six months.
However, according to the XA Report, the average investigation took 22 months, with some cases being 47 months overdue, which was significant as the trading environment changes materially over such a long period of time.
One example was Nature’s Garden, which applied for a duty increase on mixed frozen vegetables on June 14, 2018. The probe was initiated on February 22, 2019, and it is still not resolved.
During that time, import volumes had plummeted to the lowest level in seven years.
“It is impossible to manage trade in such a lethargic system. What applied in 2019 is very different to the real-world scenario in 2023 and trade decisions need to be based on the now, not the past,” MacKay said.
These slowing processes were obviously not good. Coupled to this, South Africa also had increased amounts of duty circumvention, where companies were not paying the correct import duties. Sars was working hard on this, but the problem appeared to be growing faster than the revenue service could address, he said..
MacKay said if Itac and the government got the process working as it should, the country would benefit from a more agile trade policy space, responding quickly to problems in the supply chain, which would contribute to economic growth.
However, he said reciprocal agreements imposed by Dtic were a major concern.
“In order to grant a company or industry’s duty application, the minister frequently requires the affected party to negotiate a reciprocal agreement, which could include commitments in respect of jobs, investment and transformation. These agreements are not transparent, or part of a formal process, nor do companies, in most instances, anticipate them, adding a further layer of complication and uncertainty to those industries applying for relief,” he said.
MacKay said this uncertainty and lack of transparency was causing companies to opt out of the Itac process, evidenced by the fact that there was a 62% decline in applications between 2021 and last year.
The XA Report recommended that there needed to be an 12-month maximum time limit for the duty process, which included the application, investigation and decision by the ministers of Dtic and finance. It also recommended that tariff investigations should be terminated if this deadline was breached.
“It is critical that the impasse is resolved as quickly as possible, given the current economic realities facing our country, including rising interest rates, the increased cost of food, and the president’s urgent need to attract foreign and domestic investment. An unpredictable and opaque process is a strong disincentive to investment, and one that the country can ill-afford,” MacKay said.
He added that South Africa needed a process, which was agile and predictable.
“Companies will use these trade policy instruments if they trust that the process works. Many companies will accept they can't always get what they want, but no company will be comfortable not knowing what will happen next or when it will occur.”
BUSINESS REPORT