About ITAC’s response to our Import Duty Investigation report No. 3


As many of you are aware, we launched our third Import Duty Investigations report on Wednesday (you can and should download the report here). ITAC responded with a media release of their own. I am not usually inclined to have these conversations through the media, so we have requested a meeting with ITAC to discuss both our report and their response. However, a number of the statements ITAC made indicates a gap between what we are saying and how they perceive our statements and I would not like those to linger, so here is further context.

Background to the report

It took a lot for us to publish our first let alone the most recent report. Meaningful conversations need to be grounded in facts. Once we have the facts, we can debate how those should be interpreted.  No one else is publishing this data and so we took it upon ourselves to do exactly that. If anyone disagrees, they are welcome to double check our capturing and calculations to the reports.

The report we’ve published very deliberately avoids debating the merits of any given decision, focusing instead just on the process. Predictable, transparent, and agile processes are a wonderful thing in any government. They allow the citizens to hold public servants to account and encourage investment from which many good things flow.

Some important misunderstandings occurred

ITAC have misconstrued our report as an attack on their processes. Whilst this is not our intention, it is a valid indictment on how I have communicated the findings in our report to the public. If any confusion has ensued, this is completely my fault and I apologise. However, when ITAC asserts that we are misleading the reader when we state that an investigation is overdue if it is older than six months they are incorrect. Even if we concede that the six months only applies to ITAC, we need to ask why for most of the 10 year period reviewed, ITAC and the two ministers managed to fairly consistently complete tariff investigations within six months, or only marginally longer, yet appear to be unable to do this anymore. This indicates something in the system is not working anymore and this is where the focus should be.

ITAC say they are not sure how we calculated the 52 months for the oldest open investigation. It is perhaps not clearly explained in the report, so here it is again. We start counting from the moment the initiation gazette is published and we stop counting either when the duty change is implemented or when the notice or rejection is published. Here is a screenshot from our ‘Open investigations’ in our Tariff Tracker tool. Anyone can use our free Tariff Tracker dashboard (tools.xagta.com) to look at each open case and see when it was initiated and how each period was calculated.

Regarding the way we value the over-or-under payment of duties because of the delay, ITAC may have a point (although I don’t find ITAC calling this an ‘opportunistic calculus’ helpful). Of course we can’t assume that every duty change request will be granted. Looking back over the last decade, of the 112 decisions implemented, 87% resulted in outcomes matching that requested. Not all, but a very significant proportion. If we account for only 87% of the duties paid or forgone, we are still looking at R2.3 billion and R3.5 billion respectively over and underpaid. The reason why the requested position correlates so tightly with the final decision is that when ITAC receives an application, they do research before initiation. If you ask for duty relief and they find there is actually local production, they will often reject the application before initiation. Such a rejection is invisible and so not counted in our report. This means that initiated cases are more likely to result in the requested outcome than not. This does not indicate a corrupted process, but rather that the pre-initiation process inside ITAC is catching the cases with very low prospects of success and not disrupting the market by publishing them.

It’s very important that ITAC and the two ministers apply their minds and the outcome seen recently in the Frozen mixed vegetables matter is a sign that the Minister of Trade, Industry and Competition (“Minister of Trade”) is indeed applying his mind, although it’s not clear why it took 52 months to arrive at the decision, no matter how well considered.

If we accept that the six months only binds ITAC, then how long is reasonable for the ministers to take their decision? In our master plan we propose 12 months from initiation to completion. If this is not appropriate, we would welcome an alternative reasonable period. It does not appear reasonable for there to be no requirement to even complete an investigation.

Reciprocal agreements

We have proposed scrapping reciprocal agreements and ITAC disagrees. This is ok. Our proposal is based on the time it adds to the process, not the principle of the agreement itself. ITAC notes that XA “dismisses a series of measures and commitments made by firms which have yielded realisable gains in production, employment, investment, pricing and exports in many firms who have made such undertakings.” Whilst this may be true, the question is whether these gains have been made because of the agreements or despite them. We don’t know many companies signed agreements and have worse performance. No data has been provided so its impossible for us to assess the alleged positive impact of these agreements, but we stand by our view that it is unlikely to be larger than the cost imposed on the economy by the delay. Should this data be made available we will include the analysis in our next report.

Next steps

Somewhat frustratingly, ITAC never engages with the substantive issues in the report, which can be summarised as follows:

  • The investigations take too long. Perhaps our six months is not correct, but no alternative is put forward. I think everyone can agree that 52 months is too long and probably so is the average of 25 months. Businesses are entitled to a transparent and predictable process, so how do we get back to this point? There is a cost to the delays in taking decisions and it matters little to the applicant where the delay lies. Perhaps our calculation is wrong, but there can be no dispute that the cost is real. If the 52 months it took to implement the frozen vegetables decision is outweighed by the benefit, then the benefit should be published so we can properly assess the net effect. We are not debating whether or not it was a good idea for the Minister of Trade to reject the application for the duty increase in that case, but rather to understand why it took 52 months to arrive at the conclusion.
  • Companies are opting out of using these instruments and that is not good. Perhaps there are a large pile of applications just awaiting initiation and this trend is about to reverse. If that’s the case, then that is good, but it doesn’t change the very low levels of initiations over the last 18 months. It is indisputable that the number of tariff investigations initiated in the last 6, 12 and 18 months is the lowest in a decade. I accept that our diagnosis might be wrong and if valid alternative theories are provided, we will publish these in our next report. It is deeply ironic that of the 155 tariff investigations initiated in our assessment decade, 28% of them are still open, despite only three of those being initiated in the last six months.

I still like ITAC

I have said this publicly many times and I will repeat myself again. I am a huge fan of ITAC. ITAC and the Ministers of Trade and Finance make up the system of trade policy implementation. They are literally the people who decide how much duty will be paid on everything imported into South Africa. This is a thankless, difficult job. At XA we say ‘Difficult is good”, but I appreciate not everyone views the world that way.

Although publishing the report has ruffled feathers, I am sure that everyone wants our trade policy system to work, including ITAC and the two ministers. The facts are on the table. We are happy to work with ITAC and the two ministers to get these processes back on track.

Download a copy of the report here and get free access to our Tariff Tracker dashboards.

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