Fixing SA’s trade policy process is crucial to developing a vibrant economy


I open the second XA Import Duty Investigations Report with the words “[i]f you love localisation more than you love ice cream, then getting trade policy working properly is for you“. Trade policy is the implementation arm of our industrial policy, hence its importance.

You love the idea of making more stuff locally, you want our factories protected from imports and you want government to buy local whenever possible. Now ask yourself how to make that happen, given that when someone buys a fridge they may be more concerned about the price than tracing the factory it came from. To incentivise them to buy local, government imposes customs duties, which in the case of the fridge is 30%.

Our fridge manufacturer, Mr Fridge (not their real name – seriously), says  it’s struggling to compete with imports and may need to retrench people if the import duties on fridges are not increased. They promise to invest more in expanding their current factory and will become more efficient if the duty protection is granted. Mr Fridge goes to the International Trade Administration Commission (ITAC) and asks for the increase. ITAC investigates and concludes the customs duties should be increased.  They send their recommendation to the Minister of Trade, Industry and Competition. The Minister does not simply rubber stamp these recommendations and so he carefully considers the recommendation, agrees with ITAC and asks the Minister of Finance to consider increasing the duties. Two court cases in 2016 made it absolutely clear that the Finance Minister has to apply his mind to the decision and so of course he does too.

Download the second XA Import Duty Investigations Report here.

For the average company engaging in this process it will take 22 months from when the investigation begins to when it is finalised. In the case of Mr Fridge, it took 54 months. Why does it take so long? Is there a benefit to these investigations taking so long to resolve? Is it reasonable to expect an investigation to be completed in less than a year?

Back to my ice cream metaphor. The cone is the process and the ice cream is the policy, in this case how much duty to impose on imported fridges. It is reasonable to say that if the process, from initiation of the investigation to implementation  of the duties (or rejection of the application), takes 4 years or longer, then it doesn’t matter what duty decision is taken, how many people Mr Fridge has committed to employ or how much he was going to invest. The process (cone) gives structure to the policy (ice cream). Without the cone, the ice cream is a colourful puddle on the ground. The speed of the process is more important than the content of a given decision if decisions routinely take almost two years.

For the process to work, it must be transparent, dependable, fair and predictable. With this in place, companies trust the process and participate. If Mr Fridge had been told in 2018 that it would take almost five years to implement a decision, would they have brought their application?

Mr Fridge is not merely an artefact to hold my ice cream metaphor. It’s a real company who applied for a duty increase on 9 April 2018. The investigation was initiated on 28 September 2018. ITAC recommended a duty increase on 13 November 2019 and duties were finally increased on 23 December 2022, three years after ITAC sent their recommendation and almost 5 years after initiation.

The really difficult part of the work sits with ITAC. This is the part which is tightly regulated and I commend ITAC, who almost never run much over 6 months from initiation to recommendation (the date on their report). Once the matter leaves ITAC, everything becomes opaque (the shaded area of the diagram below). This is usually where the delays happen.

It is very hard to see how our localisation policy is best served by delaying a decision for 4 years. These inordinately long delays make it unattractive to use these instruments and so they don’t. There has been a 62% drop in tariff investigations initiated from 2021 to 2022 and this is not because ITAC are taking their time to determine if the cases have merit. The applications are just not there.

At times of economic distress we should be seeing more not less tariff investigations. We have a deliberately interventionist industrial policy and whether you love or hate the idea, we can all agree that there will be no intervention if everyone opts out of the process. In 2009, in the midst of the financial crisis, 16 duty change investigations were initiated, with the longest taking 12 months to be finalised. The average time it took for a case initiated in 2009 to be finalised (terminated or the change implemented by SARS) was 7 months. The current average is 22 months and the longest currently open case was initiated in February 2019 and has been open for 50 months. Investigations have not become more complicated, yet it takes more than three times longer to complete than 13 years ago, Perhaps there are other reasons for why companies are opting out of these instruments, but it would seem as if the delays are at least one important contributing factor.

Why trade policy matters the most right now

Trade policy is especially important at times of economic distress. Don’t equate trade policy with protectionism, as it’s also the instrument used to lower duties when goods cannot be made locally. The unicorn standard is perfectly agile policies based on perfect information. The next best is to base decisions on the best information available, as quickly as possible, without compromising the quality of the decision. When manufacturers can’t secure raw materials locally and then have to wait years for duty relief, we stifle investment, the thing we need the most in South Africa.

This is an easy problem to fix and I have no doubt that the good people at ITAC and the DTIC are fully committed to sorting out the delays.  The report we published puts the facts in front of everyone. We can pause arguing about whether localisation is a good or bad idea and instead give our attention to creating a policy environment which is inviting. This is good for everyone.

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Download the second XA Import Duty Investigations Report here











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