Patel’s indecision has tied up billions in overdue ITAC customs duty investigations

• The XA Open Cases Report finds R1,25bn loss to the fiscus; 2 year wait for decisions, which should take 4-6 months

Johannesburg, 16 August 2022 – Lengthy delays by the Minister of Trade, Industry and Competition, and the Minister of Finance, to take final decisions in dozens of ITAC customs duty investigations have resulted in the loss of R1.25bn in revenue to the fiscus, have material implications for affected industries, and are inhibiting trade and investment.

This is according to Donald MacKay, CEO of XA Global Trade Advisors, speaking today at the release of the company’s first XA Open Cases Report, which outlines how long these customs duty cases are taking to be decided; how long they should actually take in terms of the law; what the cost of these delays means for the fiscus and business uncertainty; and most critically, makes recommendations to resolve and prevent future delays.

The XA Open Cases Report calculates that in addition to the loss to the fiscus, another R2bn has been collected in duties for goods not made locally, adding a R2bn cost to industries without actually protecting a domestic industry. SA collects around R55bn per annum in customs duties, so these delays are equivalent to more than 5% of the country’s total customs duty collections.

The report details that industries are waiting for almost two years in most cases, for an import duty change to be implemented. That is a long time compared to the four to six months which tariff investigations should take; four months for industries in distress, and six months for the rest, according to the International Trade Administration Commission (ITAC).

At the date of this document, there were the following open investigations:

MacKay said: “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. ”

“It’s likely that many companies only reluctantly agree to sign these agreements, and so there is probably some negotiation before agreement is reached. If the companies are listed there are some interesting questions to consider around JSE listing requirements and commitments to price controls.”

There is also confusion legally as to the Minister of Finance’s role in customs duties. When Malusi Gigaba was that Minister, he 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.

Proposed changes to the rules

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 3 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 3 anti-dumping investigations which are currently open, 27 are overdue (58%), so this time limit is important.

The Report also recommends that all current cases which have been ‘privately’ settled, need to have the outcome published and a report issued. Where any future such settlements are reached, the outcome should be published.

If reciprocal agreements are required, then a template of these agreements needs to be made freely available, officially, to anyone who wishes to approach ITAC for duty assistance, in whatever form that may take. They should have access to the agreement template before they apply for the duty change or anti-dumping duties, so they can properly assess how they wish to proceed.

This should ideally be published as an ITAC guideline, which can be done directly by ITAC and doesn’t require the Minister’s sign-off. All of the duty-related regulations need to be updated to reflect the final decision-making power of the Minister of Finance.

MacKay says: “This current situation is deeply problematic. Predictability matters to investors and traders, and duties have become very unpredictable indeed. Whatever the rules of the game are, you should know them before you begin and they should remain constant. Most importantly, everyone should have equal access to the rules and no one should be able to influence the drafting of the rulebook in secret. We urgently need to bring predictability back. Not predictability of outcomes, but predictability of the process. The benefits to the fiscus and the economy will be material. Remember the R2bn in duties being paid, when the goods can’t be supplied locally? Let’s get that flowing into the economy immediately.”

Explainer: Customs duties 

If you want the duties changed on an imported product, you apply to the International Trade Administration Commission (ITAC), which falls under the Department of Trade, Industry and Competition. Such an application could be for higher duties, either in the form of a normal duty increase, or for anti-dumping, or safeguard duties. Normal and safeguard duties deal with fair trade; anti-dumping duties deal with unfair trade.

Normal duties can only be imposed against countries we have no trade agreement with. Normal duties can’t, for example, be increased against imports from the EU or SADC, but anti-dumping and safeguard duties do not have this restriction.

Safeguard and anti-dumping duties are designed to remedy a specific problem, rather than be an instrument of trade policy.  Safeguard duties are meant to deal with fair but unexpectedly robust trade, and although there’s no timeline for investigations, it’s reasonable to assume they shouldn’t take more than 18 months. . Anti-dumping duties can be imposed if goods are exported to SA at less than the selling price (normal value) at home, and if these dumped products cause material injury to the local industry. Investigations should take no more than 18 months, or they expire. These can only remain in place for 5 years.

Once an application has been received by ITAC, they review the contents and the Commission (the decision-making part of ITAC) will decide if the case should be initiated. Assuming they decide to initiate, a notice is published in the government gazette and interested parties have around a month to respond. They can ask for up to two week’s extension and then the comment period closes.

The details of how this process unfolds varies quite a bit depending on the investigation type and the specific product being considered, but ultimately the Commission decides on whether to grant the duty change and then sends their recommendation to the Minister of Trade, Industry and Competition (Minister of Trade).

S/he considers the recommendation and either sends it back, rejects it or approves it and asks the Minister of Finance to effect the change. The Minister of Finance then sends an instruction to SARS to amend the duties.