After a marathon 53 months (!!), ITAC eventually rejected Nature’s Garden’s application to increase the duties on frozen vegetables from 10% to 37%. Here is what happened.
On 14 June 2018, Nature’s Garden filed an application with ITAC for the duty increase. 8 months later, on 22 February 2019, ITAC initiated the investigation. We don’t yet know when, but at some point between 2019 and now, ITAC recommended that the duties be increased. Minster Patel referred the matter back to the Commission because he was concerned with the price impact of the duty increase. We will revisit this public interest action shortly, so stick with me. Specifically, the Minister was understandably concerned by “the impact of any potential increase in the duty on the Lower Segment Market and the possible impact on food inflation.” ITAC did as the Minister asked and resubmitted their findings to the Minister for his consideration. We don’t know what they recommended this time around but the duty increase request was rejected. It doesn’t end here though, as the Minister instructed ITAC to review the duties on frozen vegetables in nine months time (April 2024) and send him their recommendation once completed, presumably in less than 53 months.
It still takes too long
According to ITAC, a tariff investigation should be wrapped up within six months of initiation. This is a perfectly achievable objective, but instead it takes on average 22 months and if you are Nature’s Garden, it took 53 months for this to wrap up (47 months overdue). The information submitted by Nature’s Garden went back to 2015 (8 years old when the investigation concluded – Zuma was still president!). It is not clear at all how a decision could be considered reasonable when its based on information of such a mature vintage.
When Minister Patel rejected the application he noted that the import volumes had been dropping anyways, so there was no reason to have the duty, but this misses the important increase in import volumes in 2019 and 2020, which were left unattended because of the glacial pace of decision-making. I don’t know if the application had merit, but in theory, the duties could have increased and decreased in the time it took. This is what an agile trade policy is all about.
Reciprocal agreement not to Nature’s garden’s liking?
An important new-ish, but now normal, component to tariff investigations are reciprocal agreements. If you want a duty change, you need to ‘give’ something in return (Minister Patel quaintly refers to this as a bring and braai). The something might be more jobs, training, additional investment and so on. If agreement cannot be reached, the concession is presumably not given. These agreements are confidential, making it impossible to determine the positive (or not) economic impact of the terms in the agreement. In this case, we don’t know if the reason for the rejection of Nature’s Garden’s application is because it had no merit or because they refused to sign the reciprocal agreement.
Whilst an argument could perhaps be made for keeping the specific terms of the agreement confidential, I believe it essential that ITAC record if an agreement was signed, or not, and how this impacted the final decision.
Public interest
Earlier this year, I wrote about South Africa’s shift to a more considered trade policy. The current decision, though somewhat tardy, serves to reemphasise this more nuanced use of trade policy instruments. In the space of less than a year, we now have four decisions where the Minister, just like Spiderman, used his great powers with great responsibility. First was the decision to postpone imposing anti-dumping duties on chicken for a year, secondly, to proactively review the duties on rolled aluminium, then to refuse to impose anti-dumping duties on steel chain from China and now the refusal to increase the duties on frozen vegetables. In less than 12 months, Minister Patel has taken more brave steps to creating a more useful set of trade policy instruments, than in the prior 20 years.
However, I believe he erred when imposing the anti-dumping duties on frozen chips, given the enormous inflation on that product. Ironically, of the three food items the Minister took a decision on, only chips is zero-rated for VAT purposes. Chips remain in short supply, pushing up the prices. Given the shortages, the imposition of the duty appears to benefit only the producers who can escalate their prices even further on their still insufficient volumes.
XA’s import duty investigation index
As always, XA monitors what is going on and is working to see how these backlogs can be resolved so we don’t completely lose the use of duty changes as a vital trade policy instrument. In August we will publish our third Import Duty Investigation Report. Click here to download our last two reports and if you subscribe to our blog, you’ll be invited to our launch in August of volume 3!
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