Ministers to blame for tripping up tariff duty decisions - report

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Delayed decisions on import tariffs are impacting the fiscus, says a trade industry expert.
Delayed decisions on import tariffs are impacting the fiscus, says a trade industry expert.
  • Delayed decision-making on import duties and other protective measures is costing the fiscus R1.25 billion.
  • The "bulk" of the problem rests with the ministers of finance and trade, industry and competition, according to a report.
  • There is a misunderstanding of the role of the ministers and that of the commission when it comes to custom duty decision-making, says an industry expert.
  • Get the biggest business stories emailed to you every weekday, or go to the Fin24 front page.

The "bulk" of delays when it comes to decision-making on import duty changes for certain products sit with the ministers of finance and trade, industry and competition, according to a trade industry expert.

A report released this week by XA Global Trade Advisors sheds light on the lengthy tariff applications that the International Trade Administration Commission (ITAC) adjudicates over. One has to submit applications for tariff changes on imported products to ITAC, which then decides to proceed with an investigation. The commission will determine whether or not to grant the duty change and then makes a recommendation to the Minister of Trade, Industry and Competition, Ebrahim Patel, for consideration.

The minister can reject or approve the duty change or refer it back to ITAC. The matter is then transferred to Finance Minister Enoch Godongwana to effect the change. The finance minister then sends instruction to the South African Revenue Services (SARS) to adjust duties.

According to XA Global Advisors CEO Donald Mackay, issues crop up when ministers have to sign off on the duties. "The bulk of the delays sit with the ministers. Why are these delays occurring? We don't know for sure," said Mackay. He added that it wasn't clear whether the delays were with the Department of Trade, Industry and Competition (dtic) or National Treasury.

Time frames for the processing of tariff applicati
Time-frames for the processing of tariff applications and implementation.
Supplied XA Global Trade Advisors

National Treasury referred queries on delays to ITAC and SARS, which it said were responsible for customs duties. Fin24 is yet to receive responses from the dtic.

Trade policy advisor Gustav Brink argues that there is a huge misunderstanding of the powers of ITAC and the respective ministers when it comes to tariff decisions. Brink is the founding member of the Board on Tariffs and Trade's anti-dumping unit, and he has advised different governments on trade remedies. He has served on the World Trade Organisation's panel, having adjudicated on five matters related to trade disputes between different countries.

In terms of the International Trade Administration Act of 2002, ITAC – which is responsible for anti-dumping, safeguard and customs duty investigations – is to inform the Southern African Customs Union (SACU) of all applications it receives. In terms of the SACU agreement - which includes member nations Botswana, Eswatini, Lesotho and Namibia - ITAC is to make recommendations to the SACU Tariff Board, after considering an application. The tariff board then makes a recommendation to the SACU Council of Ministers.

The tariff board was never populated, and the council of ministers delegated the decision-making function to ITAC, Brink explained. A delegated function cannot be delegated further, he added. This means ministers have to implement ITAC's decisions.

READ | UK to slash import duties for 65 countries, but SA does not qualify

In addition to the SACU agreement emphasising the final decision-making power of ITAC, the regulations in the International Trade Administration Act concerning anti-dumping, safeguarding, and tariff-setting measures do not require that the commission make recommendations to the minister.

This shows that ITAC, and not either of the ministers, must take the final decision in trade remedy investigations, Brink put forward.

In South Africa, there have been two court cases where the ability of the finance minister to make decisions on duty changes was challenged. In both matters, the court ruled that the finance minister is the final decision-maker on duty changes.

Neither the SACU Agreement nor the provisions of the International Trade Administration Act have been put forward in court to strengthen argument that ITAC is the final decision-maker, noted Brink. "ITAC is an independent organisation, subject only to the Constitution and the law. The minister is responsible for trade policy, that is as far as his rights and obligations extend," he said. The trade, industry and competition's minister's responsibility is to request the finance minister to implement the final decision taken by the SACU Council of Ministers, or ITAC as that power was delegated to the commission.

Brink believes it may be helpful to have this categorically stated in law that the minister must implement what ITAC decides.

Mackay echoed these views:

"We believe regulations have to be amended to make the minister of finance's role clear… We have a very confusing situation of no one knowing what the finance minister does or does not do."

To shorten the time frames to implement tariff changes, interference by ministers needs to stop, and ITAC also needs to brush up its internal operations. "I am not aware of a single ITAC investigation that managed to conclude in 12 months in the last five years, and there were only two in the last 15 years," said Brink. According to XA Global Trade Advisors, most applications take close to two years to finalise, which is hardly ideal and impacts investment decisions. International investigations should a maximum of 12 months and 18 months in special circumstances, explained Brink.

Delayed decision-making means that R1.25 billion in customs duties could have been collected by the fiscus, according to XA Global Trade Advisors.

The delayed investigations signal "ineptitude and inefficiencies" within ITAC because it is not finalising investigations on time. Sometimes ITAC takes shortcuts, and this also makes a mess of things, he added.

READ | Delayed decisions on custom duties costing SA R1.25bn, report finds

XA Global Trade Advisors recommends establishing a set time frame to have decisions completed, as this introduces certainty in the market. If they cannot be concluded within the time frame, then the application must be terminated- this is the case for anti-dumping applications, which terminate after 18 months.

"There is a real benefit to predictability," Mackay emphasised. Slow decision-making makes the country "unattractive" for investment, he added.

Mackay said that in the short term, Minister Patel should issue a trade directive indicating that investigations more than three months overdue need to be finalised within three months – to ensure they wrap up.

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