South Africa: Ministers are invisible bottleneck in customs duties decisions

By David Whitehouse
Posted on Wednesday, 17 August 2022 06:05

South Africa's finance minister presents 2022 budget
The role of South African finance ministers in ITAC decisions is unclear. Enoch Godongwana here presents his 2022 budget. REUTERS/Shelley Christians

South Africa’s slow decisions on customs duties are hurting the economy, with the unclear role of finance and trade ministers causing most of the damage, XA Global Trade Advisors CEO Donald MacKay told an online briefing.

Companies seeking either relief on customs duties in the absence of local suppliers, or their imposition to protect local industry, face an “opaque” process with no clear timetable or information requirements, MacKay says.

MacKay’s company XA Global Trade Advisors has published its first Open Cases Report on the issue. South Africa collects around 55b rand (US$3.3bn) a year in customs duties, and more than 5% of that is tied up in the “cost of indecision,” the report says. The state misses out on collecting R1.25bn in duties that would have been received if higher duties were agreed to and implemented on time, while a further $2bn is collected in duties for goods which are not made locally.

Between 2015 and 2020, the average time for tariff investigations increased to 320 days from 191 days between 2009 and 2014. The report will be updated in coming months with data through to 2022, and MacKay says that’s likely to show even longer delays.

The trail goes “completely dark” once cases are handed over by the International Trade Administration Commission (ITAC) to the ministers of finance and trade, MacKay says. “Most cases leave ITAC fairly quickly. The bulk of the delays sit with the ministers.”

  • The role of the finance minister in decision-making should be legally defined, MacKay says.
  • He is agnostic on overall trade policy, but argues that any given set of industrial and trade policies can’t work well under the current regime.
  • The point is to create clarity. “There’s a real benefit to predictability,” he says. At present, the lack of clarity “makes the country unattractive to invest in.”

Sumitomo

MacKay gives the example of Sumitomo, which applied for duty relief on imports of Styrene-butadiene rubber, for which it can find no local producer.  The case is now 22 months overdue, and the company had paid over 34m rand in duties which is not serving to protect local industry. That’s ironic as Sumitomo is among a group of four multinational tyre-makers which have demanded increased duties on Chinese imports into South Africa.

Another example is that of BRM, a meat processor that can’t satisfy the volumes of chicken wings it needs locally. Their request for relief of customs duties is now nine months overdue. “It’s not that the application was rejected,” MacKay says. “Nothing has happened.” There’s no reason why temporary relief couldn’t be granted in such cases pending a final decision, he adds.

Many of the costs from the lack of communication are impossible to quantify.

  • Some cases, the report says, are privately concluded with an agreement between the applicant and ITAC or the ministers, though the case remains officially open.
  • That means no other party can bring another case on the same tariffs, so companies who may need a duty change may never even bring their application.
  • Companies “would have no idea the case has been closed and consequently don’t adjust their strategies to deal with this reality,” the report says.

Bottom Line

Businesses considering investment in South Africa will always turn away from opacity irrespective of overall customs duties policy.

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