Industrial Policy Group of the Trade and Industry Portfolio Committee

PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY

TRADE and INDUSTRIAL
POLICY GROUP

Report to Parliament :

Public Hearings:

'Industrial Restructuring and Job Creation

in the Context of Tariff Reductions'

A wide range of organisations and institutions provided evidence. Although there may have been a bias towards industries which are experiencing difficulties, the committee is generally satisfied that it obtained a sound overall impression of the constraints experienced by industry as a whole. Almost all participants expressed support for the departments policy design and vision, but many were concerned with the practical functioning of broad policy. Several bottlenecks were identified and possible solutions recommended.

Most of those giving evidence accepted that the days of high tariffs were over and that industry had to adapt to a lower tariff regime. However the pace of implementation of tariff reductions was a cause of concern. The rationale for several tariff reductions to levels below those required by GATT bindings was felt to be not always clear. What was seen as the ad hoc nature of tariff reduction was regarded as creating policy uncertainty that impacted on domestic investment. Several participants requested increased consultation, detailed tariff policy and time frames. It was also argued that tariff reductions have been implemented during the design stage of supply side measures and that this lag provided a competitive advantage for competitors. Some argued that South Africa needed a 'strategic' rather than whole hearted integration in the global economy, and felt government was insufficiently sensitive to the fact that competitors were not implementing tariff reform at the same pace. It was thus proposed that the department, in consultation with the private sector, monitor tariff developments in other countries. The simplification and harmonisation of the tariff structure and the detailed identification of tariff categories, however, was seen as a priority for the department to eliminate 'tariff dodgers'.

Several participants were generally supportive of the cluster study initiative. The programme had different impacts on a range of sectors. Industries interacted for the first time with the goal of an industry plan or common vision. However the participants were concerned that concrete strategies in many sectors have not provided positive results.

The Committee encountered a remarkable degree of consensus among those making presentations around the broad design of industrial policy. The need for measures with objectives broadly similar to those of most supply side measures was acknowledged by almost all of those giving evidence. The debate has now moved on from whether or not there should be a shift from demand side subsidies to more focused supply side measures, to how supply side measures should be implemented. Concerns were expressed by some that supply side measures were being put in place too slowly in relation to the pace of tariff reductions. Others argued that the programmes were skewed towards export oriented, 'sunrise' industries, and that they were not effective in assisting firms that were strategically important for industrialisation, but had grown up orientated to domestic market production and dependent on high tariff barriers to transform.

Almost all those giving evidence complained of 'red tape' and bureaucracy in accessing such measures. Some of the practical administrative problems identified included, time taken to process applications, excessive information required, lack of pre-application support and advice, and general bureaucratic barriers. The availability of programme managers and good quality of service by the department is essential. Increased consultation between the private sector and the department was also agreed to be essential for the optimal impact of the supply side programmes.

All participants stressed the need to enhance the skills base of local industry. The result would increase the international competitiveness of South African enterprises. The supply of skilled personnel to many industries is currently declining. The private sector proposed an increased government participation in training. The committee supports the continued interaction of the Department of Trade and Industry with the Department of Labour and relevant educational institutions. Training must become more relevant to the needs of industry.

The illegal entry of goods through our ports has long been identified as a major problem. This has a negative impact on South African industries and eventually domestic jobs. The committee was pleased to hear that some steps have been taken to address this problem and expresses its view that the continued improvement of customs control remains a priority issue. Increased monitoring of the entry of goods and stricter enforcement of duties need to be applied. The impending negotiations of a Free Trade Area in SADC requires specific attention to enhancing customs control in the region as a whole.

The Board of Trade and Tariffs has already established a directorate to focus on anti-dumping. The Committee notes that this directorate has been active - with more cases being investigated in South Africa last year than in the United States. The Committee is of the view that we must insist on our right to maintain a strong and vigorous anti-dumping capacity and ensure that any trade agreements we may enter into do not undermine this capacity.

The Committee notes with concern the job losses in several industries. Job losses is not the same across all industries as some sectors have increased employment. These sectors include the unrecorded employment increases in the informal sector. The relationship between tariff reduction and employment losses needs to be further established. The DTI claims that supply side measures have contributed to the creation or sustaining of 70 000 jobs in industry. The Committee further notes that several industries have responded to restructuring by downsizing hence the impression the economy is growing but employment is decreasing. The department needs to encourage employment creation through further initiatives. Competitiveness should not necessarily exclude increased employment. Tariff movements should take cognisance of the impact on employment.

1. A common vision is required between the different stakeholders regarding the pace of tariff reduction, particularly in relation to the practical implementation of supply side measures.

2. The cluster studies should provide a clear strategy for raising competitiveness and encouraging innovation. The criteria to meet the above objectives should include efficiency and employment creation.

3. The relationship between tariff reductions and job losses need to be empirically clarified and steps taken to counter negative implications for employment.

4. Tariff reduction and industrial policy should be linked to broader macro economic policy.

5. Protectionism in potential markets and dumping practices by competitors needs to be conscientiously monitored. Anti dumping measures and the protection of industry from unfair practices needs to be enhanced.

6. We must ensure that trade negotiations allow for protective measures to neutralise the effects of subsidies for foreign competitors.

7. All participants supported the enhanced effectiveness of the Department of Customs and Excise.

8. Any bottlenecks of the emerging supply side measures need immediate review and subsequent correction.

9. All participants agreed that relevant training initiatives must urgently serve the needs of industry. The responsibility for training rested with the government, private sector and unions.

10. Teaching, research and development of science and technology must become relevant to a wider range of enterprises with more practical applications.

1. The Committee finds that there is broad support for the basic objectives of the department's industrial strategy - raising competitiveness, encouraging innovation and technological upgrading and promoting employment. The shift from a policy based on high levels of protection, subsidy and state support for capital - intensive "strategic" projects to one based on lower tariff and supply side support for industrial restructuring also seems to be widely accepted. The objectives of many of the department's incentive schemes or supply side programmes likewise command broad support. It is noted however, that labour seeks a greater emphasis on employment promoting industrial policy.

2. The Committee finds that the main problems arise in the practical implementation of supply side measures, and in the rate and pace at which supply side measure's are being implemented in relation to the pace of tariff reductions. Uncertainties and problems in accessing supply side measures also appear to be causing problems.

3. The Committee recommends that the future direction of tariffs, particularly in view of impending Free Trade Agreements with the EU and SADC, be made more transparent and the subject of ongoing review by all stakeholders. The pace of tariff reform in relation to the pace of implementation of industrial policy and supply side measures needs regular careful monitoring to avoid excessive job losses. Labour argued that industrial capacity needs to be nurtured to build up local capacity.

4. The Committee supports the harmonisation and simplification of the tariff structure. Increased attention is, however, required in the case of ambiguous catch-all tariff categories (such as "other" or "miscellaneous"). Such categories are often duty free and allow entry of competitive products in ways that industries cannot sustain.

5. Increased consideration should be given to tariff reductions and supply side measures in relation to broader macro economic issues. The broader economic environment also impacts on our interaction with the global economy.

6. Anti dumping capacity must be complemented by the strengthening of our capacity to monitor dumping, protective practices and subsidies in competitor countries and devise appropriate safeguards measures.

7. The Department of Customs and Excise must continue to strengthen its effective control of goods entering the country. The Committee recommends that progress reviews be conducted of the Department of Customs. Security at the ports of entry must be enhanced and the impact of impending regional trade agreements on custom control taken into account.

8. In consultation with the Department of Education, Department of Labour, industry and the trade unions, a detailed industry training and human resource development programme must be formulated and implemented for individual sectors.

9. Science and technology institutions should be more responsive to the needs of industry. Several current programmes appear to be successful and should be complemented with additional schemes.

10. Supply side incentives should be biased towards training, upgrading of human resource capacity and employment generating projects.

11. Government departments and parastatals should contribute towards enhancing the competitiveness of South African industry.

12. Processes for accessing supply side measures, reporting requirements and decision making processes need urgently to be re-examined with a view to reducing 'red tape' and bureaucracy. Greater clarity on who particular measures are intended to assist would be helpful.

13. Government needs to indicate more clearly whether, and under what conditions, it is prepared to assist so-called 'sunset' industries in restructuring.