PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY
TRADE AND INDUSTRIAL POLICY GROUP
REPORT TO PARLIAMENT
ON
PUBLIC HEARINGS - PRETORIA 30 SEPTEMBER 1996
"TARIFF POLICY IN THE CONTEXT OF INDUSTRIAL POLICY"
THE ISSUES:
*Whether SA trade policy is appropriately linked to industrial policy;
*Whether the necessary supply side measures (SSM) have been applied to compensate for tariff reductions;
*Whether adequate measures to boost training have been put in place;
*What the consequences of opening up the economy might be for industry;
*Whether foreign dumping is taking place within the SA market;
*Whether international protectionism is under investigation.
EXECUTIVE SUMMARY
The new international climate of globalisation and proposed liberalisation poses new challenges to South African industry. While we all agree that the pressure to integrate with the world economy are irresistible in the long run, it is also understood that the pace and mode of integration are critical if our economy is to reap the potential benefits from being integrated into a globalising world economy, while avoiding the dangers inherent in this process.
The World Trade Organisation is establishing a rule based system which requires tariff reductions of all member countries. South Africa has begun to comply. However the speed and scale of tariff reductions have aroused controversy in many industries from manufacture to agriculture. It is alleged that government is moving to fast, thereby damaging industry, especially as the outside world is increasingly competitive, and as cheap imports are entering the country, some of it illegally.
Some argue that government promised to remove tariffs gradually, compensating for this loss of protection with assistance to industry by means of supply side measures to adapt to the new environment. It is alleged that this assistance has not been forthcoming adequately. It is also alleged that there is massive protectionism in other countries and a range of dumping measures to lower prices of export goods. Evidence was presented that South Africa should be a "follower" not a "leader" in opening up our economy. On the other hand the Department of Trade and Industry argues that the previous protectionism and subsidisation of our industries have seriously weakened our competitiveness and that pressure is needed to make industry invest and restructure to meet the new challenges of a global economy.
The Committee conducted two days of intensive hearings which brought out substantial concerns from industry about the damaging effects of tariff reductions on profitability and from labour on the negative effects on employment.
The committee recommends that these issues be examined in bilateral and trilateral meetings between government, business and labour in order to safeguard our existing industrial capacity and plan for our expansion so that we can meet job expectations.
REPORT TO PARLIAMENT
The TRADE AND INDUSTRIAL POLICY GROUP held Public hearings at the House of Trade and Industry, Pretoria on the 30 September and 1 October 1996.
The following members of the Committee were in attendance:
Dr R. Davies, Ms W Mayimele, Mr E Ebrahim, Mr N Mngomezulu, Mr G Ebrahim, Mrs F Mohammed, Mr D Gumede, Mr M Nwedamutswu (Co-Chair), Mr D Jordan, Mrs B Ntuli,
Prof B Turok (Chair)
Evidence was presented by the following organisations:
PRIVATE SECTOR - MANUFACTURING
1. Clothing Federation of South Africa (CLOFED)
2. Textile Federation of South Africa
3. South African Chamber of Business (SACOB)
4. Chemical and Allied Industries Association
5. Electronic Industries Federation
6. Independent Wire Converters Association
7. Allied Electronics Corporations (ALTRON)
8. Circuit Breaker Industries Ltd
2. PRIVATE SECTOR - AGRICULTURE AND AGRIBUSINESS
9. South African Agricultural Union
10. National Association of Maize Millers & National Chamber of Milling
11. Premier Group and Tiger Oats
12. Southern African Poultry Association
3. LABOUR
13. Congress of South African Trade Unions (COSATU)
14. National Union of Metalworkers of South Africa (NUMSA)
4. GOVERNMENT
15. Department of Trade and Industry
16. Board of Tariffs and Trade (BTT)
17. Industrial Development Corporation (IDC)
5. INTERNATIONAL
18. United Nations Commissions on Trade and Industry (UNCTAD)
THE PROBLEMS STATED
Parliament and the Government have to adjudicate between the following interests:
Consumers, Government, Large producers, Small producers, Labour, Importers, Feed suppliers, Foreign suppliers.
THE PRESENTATION
1. CLOTHING FEDERATION OF SA
2. TEXTILE FEDERATION OF SA
These organisations made a joint presentation represented by:
Dr B Richards, President of CLOFED,
Mr H van Zyl, Director,
Mr M Hankinson, President of the Textile Federation,
Mr B Brink, Director.
The Committee was informed that the two organisations were working closely together. They jointly represent 300,000 employees and R 20 bn in output. They have been investing R3 bn in upgrading.
They argued that there is much uncertainty in the industry partly due to government policy. None of the supply side measures recommended in the Swart Report have been implemented, training and education assistance is still pending, customs control over illegal imports is weak, the phase down of tariffs over 7 years is a problem and government must not tamper with this process further. There is a fear that there may be further substantial phase downs after the 7 years. Already 17,000 jobs have been lost in ten months as a result, both of tariff reductions and illegal imports. There are high input costs in SA relating to labour, financing, taxes, and trade agreements. There is a lack of clarity around SMME's (small medium and micro enterprises) which should be included in supply side measure support. A meeting with government is needed.
The industry agrees that it should adjust to a more competitive environment, but there must be adequate time to adjust to this as there are many aspects which need attention. There was also disagreement with linking accelerated tariff reductions with the depreciation of the Rand. Industry is seriously undermined by illegal imports which are harming small enterprises in particularly. Industry has provided funds to counter this which should be matched by government funds. Increased penalties are needed.
International state support for industry is substantial. Also there is much rhetoric about liberalisation, but advanced countries, like those in Europe do not do it themselves. In SA government should assist in identifying export opportunities. Industry is waiting for information about an Export Promotion Council.
Clothing is one of the most labour intensive industries with new jobs costing only R2,700.
It is understood that there is a worldwide move to informalisation and feminisation of work. Outsourcing is a major part of this, but in Cape Town some firms are part of the Industrial Council. The industry does not associate with homeworking or cottage industry. However the textile industry has been trying to make fabric available to rural people and small business.
3. SOUTH AFRICAN CHAMBER OF BUSINESS(SACOB)
The delegation consisted of:
Mr R Heine, President,
Mr R Hagemann Treasurer,
Mr N Vermeulen, Chairman Tariffs and Trade Committee,
Mr R Lichkus Vice Chairman Export Trade Committee,
Mr R Parsons Director General,
Mr K Lockwood Economist,
Mr C de Lange, International Trade Manager.
SACOB welcomes the new government document on macro-economic strategy (GEAR). But in its implementation they seek a co-ordinated approach so that job shedding is accompanied by job creation.
Customs control of imports is inadequate, improvements introduced by the South African Revenue Services(SARS) are too slow, resulting in a large loss of revenue to government. It was admitted that some members of SACOB may be involved in illegal imports, but SACOB is willing to second staff to the SA Revenue Service even before the necessary new legislation is in place. Better statistics are needed on imports and exports.
Industry must reduce its reliance on tariffs but in a balanced way. Other related supply side measures need to be expedited. The role of government in cluster studies is not clear, nothing has really happened. Outside of the motor industry, and electronics where there has been little implementation. The clusters studies are supported as a good initiative by government, but it is not clear that they are delivering much in practice. In some cases too, industry has been slow to link up to the support available. There is some hassle factor in making applications. The new measure of tax holidays and accelerated depreciation are generous and will act as a catalyst for investment. But SACOB is unhappy about linking accelerated tariff reductions to the depreciation of the currency.
There appears to be a lack of personnel capacity in the Department especially in the small business section, yet there are 800,000 small firms in the country. Support for these are very staff intensive. The lack of capacity is creating the impression that little is happening.
A series of mini accords are proceeding in NEDLAC, e.g. on productivity which will help erase discrimination in industry. A campaign on both productivity and competition is needed to put pressure on firms. Tariff reduction will certainly drive productivity improvements. However the country is low on skills and training is needed urgently. This applies also to small business where there is insufficient marketing and other business skills.
SACOB has no difficulties in accessing the Minister or officials, but there is insufficient information about various departmental schemes.
The delegation agreed that in the new international environment SACOB should research international dumping and protectionism.
Also needed is a Board on Education and Training involving government and business. SACOB agreed to supply a document on this topic.
4. CHEMICAL AND ALLIED INDUSTRIES ASSOCIATION
The delegation consisted of:
Dr. L Lotter, Executive Director,
Dr John Job, Board member,
Dr Neethling from Sentrachem.
The Association supports the linking of tariff reforms with export support and supply side measures as part of an all encompassing industrial policy.
The chemical industry contributes R45 bn annually in sales value to the economy and 4% to GDP while employing 200,000 people. Approximately R6 bn of production is exported annually. It seeks to become a world class competitor. The international competitiveness of downstream industries is dependent on a competitive upstream chemical industry.
The gradual reduction in import duties is supported, but should be accompanied by a full package of other policy measures. The tariff structure remains too complex. New industry is working on zero tariff assumptions but there must be protection against dumping. Older plants need time to adapt to lower tariffs. WTO phasing in is aimed at this. Any significant lowering of tariffs below WTO requirements are mistaken until the new anti-dumping system is in place. The Association can gather much information on dumping and wishes to co-operate with government on this. South Africa should be a follower not a leader. Also there can be no advantage in reducing tariffs below those in other producing countries. The average duties on chemical imports in advanced countries is higher than for SA. Tariff protection as a policy tool is useless unless illegal imports are stopped.
The establishment of an inclusive Science Education Board was proposed.
5. ELECTRONIC INDUSTRIES FEDERATION
The delegation consisted of:
Mr D Botha, President,
Mr K Pengelley
The industry was performing well under the previous protection although it was unable to export and had difficulty controlling costs. Many components were imported from a small number of sources and were therefore expensive. They were also cut off from modern technology hence the present slow growth process. Yet TELKOM badly needs a local industry to service telecommunications, manufacture equipment locally and provide training.
The Industry needs time to adjust and seek protection. There are low volumes in SA, high prices and low technology. To correct this is no simple matter. The industry is in crisis and will soon lose its skills and capacity. Quality is comparably international so only time is needed to adjust production costs. The industry does have links internationally and obtains technology outside, but it must also build its own research and development capacity to create its own products for export.
TELKOM is not insisting on local content in its purchases, yet SA industry must get procurement from TELKOM. Foreign companies are arriving and are supplying. Yet in their own home markets there is massive protection by tariff and non-tariff measures. The Association seeks to level the playing fields with competitors as presently it cannot compete.
A sector study is awaited by DTI but is slow in coming.
6. INDEPENDENT WIRE CONVERTORS ASSOCIATION
The IWCA was represented by:
Mr R Bosomworth, Chairperson
The IWCA want unnecessary tariffs on imported raw materials removed so that downstream manufacturing can benefit. Also they seek the removal of the two tier pricing on steel by SA producers. Domestic steel prices are 30-60% above international standards and result in the effective export of jobs. Many existing steel mills are outdated and are only sustained by the dual pricing system, which penalises domestic producers. There can be no future for downstream development without access to internationally competitive basic raw materials such as steel.
PORTNET and SPOORNET fees are too high and their inflexible structures penalise added value. This will lead to firms moving to the coast, importing raw material, adding value and then exporting.
Previously our distance from Europe was a disadvantage since it meant higher costs. But if Africa opens up a market, this distance from Europe will become an advantage as we will be cheaper.
7. ALLIED ELECTRONICS CORPORATION (ALTRON)
Dr D Jacobson, Group Executive Director for Science and Technology presented two papers in his personal capacity.
Dr Jacobson argued that SA has a strong core of technological capability which requires a proper environment for it to grow.
Industry requires:
a competitive open arena;
a government built environment which enables and stimulates careful focus on what is possible;
a buy South African campaign to strengthen home based industry which will become a base for exports;
effective counter-trade projects;
technology innovation programme;
training programmes;
co-operation with employees;
Government requires:
a tariff system relevant to a country in transition and
able to conserve the manufacturing base;
keeping input costs of components and materials as low as possible;
tailored protection for special cases;
not beyond WTO requirements;
comprehensive incentive packages to encourage local innovation, manufacture and exports;
swift anti-dumping action;
life-time costing in government purchases taking account of local servicing and supply;
involvement of government in business links with other governments;
ensuring that existing science councils give priority to assisting local industry;
SABS to assist industry to adapt to international conditions;
state support for science, technology and engineering education;
price preference in state purchases for locally designed, developed and manufactured goods;
It should be noted that SA has more to learn from the Asian Tigers than from the USA or EU.
8. CIRCUIT BREAKERS INDUSTRIES
Represented by Mr D Dreyer:
The industry is based on mainly own technology and it anticipates a good future in exports but for an industry which was previously excluded this is a slow process. Tariff protection is now 5-15% and is badly needed. Dropping tariffs which were protective previously too soon will damage industry. But there is a mind set in government which is not supportive to industry and too eager to opening up.
Many components are imported but some are made locally. There are severe restrictions on the use of local funds for overseas operations as well as much red tape. Free trade is not helpful for SA at present because there are major non-tariff barriers in Japan, USA and EU and the evidence can be provided. Many non-tariff barriers are linked to artificial technical requirements. Dumping is rampant by constantly undercutting prices. It is difficult to prove injury.
PRIVATE SECTOR - AGRICULTURE AND AGRI-BUSINESS
9. SOUTH AFRICAN AGRICULTURAL UNION (SAAU)
Represented by:
Mr H van de Merwe, Deputy Executive Director
Mr J Pienaar, Director, macro-economics and trade.
Agriculture contributed 4.8% to GGP and 20% to employment. It is a net earner of foreign exchange which should amount to R3 bn in 1996. In other countries there is massive state support for agriculture - at about 30% much more than in SA, where it is 10%. Here there is a low subsidy level and a low protection level. The playing fields are not level damaging agriculture and exporting jobs. There are now large imports of agricultural products. Despite the WTO, subsidised trade will remain predominant.
If we liberalise with SADC there is no border protection and we could be flooded with imports. USA and EU meat of all kinds are penetrating into SA rapidly. The benefits go to wholesalers and retailers, not to the consumer. Previously there was excessive protectionism but we should not go the other way too much and take account of the subsidies in other countries.
Agriculture is part of a chain of production linked to industry, so a holistic approach is needed on policy. Agriculture is a major purchaser of inputs from manufacturing and it has multiplier effects. A decline in agriculture is immediately felt in manufacturing. Because of weak customs, government collects much lower duties than it should. There are also rebates, and poor administration having the same effect.
There is also the consideration of food security as opposed to opening up. We need a balanced economic programme for the long term.
Small scale farmers have problems of access to land, information and infrastructure. There are opposing views of the relative merits of small and big farming efficiency. But on a world scale the main trade is by large scale producers.
The present government's preference is for a multitude of marketing channels.
10. NATIONAL ASSOCIATION OF MAIZE MILLERS AND NATIONAL CHAMBER OF MILLING
Represented by:
Mr J F De Villiers, executive director;
Ms H Schulze
The industry is internationally well known for subsidisation of up to 50% of value. Hence South Africa needs to establish the permanent levels of subsidies internationally before we lower our guard. Our present anti-dumping, countervailing and safeguard systems are not adequate, nor is our tariff revision process.
A detailed cluster study is needed to seek a balance between protection and competitiveness. A policy of cheap food imports provides only temporary relief. Cheap food imports will cost foreign exchange, destroy local capacity, producers, investment and jobs.
We have very few processing industries compared to the advanced countries, so our aim should be to encourage existing processing capacity to become competitive through tariff protection rather than continue with raw material exports alone.
Government should not protect inefficiency through high tariffs, but much was created previously through heavy government intervention. The BTT works in too much isolation. The procedures are inadequate.
Problems are posed by neighbouring countries where rebates are allowed and then products are sold in SA. We should ensure that our tariff policy is not negated by a lack of control amongst partners in a freed trade agreement. The USA has targeted Namibia and Swaziland for EEP subsidies.
11. PREMIER GROUP AND TIGER OATS
Represented by:
Mr D Frost, economist at Premier
Mr H Mc Bain of Tiger Oats
Agri-food should be seen as a value chain linking, agriculture and industry. The industrial strategy should determine tariff policy. But retail considerations should be taken into account.
The industry seeks a better process from the BBT to the various ministries and this should be institutionalised by a Task Force. The present administrative system is cumbersome. They also propose that a draft tariff should be published for comment before finalisation, as well as a stakeholder Forum.
The customs department has deteriorated since tariffs replaced quantity methods. We need to streamline the whole duty process, although some progress has been made in the past year.
12. SOUTHERN AFRICAN POULTRY FARMERS ASSOCIATION
Represented by:
Mr C Du Toit, Chairperson
Mr Z Coetzee, Executive Director
The industry is a major supplier of food to SA, producing 10.5 million broilers a week of which 2.5 million is in the informal sector. Poultry consumption is 43% of total meat consumed, larger than in France and equal to Hungary and increasing rapidly.
There were quantitative controls by permits from 1988 and the industry was well protected. In 1992 tariffs were added which allow large loopholes and taking of market share 13% of total consumption in 1995, leading to the large current losses requiring examination. Feed costs are very high, higher than in the USA. There is only one channel of supply and the industry seeks a free market. We need an integrated policy to cope with overseas protection and subsidies. For example, South Africa is denied access to the lucrative US market for chicken breasts because of protectionist zoo-sanitary regulations banning all imports from countries where Newcastle disease is present. The industry seeks a declining tariff protection to enable the industry to relate to world competition. Current tariffs is 27% and the industry seeks a level of 64% scaled back to 44% in five years. Opening up does not benefit consumers as it serves the interests of middlemen.
A Poultry Forum is proposed.
LABOUR
13. CONGRESS OF SOUTH AFRICAN TRADE UNIONS (COSATU)
Represented by:
Mr H Mkhize, Labour convenor of the Trade and Industry Chamber at Nedlac,
Mr K Creamer, researcher, parliamentary office of Cosatu.
Cosatu argued that present government policy on tariffs is narrowly conceived and should be transformed into a policy where tariffs are set strategically according to our domestic industrial policy guided by the objective of development and reconstruction. A generalised acceleration of tariff reduction will erode our industrial base and cost many jobs and is inappropriate now.
Tariff reduction is a blunt instrument which may assist in creating an environment of increased competition, but such environment does not necessarily translate into improved performance unless support mechanisms are put in place to enable industry to compete.
Also there should be a general review of current trade liberlisation programmes. Where significant job losses will result from tariff reductions government must not reduce tariffs faster than required by GATT rules.
Hence, tariff reduction should be preceded by supply side measures; a National Restructuring Fund to overcome lack of competitiveness; a training levy for workers; competition legislation; active measures by government to market SA industry; a Social Plan Act to help workers adjust; reductions in interest rates.
Where appropriate there should be anti-dumping, countervailing duties, and safeguard duties. Customs must be made more effective. Workers rights should be promoted.
14. NATIONAL UNION OF METAL WORKERS OF SA (NUMSA)
Represented by Mr E Godongwana, General Secretary.
The central issue is employment creating economic growth. But how can this be achieved? Trade and Industry are integral to our macro-economic strategy but this has not been adequately examined.
Tariffs are only one instrument of industrial policy and must be a part of a broader approach and also part of a macro-economic debate. Numsa were expecting a complementary process. There is a disjuncture between the tariff programme and the institution of SSM. Tariffs need not be reduced in a straight line but could be phased in appropriately.
We seem to be offering incentives for new and foreign investors without restructuring existing sectors. The net effect is dis-employment. We should not ignore the service sector which is growing rapidly world wide.
Our primary objective should be the creation of an integrated regional economic bloc in Southern Africa. We might have to lose some low wage, labour intensive industries to Mozambique for instance. We need more regional trade in the region.
There is a problem with our procurement policy. Suppliers to TELKOM are cutting back. The state is not promoting local industry. We need to change focus and must target those industries we need for exports and those we need for development. The two-tier pricing of steel is a major problem and has led to the closure of Raleigh cycles. This is an example of the high cost of raw materials in SA.
We need a special institution to co-ordinate policy on development and such matters as input costs. Nedlac is not suitable as it spends much time on detail, and there are no strategic discussions. There also seems to be inadequate co-ordination between departments.
The Cluster studies are a good idea in principle, but are not being implemented in a way that is producing significant results. Cluster studies start at the wrong end. They start from what we have and not from what we need. This tends to reflect the power of the big corporations. They are also not organised in ways that empower workers e.g. management participate in them as part of their duties, but workers are not given paid leave.
GOVERNMENT
15. DEPARTMENT OF TRADE AND INDUSTRY (DTI)
Represented by Dr Z Rustomjee Director General DTI
Dr Rustomjee stated that the department believed that its tariff and industrial policy had coherence. The starting point was that industry is not competitive though we have strengths and weaknesses. To generate 100,000 sustainable jobs in labour intensive down stream sectors in industry by the year 2000 will require severe restructuring. Time is of the essence and pressure is needed on industry because the existing gap with our competitors will increase. Some firms have restructured with some jobs losses but they emerge strong and able to withstand competition.
Further, the WTO is rule based and is forcing down tariffs everywhere and the rules cannot be changed since the advocates are too strong. We do see some opportunities to shape the rules. Tariffs are being used less internationally now.
Industry must focus on human resource development, work reorganisation and technology enhancement. But many firms are merely rent seeking and are not doing anything themselves, they have missed the boat. Others do not know how to face the new situation. The industrial associations are weak and rivals so do not share information among firms. Some firms merely become distributors instead of producers. There must therefore be a change of attitudes to become competitive. Some firms try to downzise but this is a dead end. Others are risk averse. They need to share information and co-operate on the international market while competing domestically.
Dr Rustomjee argued that the sequencing of tariffs was correct. The drop has not been as drastic as is claimed and a number of supply side measures have been effected. Greater co-ordinations is being achieved. There is a weakness in customs and exercise but this is being attended to. The IDC has set up a global scheme. There has been some support for the weaker areas.
On cluster studies, the objectives are to get the players to meet and discuss their competitiveness and the obstacles thereto and raise output, employment and value added. It is not simply an opportunity to get extra funds from government to replace GEIS. We have involved industry and labour, and industry has seconded personnel for these studies. There is a dearth of skills in the country as a whole, business must release resources.
On tax holidays the objective is to get investment increases in the next three years. We have only one chance to get competitive. Spatial development initiatives are related to market location. It is also to dovetail various departments and layers of government in a physical area. This is where we are spending resources and is part of SSM. On small enterprise (SMME) we have built some infrastructure. Tariff policy is a SSM. Competitive input pricing is a key SSM. On import parity pricing, we want to eliminate it but have limited power. The export marketing assistance programme is in place among other measures.
In short they are trying to create a framework where domestic producers can trade and most of the above has been done through consultation including in Nedlac. But each of the social partners have a responsibility.
On dumping, we are taking some action. On non-tariff barriers we are open to representation and take them up. We need a strong consumer movement to raise standards and monitor quality.
On tariffs and investment policy, we have used this once to support an industry.
On compensatory depreciation, there is a link in that some pressure is required on industry to shape up and depreciation lifts some of the pressure. But it is a case by case evaluation which does also need a tightening up of leakages in customs etc.
In general, we are doing much planning, we have sought some external advice, but we are not leaning against local industry. Our economy was delinked internationally, and now need to be linked into global sourcing and networks. In the auto-industry there must be some increase in foreign ownership, that is the assemblers, because that is how it works. This will get the local component supply system going.
We would like to see international business coming in, not to destroy SA firms but to induce competitive pressures, and provide another source of supply. In some segments there is a replacement of local production by imports but not across the board. This is uncomfortable for some, but they must adjust by getting out of some segments.
Our industrial strategy is not one of low wage, but is based on rising wage, rising productivity, rising consumption. We would rather lose the lower end of the market to the region.
Trade is a fight and the WTO attempts to establish rules. There are some transgressions, and we take this up with them, but we cannot go that route. Only the big countries can get away with it. The developing countries are fighting to get the rules observed. On the new World Bank loan, this is not for a new programme, but to get access to funding at lower levels of interest and will be linked to DTI programmes on competitiveness etc. It is not off budget funding, and will go to the Department of State Expenditure. There are no policy conditionalities and no strings attached.
Dumping and countervailing measures will increase as tariff come down.
It is agreed that much work is needed in institutional development on education and training.
16. BOARD OF TARIFFS AND TRADE (BTT)
Represented by:
Dr N Swart, Chairperson,
Mr Aknoorwinkel,
Ms L Blumberg.
The BTT is appointed by the President but is an independent body. It makes recommendations to the Minister of Trade and Industry on tariffs in the context of the Ministers policy. The BTT and DTI staff are the same. And the BTT also works closely with the customs department. The objects of the Board are to promote industrial growth.
On the complaints about tariff severity, there is space between the binding and real levels of tariffs to assist industry. But this information has not been adequately conveyed to the public. The BTT should now include non-tariff issues and be more macro-economic in focus.
Every tariff application is published for comment, thereafter the BTT makes a decision which is referred to the Minister and tabled in Parliament. Complaints may be made to the Minister.
The BTT tries to strike a balance in catering for various interests. But the main aim is to make SA competitive internationally. This requires the integration of tariff policy into industrial strategy and with the total economic policy. Tariffs must be sensitive to needs. It is agreed that we must not accelerate tariff reduction on the basis of currency depreciation. Tariffs are not fluctuating now and are changing steadily.
BTT has not conducted impact studies on tariffs.
As a result of recent policies and actions there has been a change of culture in the country creating the basis for greater specialisation and greater responsiveness to the market.
The BTT has set up a special department on anti-dumping and countervailing action as dumping will increase with greater international liberalisation. The basis for the work is unfair trade practices.
Dumping is not prohibited internationally and is only condemned if it causes injury which can be proven. Then countries can apply countervailing subsidies. But this is not a substitute for tariff policy. The kind of investigation needed is complex and takes much time and effort. The burden of providing evidence lies with the industry when the BTT will investigate.
17. INDUSTRIAL DEVELOPMENT CORPORATION (IDC)
Represented by:
Mr G van Wyk, Deputy General Manager,
Mr A Kraamwinkel
South Africa did not integrate with the world economy for 50 years with bad consequences. We shall comply with world requirements. Export industries are outperforming protected industries world wide. Countries are relying on trade to improve performance. The NEF prepared the GATT representations on the basis of consensus and then approved by the BTT. We have replaced quantitative controls on imports which do not generate revenue, with tariffs. Some tariffs were as high as 100% and have been reduced. This was not a mechanical exercise and there was considerable consultation. There is now a major shift from the inward orientation with demand side measures prior to 1990 to outward orientation with supply side measures. There is an agreement that sustainable growth and job creation depends on competitiveness. The main aim of tariff reform is to transform the existing system based on import replacements to one of upgrading competitiveness.
The GATT binding levels were based on1988-89 figures and the average level of tariffs in 1994 was already only 1% higher than the level required by GATT in 1999. Actual tariff policy is thus not driven only by GATT obligations but by other considerations: notably to promote competitiveness. The effective rate of protection in manufacturing will move from 30%(1994) to 19% in (1999). We are below this rate already. Further reductions will be gradual. Tariff reductions will particularly sharp on material inputs, components and capital equipment leading to reduced costs of production. Since actual tariffs are already below GATT binding levels, there is now scope for assisting industries where the actual rates are below the binding rates.
Presently real currency depreciation provides an additional cushion of 10%, though the actual duties collected are only 6% due to customs problems. This percentage will improve with lower tariffs.
Some tariff reductions are severe such as clothing 23%, motor 18% and footwear 11% and supply side measures have not been implemented.
The strategy is to upgrade our competitiveness by lowering input costs and this will benefit the consumer.
The IDC was developing a model which assumes that exports will grow assisted by depreciation and lower input prices. But imports will increase - due to lower tariffs and because of economic growth. This will be associated with a decline in real wages and perhaps a loss of 100,000 jobs due to the tariff reform.
INTERNATIONAL
18.UNITED NATIONS COMMISSION ON TRADE AND DEVELOPMENT (UNCTAD)
A paper was submitted by Dr Yilmaz Akyuz, Chief, Macro-economic unit, GID, UNCTAD.
Dr Akyuz wrote that the orthodox trade policy advice to developing countries is to replace quantitative controls with tariffs then move to a uniform tariff structure, then lower it towards complete free trade. However this is in sharp contrast with industrial policy which rests on selective intervention.
The main ratonale for trade protection is to protect infant industries which will later become competitive. But it is agreed that market failures are widespread and that much international trade is effected by economies of scale, cumulative learning, innovation dynamics etc. The case for trade intervention is therefore substantial. However tariff may not be the best way to deal with market distortions. Action by banks is one way, production subsidies directly linked to labour are another.
However subsidies are not always perfect substitutes for tariffs. By keeping prices low, subsidies tend to encourage domestic sale of goods while tariffs tend to reduce domestic demand and imports. In sum, tariff protection, together with tariff export subsidies, present themselves as the most effective way of retaining the benefits with domestic firms.
The effectiveness of tariffs in industrial development depends on how they are combined with such matters as taxes, subsidies, competition, technology, exchange rate and capital policies.
In East Asia, government intervention was not designed to serve individual interests but the business sector as a whole in the context of the broader national interest. It was not a redistribution policy but one of creating new wealth through capital accumulation and productivity improvement. Success was measured by capital accumulation, technical progress and structural change. It was not about "picking winners", but on raising the propensity to invest and promoting cumulative learning and how to compete.
Trade policy in East Asia did not seek full and unconditional integration with the international economy. Rather there was "strategic integration" combining protection with incentives for exports. Import licences were used and export targets set even for infant industries enjoying protection in home markets. Governments exercised considerable discipline over business.
Competition was done by allowing new firms to enter the industry rather than dismantling trade protection. But protection and other supports were gradually withdrawn. Hence the conventional dichotomy between import substitution strategy and export promotion strategy is not meaningful here.
There was also a process of building a robust network of government-business institutions consistent with strategic development goals. This involved strengthening the visible hand of the state through a strong civil service together with many formal and informal links with business leading to a dense network of relations between the government and the private
sector.
FINDINGS:
The Committee understands that although a very wide number of views were heard, the presentations are partly self selected and may be biased toward those who have a grievance. Nevertheless many different sectors of industry gave evidence and we are satisfied that a sound overall impression of the problem was obtained.
There is a significant degree of concern that tariff reductions are harming existing industry unduly. While the tariff reductions have succeeded in providing a change in mindset - placing restructuring and riasing competitiveness firmly on the agenda - they have been implemented in the absence of adequate supply side measures. There is concern that while the cluster studies are a good idea, and have brought upstream and down stream industries together often for the first time, they have not yet produced much by way of concrete sector policies. A further concern is that while there are widespread agreement that addressing backlogs in training and upgrading human resource capacity is a priority, in practice the main response by these firms responding to the challenges of restructuring has been downsizing - the path described by Dr. Rusomjee as a dead end. This appears to be born out by the conclusion reached in the September 1996 South Africa Reserve Bank Quarterly Bulletin which states that "Relentless cost-cutting by South Africa producers to maintain and maintain market share in an increasingly open and competitive business environment has now contributed to a fall of 2.5% in private sector employment since the beginning of the current recovery in overall economic activity." This is happening in the midst of an upturn in GDP during which, "nearly one million potential workers who have not succeeded in obtaining employment in the formal sectors of the economy."
From the evidence the following main points emerged:
1. There is substantial disagreement between business and labour on the one side and the department on the other over the phasing down of tariffs and particularly over the lack of synchronisation with the implementation of the supply side measures.
2. There is little clarity, and some disagreement, over what strategy is required to achieve competitiveness and how to address the requirements of innovation.
3. There is some disagreement about the relative impact of tariff reductions and weak customs control on job losses.
4. Labour believes that the issue of tariff reduction and industrial policy should be closely linked to macro-economic concerns.
5. All the presenters agree that dumping by competitors and protectionism in our potential markets needs urgent investigation, and that safeguard and anti-dumping measures must be introduced and built into trade agreements.
6. In the case of agricultural goods in particular, special measures to counter the effects of subsidies by developed countries are called for.
7. All agreed that the issue of customs control and improving capacity in this regard, needs urgent and thorough attention.
8. Most presenters including the DTI, agree that a new initiative is required to launch a Board of Education and Training with representation from government, business and other parties.
9. A similar body is required to support science.
RECOMMENDATIONS:
The Committee recommends:
1. That within the framework of Nedlac, government, business and labour undertake a comprehensive review of tariff and industrial policy focusing particularly on:
(a) the levels of tariffs, the appropriateness of planned tariff reductions and the supply side measures needed,
(b) the strategy needed to generate increased competitiveness and innovations,
(c) the existing and potential impact of the above processes on job losses and gains,
(d) the impact of women in particular as they are often the biggest losers in downscaling and restructuring.
2. That further consideration be given to the relation between the tariff reductions, industrial policy and macro-economic issues, and in particular the link between tariff reductions and exchange rate depreciations.
3. That an effective anti-dumping capacity be developed as a matter of priority.
4. That government, business and labour find ways of examining the extent and methods of dumping by competitors and protectionism in our markets.
5. That further measures be taken urgently to improve the capacity of our customs department to administer tariffs and effectively control our borders.
6. That consideration be given to establishing a Board of Education and Training with wide representation from government and civil society.
7. That a similar body be set up for science.
8. That consideration be given to using tax incentives an disincentives as a means of encouraging firms and industries to undertake the training and upgrading of human resource capacity all agree is essential to confront the competitive challenges facing us. In this regard, it is a matter of grave concern that a study the by Labour Resource Centre of 60 top South Africa companies found that expenditure on training remains at between 2 and 2.5% of payroll compared to an international norm of between 4 and 7%
9. That a "Buy South Africa" campaign be considered for those selected products where we have commitments by industry that their goods are competitive in price and quality with overseas products.
10. That all government departments, parastatals, and councils be required to give urgent and sustained attention to enhancing the capacity of our industry to survive in the highly competitive world environment. At the same time industry must be wholly proactive to the same ends.
11. Government should set up a Council for Economic Co-ordination to consider industrial policy in the context of broader economic policy.
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