Huge delays in tariff decisions have ‘chilling effect on investments’

Delays with customs duty decisions – whether to impose, increase or remove duties in order to protect or assist local industries to compete with imports – have noticeably increased in recent years.

This has a chilling effect on all investments and is harming government’s own localisation policy drive, says Donald MacKay, CEO of XA Global Trade Advisors.

MacKay’s firm released a report on Tuesday, on the economic impact of 46 open cases that are awaiting tariff application decisions.

According to the report companies have paid R2 billion in duties on imported products on which they applied for import duty relief. Favourable tariff decisions would have resulted in lower input costs.

Another R1.25 billion has been lost to the fiscus because requests for protection against imports have not been finalised on time and the South African Revenue Service could not collect the customs duties. Revenue collections from customs duties amounted to R55.8 billion in 2021/22.

The timelines

XA Global Trade Advisors looked at overdue duty relief and review and overdue duty increase decisions from May 2019 to April 2022. All tariff-related applications for the period have been running close to two years.

However, the International Trade Administration Commission (Itac) aims to finish applications for duty reviews or removals and rebate reviews and requests between four and six months.

Anti-dumping duty investigations must be completed in 18 months or they expire. Investigations for safeguard duties have no time limit, but because of the urgency for protection it is assumed that they must be finalised in less time allowed for anti-dumping investigations.

There are currently three anti-dumping cases and the average time that has elapsed since they were initiated is 115 months.

The average for the 18 rebate applications is 17 months. Decisions on two rebate review applications have not been finalised after two years.

According to MacKay the bulk of the delays lie with Minister of Trade, Industry and Competition Ebrahim Patel or Minister of Finance Enoch Godongwana.

“These delays are enormous and most importantly unnecessary, because the problem could be quickly resolved, since the majority of these cases have been fully investigated by Itac, and simply need to be signed off by the ministers,” says MacKay.

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Moneyweb has requested comment from the Department of Trade, Industry and Competition (dtic) and National Treasury. This article will be updated once responses have been received.

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Possible reasons for delays and solutions

The report identified some potential causes of the delays and made recommendations on how these can be dealt with swiftly.

• The increase in reciprocal agreements between the dtic and the companies applying for tariff amendments. The agreement is in the form of a contract where the company commits to certain targets either in terms of price control or employment commitments. A lot of companies are “balking somewhat” at signing off on these agreements because of the potential liability it may cause when they cannot honour the commitments.

XA Global Trade Advisors recommends: That Itac offers the reciprocal agreement template to anyone who wishes to ask for duty relief.

“Companies need to know what to expect when they get what they are asking for,” says MacKay.

• The role of the Minister of Finance: There are two court decisions confirming that the minister has the final say on the implementation of tariff changes. However, this role does not appear in the International Trade Administration Act or in the tariff regulations.

MacKay’s firm recommends: Amending the regulations to clarify the role of the Minister of Finance. The legislation should reflect the decisions of the court or indicate where the final decision-making on tariff changes rests.

• No expiring period to implement a decision: The time-limit of 18 months on anti-dumping investigations does not apply to tariff investigations. Mackay says there is a “real benefit” to predictability. Some tariff investigations have run for three years – despite the “suggested” four to six months.

Recommendation: An amendment to the regulations that will ensure tariff investigations are terminated after 18 months. “We have been asking this for four years. You can tell from this how well we are being ignored,” says MacKay.

Further recommendation: The dtic minister should issue a trade directive stating that all investigations that are three months overdue should be finalised within three months.

• Private settlements: These private agreements between companies and either Itac or the minister are not published. MacKay believes decisions have been made in a number of the open cases in the report, but because the decision was not published nobody knows the outcome.

Recommendation: These agreements should be published like all other decisions.

“This situation is not good. We need to bring predictability back and not predictability of outcomes, but predictability of the process,” says MacKay.

This article first appeared on Moneyweb and was republished with permission. Read the original article here.