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17 October 2008

Programme director
Mr Siyabulela Tsengiwe, Chief Commissioner and other ITAC Commissioners
Honoured guests
Ladies and gentlemen

It is a pleasure to be able to say a few words on the occasion of the fifth anniversary of the International Trade and Administration Commission (ITAC).

ITAC's structure and mandate are defined in the International Trade Administration Act of 2002. ITAC exists as an independent body, subject to the constitution and the law, and to any trade policy directive issued by the Minister of Trade and Industry. Its role is to deal with applications for alterations in tariffs and the application of trade remedies. It conducts investigations on receipt of applications, and makes recommendations on proposed tariff changes or the application of trade remedies to the Minister of Trade and Industry and to the Minister of Finance.

ITAC is similar in its basic conception and modus operandi to tariff setting bodies existing in a number of other jurisdictions, both in the developed and developing world. The basic conception and structure of ITAC, I want to argue tonight, is something which we need to preserve and defend against a number of implicit, and sometimes explicit suggestions, that we move to ultra simplistic tariff structures, that would imply dispensing with the role of a body like ITAC.

Programme director, ladies and gentlemen, in his recently published book entitled, "How rich countries got rich and why poor countries stay poor", Norwegian Professor, Erik Reinert, demonstrates that all countries that have succeeded in breaking out of poverty and underdevelopment beginning with Venice in the middle ages, through Britain in the 18th and 19th century, to the Asian newly industrialising economies, and to China and India today all of them without exception have done so by nurturing a cluster of industrial activities characterised by increased, rather than diminishing, returns.

This nurturing has involved the identification and targeting of appropriate value adding activities, the deployment of public and private resources to support innovation, entrepreneurship, and infrastructure development as well as the judicious use of tariffs and other forms of protection. The judicious use of tariffs does not mean protection which allows permanent rent-seeking by inefficient industries, but it does mean creating the space and time to allow such industries to develop, and/or to restructure themselves in the face of global competition.

Although we live in an era of freer trade than at any time since the Second World War, we do not live in an environment characterised either by literal free trade or by anything which we could describe as fair trade. Industries and sectors which rich countries have either identified as areas where they can progress, or else as areas that are vulnerable to competition from others, are subject to nurturing or protection, not just through financial support and tariffs, but also increasingly through a range of technical barriers to trade.

In such an environment, we need an intelligent and strategic approach to tariff policy. This must set out from a clear understanding of our own domestic reality and developmental needs, and must also recognise that the world of international trade negotiations is driven by hard bargaining, between often competing commercial interest.

The National Industrial Policy Framework states, and I quote, "our fundamental approach is that tariff policy should be decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies". The resolution of the 52nd national conference of the ruling party in Polokwane stated, and I quote, "in general, industrial policy should lead our overall approach to sectoral development, whilst trade policy should play a supporting role and be sensitive to employment outcomes".

Those two mandates would suggest that sector level strategies sensitive to employment and developmental outcomes must continue to be decisive in shaping our approach to tariff policy. But we must also take into account the trajectory of industrial development under colonialism and apartheid and what this implies in terms of our existing industrial structure and what this means for current policy priorities.

During the era of colonialism and apartheid, the then governments identified strategic industrial priorities, such as iron and steel production and oil from coal, which were generally relatively capital intensive upstream industrial activities. These priority sectors were accorded tariff protection, as well as receiving other forms of support and nurturing.

The industrial policy priorities of the present differ quite significantly from those from the apartheid past. Our current industrial policy action plan has identified a number of priority sectors, both in manufacturing and high quality services. These include capital goods and transport equipment industries linked to infrastructure development programmes, motor vehicles and component manufacturing, chemical sectors focusing on polypropylene plastics, as well as pharmaceutical products, and timber and furniture making industries. These are in addition to the existing Accelerated and Shared Growth Initiative of South Africa (AsgiSA) priority sectors of business process outsourcing, biofuels and tourism.

A feature of our current industrial policy priorities is that we have chosen to focus not on upstream capital intensive projects, but on downstream more labour intensive, and therefore employment creating activities.

What all of this means, is that there is no a priori approach to tariff policy that we can describe in some simplistic way. We have neither a high, nor a low tariff policy per se. The major initiatives in terms of tariff policy arising from industrial policy thus far, have been to lower tariffs from formerly protected upstream, capital intensive industries, producing inputs that are important cost items for downstream industries, that we want to encourage and to nurture.

We have thus removed the moderate tariff protection that was until recently accorded to steel products, in a context where we are extremely worried about the continued pricing policies of highly concentrated domestic steel industries. Similar investigations are currently underway in respect of other products of capital intensive upstream industries that produce products that are important inputs and cost items for downstream manufacturing industries.

We must not hesitate if the evidence leads us to this conclusion to reduce or even remove duties where this will be of benefit to the industries and sectors we want to promote. At the same time, where processes of self-discovery and development of sector strategies lead to the conclusion that some particular industry or sector needs tariff protection for a period of time, we must have the courage of our convictions and be willing to provide that support, provided that it is backed up by a sector strategy and by evidence.

Of course we know we operate in a context of a global trend towards sharply reduced tariffs generally, although we need to have our eyes open to the reality that global tariff reduction has been a highly uneven and unequal process. As a result we have obligations arising from multi-lateral as well as bi-lateral trade agreements. We are also involved in ongoing multi-lateral and bi-lateral trade negotiations.

We must act strategically in those negotiations to defend the policy space we need to promote industrial development. It would also be prudent for us to recognise where we identify tariff reductions that may be warranted from our own point of view that having a war chest of possible offers we can make in multi-lateral or bi-lateral negotiations is an asset which we can use to secure market access in other countries markets. Whether then we make unilateral tariff reductions or use potential tariff reductions as bargaining chips for trade negotiations is a matter that needs careful consideration. Beyond this and because of the uneven, unequal and frankly mercantilist nature of global trade we need to retain a capacity and a will to utilise trade remedies available to us under World Trade Organisation (WTO) rules to defend local producers against unfair trade practices.

It is for all of these reasons that I am strongly of the view that we need to preserve the basic architecture of ITAC as an independent commission capable of conducting sector level and even company level investigations and producing recommendations on tariffs and trade remedies based on evidence rather than on a priori assumptions.

There may well, of course, be good arguments for an overall tariff simplification involving a reduction in the number of tariff bands. There may, therefore, be a need from time to time to undertake broader investigations into the overall structure of the tariff book that may very well identify a number of tariffs that may have been there for many years, but which may no longer be justified. But we need to be very wary, in my view, of proposals for ultra radical tariff reform and simplification, which would implicitly amount to abandoning the methodology which is embedded in ITAC.

We are being bombarded with a number of suggestions that we should move to simple two or three band tariff structures. Some of these are made by analysts and think tanks looking directly at the South African tariff structure. Others have emerged as part of proposals to move quickly into a Southern African development Community (SADC) customs union.

Generally these type proposals have in mind some attempt to lock us in to some ideal type low tariff model, and/or set out from a view that sees tariff policy being shaped primarily by revenue generating, rather than industrial development considerations. Whatever their specific origin, such proposals would imply establishing broad, one size fits all, bands and tariff setting processes that do not require much, if any, sector level analysis and investigation.

I have argued and I want to restate, that for us, tariff policy is fundamentally an instrument of industrial development, and needs to continue to be informed by sector level industrial strategies. We need therefore to continue to have in place a body like the International Trade and Administration Commission, that is able to conduct investigations and to make evidence based recommendations, based on the realities of particular industry sectors and even sub-sectors.

ITAC faces another major challenge to which I want to briefly refer in closing. Since 2002, we have been operating under the renegotiated Southern African Customs Union Agreement. Unlike the way the Southern African Customs Union previously operated, where the tariffs set and enforced in South Africa were simply extended to the other territories, the new Southern African Customs Union Agreement requires that we move incrementally toward collective tariff setting across the Southern African Customs Union.

Bodies similar to ITAC, are supposed to be created in Botswana, Lesotho, Namibia and Swaziland (BLNS), and these national bodies, once established, will then make recommendations to a joint South African Customs Union (SACU) tariff board, which will have the ultimate authority in setting tariffs. This transition will pose major challenges for us in South Africa. To be frank, historically the major interest of the non South African members of SACU has been in the revenue pool. The BLNS countries have not historically had any stake in industrial development in South Africa, except insofar as it has generated revenue to be shared through the revenue sharing arrangements.

Those countries have therefore had a tendency to look to any tariff changes with an eye for what this means for the revenue pool and their shares of it. At a recent retreat of SACU Trade and Finance Ministers, held in Kasane, Botswana, we began to talk about beginning to develop at least some elements of a common SACU wide industrial development programme.

This would probably need to begin by identifying potential linkages between industrial activities located in South Africa, and upstream or downstream projects that could be located in BLNS countries. Unless we begin to develop at least some elements of a common understanding about the direction of SACU wide regional industrialization, we will not be in a position to develop the kinds of understandings that will need to inform a smooth tariff setting and trade remedy deployment mechanism, operating through joint decision making bodies involving all SACU member states.

ITAC has undertaken important training and capacity building work towards the development of the appropriate institutional structure in other SACU countries. But we need to go much further and to explore systematically and dispassionately what further steps we need to take to ensure a smooth transition to an efficient joint process on decision making on these important matters.

With these few words, I want to congratulate ITAC for its very significant achievements over the past five years. The quality of its submissions is always very high. The work is done diligently and professionally. It is therefore a pleasure to be part of celebrating ITAC’s achievements over the past five years. I want to wish ITAC and its leadership every success as they move forward and confront the challenges that lie ahead.

I thank you very much for your attention.

Issued by: Department of Trade and Industry
17 October 2008
Source: Department of Trade and Industry (http://www.dti.gov.za)