COSATU submission on International Trade Administration Bill

Submission to the Trade and Industry Portfolio Committee and Select Committee on Economic Affairs 17 August 2002

Contact the COSATU Parliamentary Office (021) 461 3835

CONTENTS

1 Introduction
2 Summary of COSATU’s proposals on the ITA Bill
3 COSATU’s vision on trade administration and SACU
4 Specific issues on the ITA Bill
4.1 Issues arising out of the draft SACU Agreement
4.2 Development of trade policy and measures
4.3 Fees for the CITA (s24(1)(b))
4.4 Other issues
Introduction
COSATU welcomes the opportunity to comment on the International Trade Administration Bill .
The International Trade Administration (ITA) Bill proposes to
Provide for certain aspects of the implementation of the Southern African Customs Union (SACU) Agreement in the Republic;
Establish a Commission for International Trade Administration; to establish the functions and powers of the Commission and provide for the regulation of its procedures;
Provide within the framework of the SACU Agreement for continued control of import and export of goods and amendment of customs duties, and for related matters.
The Bill emanates from a detailed engagement in NEDLAC in which government provided various versions of the draft Bill and labour made comments. Many of the comments that labour made were incorporated into new versions of the draft Bill, and to that extent we regard the process in NEDLAC as fruitful. We also appreciate the opportunity we were given in July of giving feedback and information to the portfolio committee on our deliberations in NEDLAC as part of the NEDLAC process.
Still, the process posed some problems for labour. Specifically, the NEDLAC process was concluded on an earlier version of the Bill. We have thus not had full opportunity to engage on the Bill as it is before you.
As the submission will show, our major concerns on the ITA Bill arise out of the draft SACU agreement. Our comments on the Bill should in no way be regarded as an endorsement of this draft agreement annexed to the Bill. We strongly urge this committee to hold hearings on the SACU agreement.
This submission will focus on the ITA Bill and will point to areas that are problematic in relation to the draft SACU agreement.

Summary of COSATU’s proposals on the ITA Bill
The ITA Bill aims largely to align South Africa’s trade administration with the draft SACU Agreement. Our proposals for amending the Bill, if accepted, will also require amendments to the draft SACU agreement. It is very important that parliament hold hearings on the draft SACU agreement as soon as possible.
COSATU’s main concern is that the Bill should include explicit aims for trade policy, including net increases in regional employment and investment. Ultimately trade policy and structures must clearly linked to a coherent industrial strategy, and designed to support a broader development strategy. Otherwise, negotiations between states over specific measures can deteriorate into power plays and a race to the bottom. These aims should be included in an amendment to the draft SACU Agreement itself. We spell out our proposals in the next section.
In this context, it is critical that rules of origin be clearly defined and enforced should SACU enter into trade agreements with other countries or amend existing trade arrangements with other countries and/ or trading blocks
Otherwise regional arrangements may undercut South African industries without bringing real and sustainable benefits to neighbouring countries.
Before elements of the ITA Bill are implemented we need to ensure that there are efficient, effective and corrupt free customs administrations in the BLS states and South Africa.
Finally, the development of trade policy for South Africa, which the current Bill leaves entirely up to the Minister, should be made more open, consultative and accountable, in particular through a requirement that
Trade policies be submitted to NEDLAC and Parliament for engagement, and
The Minister report regularly to NEDLAC and Parliament on progress in implementing the policy.
Additional concerns about the administrative systems included in the Bill are raised at the end of this submission.
COSATU’s vision on trade administration and SACU
Trade policy must underpin our broader developmental policy, and especially our industrial strategy. This applies throughout the region as much as it does to South Africa itself.
In this context, it is clear that all regional policies must aim to address the legacy of underdevelopment and inequality left by apartheid.
On the one hand, historically, the South African economy grew at the expense of neighbouring countries. The regional dependency relationship emerges in neighbouring countries’ reliance on exports of raw materials to and imports of manufactures and services from South Africa, combined with a persistent balance-of-trade deficit. It is graphically underscored by the dependence of some of our neighbours on migrant labour to South Africa, which was fostered over decades of colonial and apartheid rule.
On the other hand, aggression by the apartheid regime undermined development throughout Southern Africa. While the costs were highest in Angola and Mozambique, no country in the region was spared.
In the light of these circumstances, it is critical that the draft SACU agreement and the Bill to establish a trade administration for South Africa in line with that agreement set clear developmental objectives for the region.
To achieve these aims, trade policy and measures must be given direction by a coherent development strategy and economic policies. In the absence of this type of strategy, the current proposals for a multilateral trade administrative system could lead to power plays and beggar-thy-neighbour policies.
Efforts simply to liberalise trade within the region present the danger – as government acknowledges – that the region becomes a mere conduit for import of goods manufactured elsewhere. Our manufacturing affiliates regularly find that neighbouring countries import goods from Asia and elsewhere, make minor modifications, and then re-export them to South Africa based on their privileged position in our markets. This strategy does not raise incomes or employment in the rest of the region, but can cause significant job losses in South Africa.
Finally, only a strong customs and excise administration for the region can manage and regulate the flow of goods. Members of the portfolio committee will be aware of the damage that has been done to South African industry by problems within our own customs administration, including the fact that customs in South Africa is under-resourced. The problems may be even worse in neighbouring countries. Before the ITA Act become fully operational clear standards for customs administration improvement should be set. In this context, an urgent study should be conducted on regional customs capacity and what needs to be undertaken to strengthen it.
Specific issues on the ITA Bill
Issues arising out of the draft SACU Agreement
The draft SACU Agreement is appended to the ITA Bill. It raises the following questions.
Guidelines for South African mandates and positions within SACU structures
The ITA Bill provides that the Commission for International Trade Administration (CITA) – the body that will replace the Board on Tariffs and Trade (BTT) – must, when evaluating any matter, apply rules of analysis established by the SACU Council of Ministers. The Council of Ministers will, amongst other matters, have the responsibility to issue policy mandates, procedures and guidelines (see ITA Bill s30(4)). These policy mandates and other decisions agreed upon in the Council of Ministers must, in terms of the Bill, be made on a consensus basis.
Labour has two concerns in this regard.
First, the ITA Bill must establish procedures to ensure that South African mandates and positions in the SACU structures are derived through a process of engagement with the social partners in NEDLAC, and based on an adequate understanding of the impact of proposed measures on the region and South Africa.
Second, the ITA Bill must establish guidelines to ensure that South African positions on regional trade issues and measures are directed by developmental concerns. In particular, it must ensure that our positions are based on an assessment of the implications for the key developmental variables of employment, investment and poverty. The Bill should specify the following objectives:
Increasing net employment creation and labour income in the region as a whole. In that context, as far as possible, existing formal jobs should be protected. We must ensure that new trade measures expand employment overall; it will not help to destroy jobs in one area of the region in order to create fewer or worse-paid jobs in another.
Increasing net investment in the region as a whole. The same considerations apply here as for employment.
Completing value matrices at the regional level. Gaps in value matrices appear in the continued export of raw materials in order to pay for imports of goods and services. They result in the external dependency for the region as a whole, which increases the risks arising out of shifts in volatile global markets, as the recent depreciation of the rand demonstrated. Moreover, they mean that the region does not capture the potential employment benefits of investment in raw materials production, especially mining.
Growth and development in the poorest areas of the region. Trade measures must support infrastructure and economic strategies to achieve this aim (together with the aims identified above and below).
Improved overall income distribution in the region (based on assessment of the costs and benefits for the poor relative to the rich), and in particular an increase in absolute and relative terms in the income of the poorest 40% of households.
Ensuring efficient and effective decision making (s30(3))
The Bill provides that any customs duty application (including anti-dumping duties, countervailing duties, and safeguard duties) must be submitted to the SACU Tariff Board, which in turn will refer its recommendations to the SACU Council of Ministers for final decision. But the Bill and SACU agreement need to do more to ensure that SACU structures – which will be required to process decisions emanating from the CITA – function efficiently and effectively.
This could give rise to the following problems.
First, the process could impose long delays. Yet enterprises sometimes need urgent anti-dumping or countervailing duties to survive. The ITA Bill effectively acknowledges this problem by permitting, in s30(5)(a), that the CITA can approach the South African Revenue Services (SARS) to impose "provisional payments" relating to dumping and countervailing duties before going through the various structures of the SACU for a final decision.
WTO rules permit preliminary decisions for only 6 months. After that a final decision must be reached based on appropriate evidence. The risk is that the SACU structures would be unable to reach a final decision within 6 months and the preliminary ruling would fall away by default. This could have devastating implications for employment, as well as adding to the uncertainties facing enterprises.
COSATU therefore proposes that the SACU Agreement be strengthened through an amendment protocol to ensure that structures meet the timeframes set by the WTO; and which are necessary to protect local enterprises/industries.
Second, as noted above, neither the SACU Agreement nor the Bill set adequate aims for trade measures. As a result, negotiations over specific measures could fall back purely on power and trade offs, to the detriment of overall development in the region.
For this reason, Labour proposes that the Agreement and the Bill be amended to ensure that trade measures must be assessed in terms of their impact on key developmental variables and strategies. The relevant objectives for trade policy are listed in above. In addition, the Agreement must lay down clear requirements and enforcement mechanisms on rules of origin should SACU enter into trade agreements with other countries or amend existing trade arrangements with other countries and/ or trading blocks.
The efficacy of SACU trade measures will depend on the ability of each of the five SACU members to police the borders of the region. Should any one of the SACU states have an inefficient customs administration, trade measures will become ineffective.
The draft SACU agreement does establish a Customs Technical Liaison Committee, but does not sufficiently define its powers, responsibilities and resourcing. Moreover, the agreement provides for transitional mechanisms which could see the establishment of regional customs before the existing structures are sufficiently improved.
Before the draft SACU Agreement is ratified, an amendment protocol should provide :
All member states must have the infrastructure needed to ensure an efficient and effective customs administration, before the SACU agreement kicks in. The customs pool formula should specify a minimum percentage of country receipts that must be spent on customs administration.
If a member state finds that another member’s customs administration is problematic, it should be able to insist on an immediate and efficient response. Failing this, the offending member should face financial penalties or even suspension.
SARS currently expects to negotiate a "Memorandum of Co-operation" with neighbouring customs administrations. These Memorandums should form part of the SACU agreement.

Development of trade policy and measures
The current version of the Bill states, in s5, that the "Minister [is] to determine trade policy," but it does not state where and how this policy will be determined.
COSATU is particularly concerned because
There is currently no explicit policy on trade, which makes it difficult to assess specific measures and can lead to contradictory actions, and
Government appears to negotiate trade agreements and measures without any research into the impact on the economy or individual industries. The Integrated Manufacturing Strategy proposes to end this practice, and the ITA Bill should support this intent.
The ITA Bill should therefore require:
Consultation at NEDLAC over trade policy as well as specific trade measures
Trade policy and measures should be assessed systematically against the regional developmental objectives laid out above
In addition, as soon as possible government should develop and consult on a White Paper on Trade Policy.
Fees for the CITA (s24(1)(b))
The Bill refers to "fees payable" to the CITA. It is unclear what fees are under consideration.
It must be made clear that the fees may not be set at a level that stops enterprises from making applications where jobs are at stake. Many companies and industries faced with dumping or unfair competition are already under severe financial pressure, and have generally suffered or are contemplating job losses. Any system of fees must not add to their difficulties.
The Bill should thus ensure that, where an application has significant implications for employment or investment, and the company can prove that it is unable to afford the fees, it should be exempted from fees. The CITA would then have to work out appropriate criteria for charging fees, and assessing applications for exemption.
Other issues
The Minister and Trade Policy (s4(8) & s5)
s5 : the Minister is given the optional right to issue Trade Policy Statements or Directives through a Notice in the Gazette.
In the interests of transparency, trade policy statements or directives should always be published as soon as they have been finalised.
s4(8) : the Minister is given the optional right to publish any policy mandate, procedure or guideline formulated by the SACU Council of Ministers in the Gazette.
Again, in the interests of transparency, policy mandates, procedures and guidelines should be made public as soon as they have been finalised by the Council of Ministers.
Missing Section (s6(3))
The version of the Bill discussed at NEDLAC had a missing section - s6(3).
In previous versions, this section stipulated that on the advice of the CITA, the Minister would have the right to withdraw or amend a notice issued that prescribes what goods can be imported or exported from South Africa.
This element is essential and should be reinstated in the current Bill.
Quorum for the Commission (s12(3))
The Bill provides that a majority of the members of Commission present at a meeting should constitute a quorum.
The problem is that this doesn’t take into account that there are two kinds of commissioners – full time members who are government officials and part time members who represent stakeholder. To ensure adequate representation of stakeholders, a quorum should require that at least half of the members of the CITA who are present must be part-time members.
Independent Policy Consideration (s18)
The Bill provides that the CITA may monitor, review and report to the Minister in respect of any matter referred to it by the Minister that affects trade and industry.
The BTT Act went further, by providing that the that the BTT could "of its own accord investigate the development of industries in the Republic." (BTT Act s4(a)(ii)).
The CITA should retain this power to investigate matters and make recommendations to the Minister of its own accord, and not only at the invitation of the Minister.
Cancel or Suspend Permits (s28)
The Bill states that the CITA may suspend or cancel a permit issued in terms of the Act.
The CITA should also be given the right to amend a permit.

General
In addition to the above we would suggest that :
The DTI should be required to bring before NEDLAC and Parliament all proposed amendments to the SACU agreement
the DTI to bring to NEDLAC and Parliament all regulations associated with the ITA Act.
The Chairperson be nominated by the Minister – not appointed by the CITA CEO.






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