Speaking on Tuesday, 6 November, Trade and Industry Minister Mandisi Mpahlwa said apart from allowing firms which use steel in their products to become more competitive, the abolition of the tariffs on imported carbon- and stainless steel will also promote competition among upstream steel industries.
The move to abolish tariffs on steel imports comes after widespread complaints of high prices for South African-sourced steel, and concerns that downstream industries would continue to suffer, as the high costs of steel in turn render their products less competitive.
Announcing the move at a briefing on progress made by government's economic cluster, Mpahlwa said that a review of “intermediate” tariffs in the paper and pulp, the chemicals and the aluminium sectors has also begun.
But the Trade and Industry minister said he was not considering a blanket removal of all tariffs, amid a contemporary debate as to whether the removal of tariffs can make local firms more competitive by subjecting them to the pressure of cheaper imports.
The issue of tariff removals also involves trade negotiations in the World Trade Organisation, with Deputy Minister of Trade and Industry Rob Davies last week saying in parliament that countries like South Africa needed to see if tariff policy could be debated without necessarily locating the debate entirely within the context of WTO negotiations, which have in any case served to add far greater salience to individual countries' approaches to the issue.
And delivering the Medium Term Budget Policy Statement last week, Finance Minister Trevor Manuel called for the “simplification and reform” of tariffs. “Our approach,” said Manuel, “needs to ensure that competition is fostered through tariff simplification and reform.”
And in the 2007 Medium Term Budget Policy Statement released on 30 October, the National Treasury asserted that economic research had stressed the long-term importance of developing a diversified, export-oriented manufacturing base.
“This,” says Treasury, “requires competitive input costs, markets that are open to foreign competition to create innovation incentives, and addressing market failures where they occur.”
Leaning towards the tariff abolition argument, Treasury argues that incentives that result “in higher levels of productivity, innovation and reduced unit costs will be favoured, with the aim of encouraging businesses to boost exports in highly competitive global markets.”
“Some net economic gains could be achieved through further tariff reduction and simplification that promotes innovation in production and market strategy,” says Treasury.
It also pointed out that while tariffs had remained high enough in the clothing and textiles sector to maintain producer profitability, little new investment has been seen in this sector and employment levels here have not increased.
Speaking to reporters on Tuesday, Mpahlwa said it was part of national industrial policy to review tariffs in certain sectors, especially where these would reduce the input costs of budding downstream industries.
However, he insisted that a blanket ban on tariffs that would reduce tariffs to zero across the board was not being considered, describing tariffs as “an important instrument” of industrial policy.
“The argument that South Africa must reduce tariffs to boost productivity must be taken with a degree of caution,” Mpahlwa said on Tuesday, adding that “there is no ideal tariff structure”.
Mpahlwa said the Department of Trade and Industry and the National Treasury each had “a perspective” on the question of tariffs reform or otherwise.
Much of Tuesday's briefing on the programme of action of the economic cluster centred around the sometimes theoretical question of tariffs, with Mpahlwa arguing that “no credible study” could ascribe the presence of what few tariffs remain as “the sole reason for South Africa's competitiveness or lack thereof”.
“That would be a failure to understand the realities of manufacturing in South Africa,” he added.
The reasons for manufacturing in South Africa not having reached its full potential include “the major issues” of infrastructure and logistics, where major upgrades are currently under way.
Other key impediments are located within “internally generated factors” such as monopoly pricing for industrial inputs – as has been largely the case with steel – as well as the competition environment.
Another key element is the “competition environment”, where competition has not always been optimal in an environment where certain players dominate their markets.
Government is currently addressing this as well through introducing amendments to the legislation on competition.
“In the South African context, competitiveness is about all of these things,” and not simply so-called tariff barriers, the trade minister said.
Rolling off a number of figures, Mpahlwa said that “your average tariff has actually come down to about 8.2%, from about 23%, and that about 54% of those tariffs are at zero currently”.
Pointing also to the “phase down” of tariffs as part of a trade agreement between South Africa and the European Union agreement, 86% of imports from the EU would be at zero tariff levels by 2012.
“We are on a gradual phase down already,” he said, adding that 94% of South Africa's exports to the EU would have zero tariffs by then.
The director-general of the dti, Tshediso Matona, later indicated that the opening up of South Africa's economy to the European Union through gradual tariff reduction has had the long-term effect of strengthening the competitiveness of South Africa's economy in the face of pressure from other parts of the world, such as Asia.
At the same time, said Mpahlwa said, the dti's industrial policy works to ensure that the competitiveness of South African firms in the various economic sectors is enhanced by addressing fundamental issues such as industrial upgrading, rather than focusing purely on factors such as tariffs, or a fluctuating exchange rate.
Matona indicated that the skills base is another key, fundamental area where major improvements need to be made.
The skills shortage was also taken up by the Finance Minister in his Medium Term Budget Policy speech last week, when he said last week that “the area of skills development is clearly one in which we will make more progress if we address the institutional and financial barriers that stand in the way of aligning resources with needs”.
But when it comes to the removal or inclusion of tariffs, the department is taking “a more calibrated approach” that is informed by “the sectoral realities” of the economy, Mpahlwa said.
And on the broader issue of industrial policy, the Treasury also advocates a balanced approach. Says Treasury in the Medium Term Budget Policy Statement: “Getting the balance of objectives right in industrial support programmes, and amending them when needed to increase efficiency and address flaws, is an important focus of current policy reviews.”
It is such a balance that the trade minister was advocating on Tuesday.
“Our own stance is not a stance of protectionism – it is simply a more nuanced approach ... that sees a role for addressing the matters of tariffs in relation to the different sectors, and you will not have a blanket approach that applies equally to all sectors,” Mpahlwa said.
Article published courtesy of BuaNews
