It has not been a good couple of weeks for the government’s protectionist policies, and that is no bad thing. First we had SA’s transport and taxi industries protesting against moves to impose antidumping tariffs on tyre imports that would drive up the cost of transport for people and goods.
Then trade, industry & competition minister Ebrahim Patel was forced to suspend antidumping duties on chicken that were driving up the cost of a foodstuff that is a staple protein for most poor households in SA.
With global fuel and food prices spiking and poor households struggling to survive, it’s certainly time to open up a debate on an expanding group of tariffs that adds significantly to the spiralling cost of living, especially for the poor.
When it comes to import tariffs, there is almost always a trade-off. On the one hand, local producers benefit from the protection, which helps to keep them in business and may help to sustain jobs — a big issue in an economy with SA’s record unemployment rate. On the other hand, however, local consumers end up paying for this protection in the form of higher prices.
And while encouraging local production may be good for domestic investment and economic activity, it also reduces the incentive for domestic producers to be efficient, by protecting them from having to compete on a level playing field with imported goods that may be cheaper and/or better.
It’s a key trade-off in industrial policy, and it’s one that has been brought into stark relief by the global and domestic price pressures of recent months. With poor households struggling to survive, several emerging-market countries have been forced to review tariff policies and to suspend import duties.
Patel and his colleagues in the government are willing to have any sort of rethink is a question, given the huge emphasis that they are placing on localisation as a policy to drive growth. They are trying to get business to commit to replacing imports with locally produced goods. But, tariffs are one way of forcing the issue even if, disturbingly, they tend in SA to protect the large oligopolistic domestic producers who shout loudest.
That is certainly the case in the tyre industry, where four large domestic manufacturers (Continental, Bridgestone, Goodyear and Sumitomo) have applied to the tariff-setting body, the International Trade Administration Commission of SA (ITAC), for antidumping duties to be imposed on imported tyres from China. It has been estimated that such duties could increase the price of tyres 41% for the taxi industry, and could add more than 5% to the already high cost of road freight.
Likewise with the chickens, where a handful of large producers applied successfully for antidumping duties on chicken products imported from countries including Brazil, Spain, Ireland and Denmark, which produce inexpensive frozen chicken cuts.
For now at least, Patel has offered the poor a temporary sop in the form of a Government Gazette notice that suspends the antidumping duties on chicken imports from those countries. But, the suspension is for just a single year, and details are not yet clear. Nor is it clear whether Patel will consider exempting any other staple foods from duties amid steep price pressures.
If Patel does not, he must justify why not. The government and ITAC have raised tariffs on basic foodstuffs sharply since 2013, according to research by economist Neva Makgetla.
By 2020, the average tariffs on these foodstuffs exceeded the average tariff on all goods by over 1%. Poultry and wheat have been particular targets, and by 2020 tariffs ranged from 50% for poultry and sugar to 10% for cooking oil.
This is a problem for inflation and one that adds to the pressure on monetary policymakers to raise interest rates, which in turn hits growth and jobs across the economy.
But, it is even more directly a problem for households at a time when food price inflation has jumped. It is time that politicians revisited those tariff trade-offs with an eye to the interests of consumers and not the oligopolies.
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