The Reform of South Africa S Anti-Dumping Regime

The Reform of South Africa’s Anti-Dumping Regime

Niel Joubert*

*Researcher, Trade and Law Centre of Southern Africa (Tralac).

This case study examines the development and reform of South Africa’s anti-dumping regime as an example of a country’s participation in the WTO. The long history of the use of trade remedies by South Africa illustrates the fact that developing countries can successfully participate in the global trading system. By using the WTO’s Anti-dumping Agreement (ADA) as a model for its own anti-dumping system, South Africa also serves as an example of how a country can make use of WTO instruments to ensure that its domestic legislation is complying with its international obligations.
The first section takes a brief look at the history of the use of trade remedies in South Africa, international developments on anti-dumping rules and the various legislative changes South Africa has undertaken in the past century that have helped shape its current anti-dumping system. It examines the factors that necessitated the reform of the South African anti-dumping regime, and briefly discusses the impact of the change in regional dynamics on the anti-dumping process in South Africa.
Section 2 gives an overview of the government, business and civil society players involved in the process of reforming the South African anti-dumping system. It also briefly touches on the roles of the various parties responsible for the administration of the system in the pre-apartheid and post-apartheid periods.
Section 3 identifies the challenges faced by these different players in the process of reforming the existing anti-dumping regime. Special attention is given to the impact of regional developments on the progress of South Africa’s reform. It evaluates the suitability of the new regime that is currently being put into place and the rationale behind the design of the new system to administer anti-dumping duties. Finally, it takes a look at whether the interests and concerns of various stakeholders were adequately addressed in the new system.
Section 4 concludes the study by reflecting on the process South Africa has been through and identifying the experience that can be transferred to other countries. This section argues that proper consultations between government and the various national stakeholders are important for effective policy-making.
I. The problem in contextbacktotop
The history of the use of trade remedies in South Africa
South Africa is one of the earliest users of trade remedies in the world. The first references to such remedies as anti-dumping actions, subsidies and countervailing actions can be found in section 8 of the Customs Tariff Act of 1914.(1) These remedies were administered by the then Customs Department, which later became the South African Revenue Service (SARS).(2)
The responsibility for dealing with anti-dumping remedies was taken over by the Board on Trade and Industries (BTI) in September 1923. South Africa was a very early and prolific user of anti-dumping measures; in the period between 1921 and 1947 more than 90 anti-dumping and countervailing investigations were undertaken, while another 818 investigations were undertaken between 1948 and October 2001.(3) The exact number of anti-dumping investigations cannot be ascertained, as prior to 1992 no distinction was made between anti-dumping and countervailing investigations. The first anti-dumping investigation considered the imposition of anti-dumping duties on cement.
At the time of the negotiation of the International Trade Organization (ITO) and the General Agreement on Tariffs and Trade (GATT) in the 1940s, anti-dumping as a trade remedy was a well-known and accepted practice, and was included in the GATT of 1947 as Article VI:
The Contracting Parties recognize that dumping, by which the products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens to cause material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry.
As Article VI only included some basic rules for the determination and imposition of anti-dumping duties, contracting parties to the GATT agreed to its review. This led to agreement on the Anti-dumping Code (to which South Africa was not a signatory) in the Kennedy Round of multilateral trade negotiations that ran from 1963 to 1967, which in turn was replaced by the Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade (Anti-dumping Agreement) in the Tokyo Round ending in 1979.
In 1977 the BTI recommended in its annual report that all anti-dumping duties in place in South Africa should be withdrawn as of 1 January 1978. They argued that these measures had been in place for such a long time that their removal would not pose any threat to South African industries, and that any disruptive competition could be addressed through the use of formula duties.(4) In the five years leading up to the recommendation the board had only twice approved the imposition of anti-dumping duties. The decrease in the use of anti-dumping measures during the 1970s and 1980s is explained by the fact that South African producers were protected by very high tariff barriers.(5) Trade sanctions imposed on South Africa because of its apartheid policies also encouraged the government to provide protection to industries it considered to be of ‘strategic’ importance.(6) Import surcharges, among other things, were used for this purpose and diminished the need for anti-dumping measures.
This situation led to the decision by South Africa’s then Minister of Trade and Industry to remove all existing anti-dumping duties as of 1 January 1978, as he considered that the high tariffs in place at the time provided sufficient protection for domestic companies.(7) All incidents of disruptive competition after 1978 were therefore treated as tariff cases. Whenever the prices of certain imports would drop below a specific point, a formula duty would apply which effectively would increase to a pre-determined level the price of the imported goods.(8)
The Board on Tariffs and Trade Act replaced the BTI with the Board on Tariffs and Trade (BTT) in September 1986.(9) In 1992 a Directorate of Dumping Investigations was established within the Department of Trade and Industry (DTI) to assist the BTT by conducting anti-dumping and countervailing investigations on its behalf.(10) The BTT published a ‘Guide to the Policy and Procedure with regard to Action against Unfair International Trade Practices: Dumping, Subsidies and other forms of Disruptive Competition’ in 1992. This was followed by a second guide in 1995 entitled ‘Guide to the Policy and Procedure with Regard to Action against Unfair International Trade Practices: Dumping and Subsidized Export’. The latter guide was, however, withdrawn from the South African Customs Union (SACU) in 1996.(11)
South Africa’s increasing use of anti-dumping measuresbacktotop
South Africa returned to the global community in the early 1990s after facing decades of trade sanctions. Its transformation to a democracy led to the removal of these sanctions. It started opening its economy to become more competitive and to integrate into the world economy. South Africa actively participated in the Uruguay Round of trade negotiations and was a founding member of the WTO.
South Africa embarked on a process of rapid liberalization by introducing tariff offers aligned with those of developed countries. This left domestic firms facing increased competition from both fair and unfair international trade. South Africa’s average most favoured nation (MFN) tariff rates for all goods fell from over 14% in 1996 to 8% in 2001; the MFN rates for industrial goods also fell by 50% and 55% for textiles and clothing respectively over the same period. The weighted average MFN tariff rate came down from a level of 8.6% in 1996 to 5% in 2001.(12)
With tariff protection falling away, trade remedies such as anti-dumping and countervailing measures became increasingly important for domestic producers, to protect them from the rise in imports. This led to a sharp increase in South Africa’s application of trade remedies, in particular anti-dumping measures. South Africa reported initiating 157 anti-dumping investigations and applying 106 anti-dumping measures between 1 January 1995 and 30 June 2002.(13) This makes it the fifth-largest user of anti-dumping actions (after the United States, the European Union (EU), India and Argentina).(14)
South Africa’s obligations under the WTObacktotop
By joining the WTO South Africa became a party to all WTO agreements, including the Agreement on Implementation of Article VI of GATT 1994 (the Anti-dumping Agreement). Article VI of GATT 1994 provides for the right of contracting parties to apply anti-dumping measures, that is measures against imports of a product at an export price below its ‘normal value’ (usually the price of the product in the domestic market of the exporting country) if such dumped imports cause injury to a domestic industry in the territory of the importing country. Even though all the WTO agreements were ratified by the South African Parliament, they do not form part of South African public law, as they were never promulgated. The South African Constitution, however, explicitly states that international agreements should be used as reference and guidelines in the interpretation of domestic laws.(15)
Article 1 of the ADA requires that members will only apply anti-dumping measures under the circumstances provided for in Article VI of GATT 1994 and only after investigations which have been initiated and conducted in accordance with the provisions of the Agreement. The ADA provides detailed rules in relation to the method of determining whether a product is dumped; the criteria to be taken into account in a determination that dumped imports cause injury to a domestic industry; the procedures to be followed in initiating and conducting anti-dumping investigations; and the implementation and duration of anti-dumping measures. Where a member country institutes measures that are not in accordance with the WTO rules, these measures are subject to dispute resolution in the WTO.
Article 16 of the ADA establishes the Committee on Anti-dumping Practices (CADP). It requires members to notify the Committee immediately of all preliminary and final actions taken in anti-dumping investigations and to submit semi-annual reports of any anti-dumping actions taken in the previous six months.(16) Article 18(4) furthermore requires WTO members to bring their laws, regulations and administrative procedures into conformity with the ADA by the date of entry into force of the Agreement.(17) Under Article 18.5, members are also required to notify the CADP of any changes in their anti-dumping laws and regulations and in the administration of these laws and regulations.
Already in 1994 South Africa’s National Economic Forum (NEF) — a tripartite body consisting of representatives from business, government and labour — stressed the need for national legislation on anti-dumping and countervailing measures and the need to establish an anti-dumping authority.(18)
The Board Amendment Act of 1995 made small amendments to South African legislation in an effort to bring the country’s anti-dumping regime more in line with the ADA.(19) The definition of dumping was changed to correspond with the definition of dumping in the ADA, and certain new concepts such as ‘normal value’ were introduced. It still, however, did not provide for any procedural framework or regulations for the conducting of anti-dumping investigations. As mentioned earlier, the BTT did publish a guide on anti-dumping procedures in 1995, but it was withdrawn in 1996.(20)
With the growing use of anti-dumping measures, South Africa started experiencing increased pressure from other WTO members to bring its legislation and the administration of these measures in line with the ADA. In April 1996 South Africa announced in the WTO Committee on Anti-dumping Practices that it intended to amend its legislation on anti-dumping to ensure its compliance with the relevant WTO agreements.(21)
The South African Ministry of Trade and Industry subsequently instructed the BTT to investigate the restructuring of the South African anti-dumping regime. Small amendments were made to existing legislation in 1997 to give the minister the power to make regulations on trade remedies and to provide for the application of provisional safeguard measures.(22)
Professor Colin McCarthy, acting head of the International Trade Administration Commission (ITAC), highlighted the fact that South Africa had always done its best to act in strict conformity with the WTO rules in conducting anti-dumping investigations; the requirements of Article VI of GATT and the ADA, especially the notice requirements, have always been strictly adhered to.(23) Although this might have been the case in practice, South Africa’s existing legislation did not fully reflect South Africa’s obligations under GATT 1994 and the WTO. The Department of Trade and Industry’s invitation for comments on South Africa’s draft anti-dumping regulations stressed the fact that proper legislation and regulations were required to inform all stakeholders of the substance and the procedures involved in anti-dumping investigations.(24)
The restructuring of the anti-dumping regime finally became a reality with publication of the International Trade Administration (ITA) Act on 22 January 2003, creating a new body, the International Trade Administration Committee (ITAC), for the administration of trade remedies within South Africa. This was followed by the promulgation of detailed anti-dumping regulations in November 2003 to guide ITAC in conducting its anti-dumping investigations.
Changes in regional dynamicsbacktotop
South Africa concluded in 1999 a free trade agreement — the Trade, Development and Co-operation Agreement (TDCA) — with the EU that provisionally entered into force on 1 January 2000. It also entered into a free trade agreement with eleven members of the Southern African Development Community (SADC) on 1 September 2000 by becoming a member of the SADC Trade Protocol. These free trade agreements provide preferential access to the South African market for all EU and SADC member states, and bring with them increased competition for domestic producers. Both these agreements contain provisions on anti-dumping, countervailing and safeguard measures.
South Africa is a member of SACU together with Botswana, Lesotho, Namibia and Swaziland (BLNS countries). These countries signed a new SACU Agreement in 2002 that entered into force on 15 July 2004. Negotiations for this agreement were officially launched soon after South Africa elected its first democratic government in 1994. The aim was to democratize SACU and to create institutions that would enable the BLNS countries to participate more fully in the decision-making processes in the customs union.
The new SACU Agreement has important implications for the anti-dumping regime within the customs union. It changed the way in which tariff decisions, including anti-dumping tariffs, are made, and it also requires member states to develop legislation on contingency trade remedies such as anti-dumping for the region, and to establish national bodies to administer these remedies within the different countries.
As mentioned above, South Africa enacted the ITA Act in January 2003.(25) Its aim is to provide an institutional basis for the conduct of trade policy and the application of customs tariffs in line with South Africa’s obligations under international agreements, that is agreements under the WTO, the Southern African Development Community (SADC) and SACU. We take a more detailed look below at the implications of this change in the administration of international trade affairs in South Africa.
II. The local and external players and their rolesbacktotop
Anti-dumping in South Africa under the 1996 SACU Agreement
Under the 1996 SACU Agreement, South Africa was solely responsible for the setting of customs duties, as well as any anti-dumping, countervailing and safeguard measures for the customs union. As members of the customs union BLNS countries were obliged to apply these measures, although they were not always beneficial to the BLNS countries since the relevant items were mostly not produced by their domestic industries.
As the body in South Africa responsible for the determination of customs duties and the administration of anti-dumping measures,(26) the BTT initiated anti-dumping investigations at the request of a domestic industry within SACU. Importers, exporters and foreign producers would then be provided with an opportunity to submit information for consideration in any such investigation. After conducting the investigation the BTT would make a recommendation to the South African Minister of Trade and Industry, and that ministry would then request the Ministry of Finance to impose anti-dumping duties. In 1992 a Directorate for Dumping Investigations was established within the Department of Trade and Industry to assist the BTT by conducting anti-dumping and countervailing investigations on its behalf. As the board never had a set of published regulations to work from, it made use of its enabling legislation — Article VI of GATT and the ADA — to conduct its investigations.