Tag / World Trade Organization

by Mike Poverello

X-Ray Scanners – WTO panel rules on EU-China dumping row

Nuctech Fast Scan Vehicle and Container inspection system

Nuctech Fast Scan Vehicle and Container inspection system

Part of the problem here is that the Chinese have a significant market share in this type of equipment. In a short period of 10 years they have outstripped some of the more fancied American and European players in this business. While the dispute in question raises ‘ethical’ questions of the Chinese, it does seem to be a matter of sour grapes.

China’s anti-dumping duties on imports of x-ray security scanners from the EU violated global trade rules, according to a WTO panel ruling that was issued yesterday. [WTO Dispute Settlement, DS425]

Brussels brought the dispute in July 2011 after Beijing imposed duties ranging from 33.5 to 71.8 percent on the x-ray scanners. (See Bridges Weekly, 25 January 2012) The EU exports approximately €70 million of these scanners to China annually.

China imposed the duties after the EU had applied anti-dumping duties on Chinese cargo scanners one year earlier, which some viewed at the time as a “tit-for-tat” move.

The panel report primarily focused on procedural issues in Beijing’s investigation, specifically regarding how China calculated the anti-dumping margin, loosely defined as the difference between the price – or cost – in the foreign market and the price in the importing domestic market.

Beijing included more expensive “high-energy” scanners – which do not “look remotely like” the cheaper scanners, according to the panel report – in calculating the average domestic price, even though only cheaper “low-energy” scanners were exported. The panel found that this price comparison was “not consistent with an objective examination of positive evidence” required under WTO rules.

The panel also found that Beijing did not comply with certain due process and transparency requirements before imposing the duties.

The panel did not rule with the EU on all points, however, noting that Brussels had not established that Beijing had acted inconsistently in certain other procedural matters.

“I expect China to remove the measures immediately,” EU Trade Commissioner Karel De Gucht said on Tuesday in response to the panel ruling. “I will not accept tit-for-tat retaliation against European companies through the misuse of trade defence instruments.”

Under WTO rules, both sides have 60 days to appeal the ruling. In a statement, China’s Ministry of Commerce indicated that they would make a serious assessment of the case and reserved the right to appeal.

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by Mike Poverello

TRALAC – What has happened since customs duties on 124 clothing tariff lines were increased in 2009?

I really enjoy TRALAC’s Newsletter – their analysis is always concise and down-to-earth. This Hot Seat Comment is no exception. One often wonders about the impact and nett result of tariff changes and trade remedies. Here we get some insight.

The clothing and textile industry has a long history in South Africa and is still a very important source of employment, especially for women and in poorer communities. The industry is geographically bound to specific provinces, including the Western Cape, KwaZulu-Natal, the Free State and Gauteng. In many rural areas the clothing and textile sector is often the only source of formal employment. Since about 2002 the Rand appreciated substantially and South African exports became less competitive in the global market. Coupled with the trade liberalisation, in terms of South Africa’s WTO offer, the clothing and textile industry has experienced sustained import competition due mostly from Asian imports. In order to try and remedy large-scale factory closures and employment losses in the industry the Southern Africa Clothing and Textile Workers Union (SACTWU) applied for an increase in the import tariffs of 124 clothing tariff lines to the WTO bound rates of 45 percent in 2009. These clothing tariff lines are classified under Chapter 61 and 62 of the South African Tariff Book and include various clothing items, including men’s woven and knitted shirts, jackets and trousers; babies’ garments; and women’s woven and knitted jackets, skirts, dresses and trousers. Although the retailers objected to an increase in import duties the International Trade Administration Commission (ITAC) granted the application and general customs duties on 121 clothing tariff lines were increased from 40 percent to 45 percent, while the general customs duties on three tariff lines (hosiery) was increased from 20 percent to 45 percent.

imagesIn its application SACTWU stated three reasons for the application: there has been a significant increase in imports under these 124 tariff lines flowing into South Africa; market disruptions in the SACU industry which have resulted in factory closures and retrenchments warranted increased protection for the domestic industry; and increased tariffs will provide both relief and show increased confidence in the industry. The retail industry objected to the application on the following grounds: the loss of business in the manufacturing industry can not only be attributed to price competition, but also inefficiency in the local industry; increased duties will have an inflationary effect impacting the ability of consumers to buy clothing at competitive prices; and increased duties will have a punitive effect on the rail sector and the end consumers. In its decision the Commission found the declining rate of investment and employment in the clothing sector coupled with increased imports a disturbing trend. The Commission decided that an increase in customs duties will enable manufacturers to protect existing jobs, increase market penetration and price competition and growth the domestic manufacturing sector in the export market. However, the question of whether the increase in these customs duties have been successful in reaching its goal of decreased imports and increased domestic production, sales and exports still remain.

Import and export data sourced from the World Trade Atlas (2013) and production and sales data sourced from Statistics South Africa (2013) show the following patterns in the clothing industry between 2009 and 2012:

  • Over the time period imports of the 124 clothing tariff lines increased by 15 percent, from approximately US$ 834 million in 2009 to approximately US$ 1.2 billion in 2012.
  • The top five importing countries were China, Mauritius, India, Madagascar and Bangladesh, accounting for 89 percent of the total imports of these clothing articles into South Africa over the time period.
  • China mainly exported men’s, boy’s, women’s and girl’s cotton trousers; knitted sweaters and pullovers; cotton and knitted t-shirts; and knitted babies’ garments to South Africa between 2009 and 2012.
  • South Africa’s exports of these clothing tariff lines increased by 6 percent, from approximately US$ 71 million in 2009 to approximately US$ 84 million in 2012.
  • These clothing articles were mainly exported to African countries, including Zambia, Mozambique and Zimbabwe.
  • The production index of the physical volume of production (base year is 2005) show there has been a significant decrease in the volume of production of knitted and crocheted articles and wearing apparel in South Africa. The index decreased from an average of 108.11 in 2009 to an average of 79.82 in 2012.
  • The sales of knitted and crocheted articles and wearing apparel also declined over the time period. Actual value of sales declined by 3 percent, from approximately US$ 18 billion in 2009 to approximately US$ 16 billion in 2012.

Although there has not been a significant lapse of time since the increase of import tariffs the data gives the short term response of imports, exports, and production to the change in import duties in November 2009. Immediately after the increase in tariffs there was an initial decrease in exports, production and sales.  However, exports recovered by the end of 2012, while production and sales are still significant lower than pre-2009 levels. SACTWU has also recently indicated that employment in the clothing, textiles and leather sector seems to be more stable over the last two years. However, one of the main objectives of the increase in import duties, to deter lower priced imports mainly from Asia, has not been accomplished. Source and content credit – Willemien Viljoen, TRALAC Researcher.

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by Mike Poverello

Nigeria – Maximizing Opportunities in Free Trade Zones

Lagos Free Trade Zone

Lagos Free Trade Zone

So how come FTZs, IDZs, EPZs, etc are working in other African countries and not here in South Africa? This Day Live (Nigeria) offers some of the critical success factors which delineate such zones from the normal economic operations in a country. Are we missing the boat? The extent of economic and incentive offering can vary substantially between the different economic and trade zone models – some extremely liberal while others tend to the conservative. Obviously the more liberal and free the regulations are the more stringent the ‘guarantees’ and controls need to be. However, in today’s e-commercial world, risk to revenue can more than adequately be mitigated and managed with through risk management systems. Manufacturing and logistical supply chain operations are likewise managed in automated fashion. I guess the real issue lies in governments appetite for risk and more particularly its willingness to relax tax and labour laws within such zones. Furthermore, a sound economic roadmap demonstrating backward linkages to the local economy and outward linkages to international markets must be defined. Herein lies some of the difficulties which have plagued South African attempts at such economic offerings – no specific economic (export specific) goals. Limited financial/tax incentives for investors, and poor cooperation between the various organs of state to bring about a favourable investment climate.

Free Trade Zones (FTZs) are at the crux of the growth attributed to emerging markets. All the BRIC nations have used the FTZs as a buffer to economic meltdown particularly in the wake of the most recent financial and economic crises. The “great recession” of 2007 – 2009 saw the BRIC nations growing at the rates of 7% to 13%. Consequently, the importance of FTZs as well as maximizing opportunities therein cannot be over-emphasized. The literature defining FTZs vary, but they all have the following characteristics in common:

  • A clearly delimited and enclosed area of a national customs territory, often at an advantageous geographical location, with an infrastructure suited to the conduct of trade and industrial operations and subject to the principle of customs and fiscal segregation.
  • A clearly delineated industrial estate, which constitutes a free trade enclave in the customs and trade regime of a country, and where foreign manufacturing firms, mainly producing for export, benefit from a certain number of fiscal and financial incentives.
  • Industrial zones with special incentives set up to attract foreign investors, in which imported materials undergo some degree of processing before being re-exported.
  • Fulfilling their roles in having a positive effect on the host economy, regulators look at FTZs from a nationalist perspective. Inevitably, they seek the following benefits:
    • Creating jobs and income: one of the foremost reasons for the establishment of FTZs is the creation of employment.
    • Generating foreign exchange earnings and attracting foreign direct investment (FDI): measures designed to influence the size, location, or industry of a FDI investment project by affecting its relative cost or by altering the risks attached to it through inducements that are not available to comparable domestic investors are incentives to promoting FDI. Implicit in this statement lies the definition of FTZ. Other traits that are recognizable when discussing FDI’s include specially negotiated fiscal derogations, grants and soft loans, free land, job training, employment and infrastructure subsidies, product enhancement, R&D support and ad hoc exceptions and derogations from regulations. In addition to FDI, by promoting non-traditional exports, increased export earnings tend to have a positive impact on the exchange rate.
    • Transfer of technology: trans-national corporations (TNCs) are a dominant source of innovation and direct investment by them is a major mode of international technology transfer, possibly contributing to local innovative activities in host countries. It is a government’s primary obligation to its citizenry to provide attractive technology, innovative capacities and mastering, upgrading, and diffusing them throughout the domestic economy. Nevertheless, through national policies, international treaty making, market-friendly approaches, a host country gravitates from providing an enabling environment to stronger pro-innovation regimes that perpetually encourage technology transfer.

FTZs can be both publicly (i.e. government) and or privately owned and managed. Governments own the more traditional older zones, which tend to focus more on policy goals that are primarily socio-economic. They emphasize industry diversification, attracting FDI, job creation and the like. Privately-owned FTZs have the advantage of eliminating government bureaucracy, are more flexible, and are better prepared to deal with technological changes. The global trend towards privatization has made privately-run zones more popular and a number are highly successful. The role of government in the case of privately-run zones is to provide a competitive legal framework with attractive incentive packages that meet the World Trade Organization (WTO) requirements.

FTZ Operations in Nigeria

FTZs were established in 1991 in order to diversify Nigeria’s export activity that had been dominated by the hydrocarbon sector. By 2011, there were nine operational zones; ten under construction; and three in the planning stages. The governing legislation includes the Nigeria Export Processing Zones Act (NEPZA) and the Oil and Gas Export Free Zone Act (OGEFZA). Zones may be managed by public or private entities or a combination of both under supervision of the Authority. For the full article go to – This Day Live

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by Mike Poverello

WTO – Merchandise Trade and Commercial Services

Researchers and students of international trade patterns and economics will find a useful resource in the following link. Information is made available across databases, annual publications as well as interactive statistics and maps. Please take note of the copyright.

WTO Statistics

by Mike Poverello

Ready for a cock-fight?

Brazil has taken the first legal step at the World Trade Organisation to challenge South Africa’s use of anti-dumping measures on shipments of Brazilian poultry meat, the global trade body said in a statement on Friday. Brazil has “requested consultations” with South Africa over South Africa’s accusation that Brazilian imports were “dumped”, or sold at an unfairly low price that damaged South Africa’s own poultry sales, the WTO said. If the consultations fail to resolve the issue, in 60 days’ time Brazil could ask the WTO to set up a panel to adjudicate.

The statement did not give any more details, but South Africa’s International Trade Administration Commission (ITAC) has imposed anti-dumping duties on frozen chickens and chicken meat imported from Brazil after investigating suspected dumping in 2008-2010. In 2010, Brazil accounted for 94.2% of South Africa’s total 26,916 tonnes of boneless chicken imports and 44.6% of the total 29,039 tonnes of whole chicken imports, ITAC’s investigation report said in January.

After calculating the extent of the unfair competition, South Africa put a provisional anti-dumping duty of 62.93% on whole chickens and 46.59% on boneless cuts from Brazil, except for boneless cuts from Aurora Alimentos, which would incur a duty of 6.26%.  The dispute is the first between Brazil and any African country and only the fourth brought against South Africa at the WTO.

All of the previous three cases, brought by India, Indonesia and Turkey, also concerned South Africa’s use of anti-dumping measures to protect its market from unwanted imports. None of those three disputes advanced to the panel stage. India and Turkey did not press their cases and Indonesia withdrew its challenge after South Africa withdrew its anti-dumping measures. Source: News24

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by Mike Poverello

World Trade Report 2012

This year’s World Trade Report ventures beyond tariffs to examine other policy measures that can affect trade. As tariffs have fallen in the years since the birth of the General Agreement on Tariffs and Trade (GATT) in 1948, attention has progressively shifted towards non-tariff measures (NTMs). The range of NTMs is vast, complex, driven by multiple policy motives, and ever-changing. Public policy objectives underlying NTMs have evolved. The drivers of change are many, including greater inter-dependency in a globalizing world, increased social awareness, and growing concerns regarding health, safety, and environmental quality. Many of these factors call for a deepening of integration, wresting attention away from more traditional and shallower forms of cooperation. Trade in services is a part of this development and has come under greater scrutiny, along with the policies that influence services trade.

So what does the report contain? Click here to download the report!

  • Section A of the Report presents an overview of the history of non-tariff measures in the GATT/WTO. This overview discusses how motivations for using NTMs have evolved, complicating this area of trade policy but not changing the core challenge of managing the relationship between public policy and trading opportunities.
  • Section B examines the reasons why governments use NTMs and services measures and the extent to which public policy interventions may also distort international trade. The phenomenon of off-shoring and the cross-effects of services measures on goods trade are also considered. The section analyses choices among alternative policy instruments from a theoretical and empirical perspective. Finally, case studies are presented on the use of NTMs in particular contexts.These include the recent financial crisis, climate change policy and food safety concerns. The case studies consider how far measures adopted may pose a challenge for international trade.
  • Section C of the Report surveys available sources of information on NTMs and services measures and evaluates their relative strengths and weaknesses. It uses this information to establish a number of “stylized facts”, first about NTMs (TBT/SPS measures in particular) and then about services measures.
  • Section D discusses the magnitude and the trade effects of NTMs and services measures in general, before focusing on TBT/SPS measures and domestic regulation in services. It also examines how regulatory harmonization and/or mutual recognition of standards help to reduce the trade-hindering effects of the diversity of TBT and SPS measures and domestic regulation in services.
  • Section E looks at international cooperation on NTMs and services measures. The first part reviews the economic rationale for such cooperation and discusses the efficient design of rules on NTMs in a trade agreement. The second part looks at how cooperation has occurred on TBT/SPS measures and services regulation in the multilateral trading system, and within other international forums and institutions. The third part of the section deals with the legal analysis of the treatment of NTMs in the GATT/WTO dispute system and interpretations of the rules that have emerged in recent international trade disputes. The section concludes with a discussion of outstanding challenges and key policy implications of the Report. Source: World Trade Organisation.
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by Mike Poverello

Trade Facilitation Implementation Guide

UNECE-Trade Facilitation Implementation GuideHaving spent the better part of the last fortnight amongst customs authorities and implementors of Single Window, I’m compelled to share with you a site (if you have not already been there) which attempts in a simple but comprehensive way to articulate the concept and principles of Trade Facilitation and its relationship and connotation with Single Window. The UNECE Trade Facilitation Implementation Guide should come as a welcomed resource, if not a companion, to trade facilitation practitioners and more specifically Customs Authorities wishing to embark on a trade facilitation approach. Of course it is a very useful reference for the many avid scholars on customs and trade matters across the global village. Of particular interest are the case studies – two of which feature African countries (Mozambique and Senegal) – providing a welcomed introduction of trade facilitation and Single Window on our continent. It is good to note that Single Window has less to do with technology and more to do with inter-governmental and trade relationships and an understanding of how these are meant to co-exist and support one another  – Enjoy!

Trade facilitation is emerging as an important factor for international trade and the economic development of countries. This is due to its impact on competitiveness and market integration and its increasing importance in attracting direct foreign investments. Over the last decade, it has gained prominence in the international political agenda as part of the ongoing WTO multilateral trade negotiations as well as of wide international technical assistance programs for developing and transition economies.

The primary goal of trade facilitation is to help make trade across borders faster and cheaper, whilst ensuring its safety and security. In terms of focus, it is about formalities, procedures, and the related exchange of information and documents between the various partners in the supply chain. For UNECE and its UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT), trade facilitation is “the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment”. Such a definition implies that not only the physical movement of goods is important in a supply chain, but also the associated information flows. It also encompasses all governmental agencies that intervene in the transit of goods, and the various commercial entities that conduct business and move the goods. This is in line with discussions on trade facilitation currently ongoing at the WTO. Source: UNECE

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by Mike Poverello

Is South Africa being screwed by China?

In recent days there’s been mutterings amongst several business commentators concerning the state of the South African manufacturing sector and its inability to compete in the local economy in the face of ‘so-called’ cheap imports. For once I heard some common sense instead of the usual WTO/economist waffle which normally just confuses people instead of shedding light on the inherent problems. What the Business Times article below suggests is that our prevailing job plight is self-induced and should not be blamed entirely on rogue elements alone. Under valuation and mis-declaration have and always will pose a challenge to any country. The blame has been placed on Customs not doing its job; yet, the problem appears to lie at the feet of policy makers who have made foolish decisions for which the country as whole now pays the price. 

The trouble began soon after 1994, when then Trade and Industry Minister, anxious to prove to the then rich and powerful, and sceptical, West what lovers of democracy and free markets they were, removed tariff protection on cheap imports against a considerable body of expert advice. And 12 years before we needed to, because the World Trade Organisation‘s predecessor, GATT, had given South Africa 12 years to modernise its manufacturing, improve its skills and prepare itself before lowering import tariffs.

At the time, Trade and Industry Minister and the government thought South Africa did not need a grace period. Leslie Boyd, then head of the Anglo-American industrial division, warned of the devastating consequences but to no avail. “They thought if they took the crutches away we’d become a free market economy and we’d be competitive,” says Stewart Jennings, chairman of the Manufacturing Circle which represents thousands of manufacturers in SA. “It was the most ridiculous thing you could ever imagine. Those of us in business know there is no free market in the world. Every country protects itself. We don’t. Here’s an economy without skills that just throws open the tariffs. We’re the country that’s whiter than white in terms of the WTO. Everybody else just abuses us.”

Business consultant Moeletsi Mbeki opines “[government] is too ideologically orientated, it operates from ideology rather than from practical expertise. This motivates our relationship with China. The Chinese can do no wrong.”

One of the worst mistakes they made, he believes, was to sign an agreement that gave the Chinese market economy status which it did not and does not deserve. The talk was that SA agreed to do this as compensation for imposing a three-year quota on Chinese textile imports. The effect on SA’s manufacturing sector has been devastating. “As a consequence of that agreement it is virtually impossible for us to get countervailing duties into China through ITAC [the International Trade Administration Commission which used to fall under the Department of Trade and Industry but is now under Ebrahim Patel‘s Department of Economic Development],” says Stewart Jennings. “We’ve battled to get dumping duties or safeguards against China. Most of the applications that have gone to ITAC have been kicked into touch.”

First, China starts with a currency that is 30% undervalued. It manipulates it, so any goods it exports to SA are 30% cheaper than they should be. On top of that there are all sorts of incentives for Chinese exporters. And then, as Jennings says, attempts by local manufacturers to defend themselves by applying for countervailing duties more often than not go nowhere.

Iraj Abedian of Pan African Investment and Research says the short answer to the question is yes, we are being screwed. “Not because the Chinese have been smart but because we’ve been snoozing and naïve.”

SA was so flattered to be asked to join the BRIC (Brazil, Russia, India, China) club of developing economies that it did not drive a hard enough bargain. “We were romanticising our relationship with China and celebrating the fact that China was inviting us to join BRIC. We took it as a form of political honeymoon without recognising its effect on manufacturing, without assessing our counter-strategy for safeguarding national interests in the form of jobs and tax revenue.” China needed SA to join BRIC at least as much as SA itself wanted to join, but SA failed to capitalise on this.

Executive director of the Manufacturing Circle, Coenraad Bezuidenhout, who has observed the effect at close quarters, thinks part of it is that “our guys find the prospect of dealing with China daunting. They feel we need China as a market for our raw materials more than China needs us.” He thinks this attitude reflects a worrying lack of professionalism on the part of those who are paid to battle for SA’s interests. “We should be leveraging our position with regard to our minerals and our access to African markets far more than we do when we deal with China.”  Source: Business Times

by Mike Poverello

Enhancing South Africa’s and Africa’s development through Regional and Continental Integration

Hardly a week goes by without some or other African politician waxing lyrical about continental integration, continental trade diversification, and a wholesome analysis of the ‘barriers’ which prevent the African continent  from reaching its full economic potential. No doubt I’m a bit biased in relaying the recent ‘public lecture’ of our deputy President Kgalema Motlanthe at the University of Finland – read the full speech here! Plenty of insight clearly delineating a plethora of barriers; yet, are we African’s so naive not to have identified these barriers before? Evidently yes.

In recent weeks, on the local front, we have learnt that One Stop Border Posts (OSBPs) is the solution to non-tariff barriers. This topic was drilled amongst the press till it got boring. The focus soon thereafter shifted to the implementation of a border management agency (BMA) – all of government under one roof – so simple. The reality is that there is no silver-bullet solution to African continental integration. Of this, affected business, Customs administrations and the international donor community is acutely aware. While the WTO and the multitude of trade lawyers will ‘yadder’ on about ‘diversification’ in trade, the reality is that Africa’s raw materials are even more sought after today than at an any time before. Certainly those countries which contain vast resources of oil and strategic minerals are about to reap the benefits. So why would African countries be concerned about diversification when the petro-dollars are rolling in? Perhaps greed or lack of foresight for the medium to long-term well-being of countries and their citizens? The fact remains, without homegrown industries producing goods from raw materials, most of  Africa’s eligible working class will continue to be employed by foreign mineral moguls or the public service.

Several customs and infrastructure solutions have over the last few years emerged with the usual credential of “WCO or WTO compliant”. Africa has been a guinea pig for many of these solutions – ‘experiments’ if you prefer. Literally millions of dollars are being spent every year trying out so-called ‘best-of-breed’ technology which users unfortunately accept without much questioning. The cart is being placed before the horse. Why? because the underlying route cause/s are not being identified, understood (sufficiently) and prioritized. Insofar as there exists no silver bullet solution, neither is there a single route cause in most cases. Unfortunately, donor aid often comes with its own pre-conceived outcomes which don’t necessarily tie in with those of the target country or the well-being of the continent.

While governments like to tout the ‘big-hitting’ projects, there are several ‘less exciting’ (technical) areas which countries can address to kick-start the process. One of these has even been recognised by the likes of the World Bank and OECD notwithstanding capital-intensive programs which promised much and have not delivered fully on their promise.  The issue at hand is the harmonisation of customs data. It might at first sound irrelevant or trivial, yet it is the key enabler for most Customs Modernisation initiatives. While there is still much anticipation in regard to the forthcoming deliberation and outcome of the WCO’s Globally Networked Customs (GNC) initiative at June’s WCO Policy Commission session in Brussels, there is significant support for this approach on the African continent. The momentum needs to be maintained.

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