New concerns about agreements for protection against anti-dumping

The anti-dumping duties on Portland cement imports from Pakistan have been extended for another five years, but only in the nick of time – one day before the deadline for the sunset review investigation and the lapsing of the duties.

The International Trade Administration Commission of South Africa (Itac) recommended in November last year that anti-dumping duties ranging between 25% and 68.87% be imposed. Local cement manufacturers waited more than six months for approval of the duties by Minister of Trade, Industry and Competition Ebrahim Patel.

In terms of World Trade Organisation rules and South African anti-dumping regulations, a dumping investigation (including a sunset review of the dumping duties) must be completed within 18 months after a review application was initiated for investigation.

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The Itac investigation was initiated in December 2020 following an application by the Concrete Institute on behalf of all major cement producers in South Africa. It made its final determination at the end of November last year. The duties were extended one day before the 18-month deadline for a further five years.

Commitments-for-protection ‘bartering’

Francois Dubbelman, founder of FC Dubbelman & Associates, says besides the time it takes to complete these investigations another grave concern is the recent request for reciprocity commitments by companies asking for protection against dumping.

He says Patel issued a directive in 2016 to Itac to request certain commitments from companies applying for normal import tariffs in order to compete on an equal footing.

If Patel approves the granting of the import duty the companies must commit, among others, to price increases of not more than the consumer price index (CPI), and stipulate the number of jobs that will be created, the salaries that will be paid, the amount that will be invested in plant, machinery and buildings over a period of three years as well as the amounts to be invested in bursaries, apprenticeships and internships.

The gun to their heads is the possibility that their application for protection will be rejected in the absence of any reciprocity commitments.

It is concerning when government is dictating to the private sector how to operate their businesses.

One example of how companies are being dictated to reads: “The Company agrees that any decrease in unit cost arising from increase in production volume will be used to offset increases in input material and other direct costs for subject goods. Where the decrease in unit price exceeds increases in such costs, The Company agrees to reduce the price of its manufactured goods to the downstream customer by such amount.”

The role of government

In practice Itac should investigate all requests for protection against material injury whether it is because of fair trade or unfair trade such as dumping.

If it finds there is material harm, it should seek the approval of the minister for the implementation or extension of existing import duties.

Dubbelman believes this is how Itac operates, but Patel requires enforceable commitments.

“The principle is that it is government’s role to create an enabling environment for industries to operate and compete globally. This includes infrastructure, electricity and stability for future investments and growth,” says Dubbelman.

“The imposition or removal of import duties can be beneficial if it is applied correctly and for the right reasons,” he adds. However, the market is distorted when a company gets protection only if it offers certain commitments, while other producers are not subjected to such agreements but also benefit from the protection against imports.

Financial distress due to dumping

The concern is with the latest trend to request similar agreements from companies that find themselves in financial distress because of dumping. Companies requesting protection from “unfair trade” such as dumping or subsidised products are trying to compete on equal footing with unfair trade, while they also continue to compete with fair trade. They are trying to stay in the market, protect their investments, to retain existing jobs and perhaps re-employ retrenched workers if protection is granted.

They are not in any position to create new jobs or make additional investments and give commitments to the minister in order to be protected against unfair trade.

This is not encouraging for foreign investments. It creates the impression that companies wanting to invest or survive in SA must barter with government in order to obtain protection from targeted unfair trade.

Potential investors may look more favourably at other investment destinations where this form of bartering is not requested.

In the case of cement imports the initial anti-dumping duties against Pakistani manufacturers was 77.15%. It has now been reduced to 25% for Lucky Cement, 68,87% for D.G.Khan and 63.53% for Attock Cement.

All other imports from Pakistani manufacturers will be subject to the residual import duty of 62.69%.