Protecting local industry in an increasingly protectionist world

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DUDUZILE RAMELA: No sooner had the temporary worldwide tax of 10% expired on Friday, the 24th of July, when a new 10-12.5% tariff was announced by the Trump Administration. This applies to goods from 60 trading partners.

South Africa and 40 other economies are accused of failing to curb imports made by forced labour passing through their supply chains and were thus slapped with 12.5% tariffs. This has, by and large, been interpreted as an inflationary move.

Ayabonga Cawe is chief commissioner of the International Trade Administration Commission of South Africa, also known as Itac, the country’s regulatory body responsible for administering international trade, including tariffs, trade remedies and import/export controls.

Tata, a very good evening to you and thank you very much for your time.

Maybe we can start with a fact-checking exercise. Does South Africa impose or enforce forced labour practices of exported goods?

AYABONGA CAWE: Good evening to you Dudu, and good evening to your listeners. Thank you so much for having us.

I think your fact check is probably giving me a bit of déjà vu from the hearings of the USTR [United States Trade Representative] a few weeks ago on the 9th of July, where a similar question was posed to us as part of the South African delegation to the Section 301 Committee that was looking at this issue.

I think it’s important for us to say two things. The first is that South Africa, in its Constitution, outlaws forms of forced slave and child labour.

So all these coercive forms of labour are outlawed by our Constitution. [and] Section 103 of the Customs and Excise Act outlaws convict labour.

The point we’re making, I think, to the American authorities, was that if you look at those two pieces of legislation and you look at also Section 6 of the International Trade Administration Act of 2002, you do have instruments there that could make for an import prohibition – and that South Africa is in a process of multi-agency and inter-departmental reform to give effect not just to the issue regarding coercive forms of labour, but other forms of supply-chain intelligence that would allow us to control and better understand the supply chain that gives rise to imports landing on our shores – and how it is [that] where some of that behaviour is abhorrent in those supply chains, we are able to control it.

But in the manner that I guess the United States trade representative would have wanted the prohibition, I think we can discuss kind of why there’s a sense here of some institutional uniformity that is sought, in the manner that they would have in their statute – which they’ve had from the 1930s, but have only rarely made use of in the last few decades.

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South Africa would not have that kind of mechanism, but for the kind of behaviour that we’re targeting here, I think the point we were making at those USTR hearings was that South Africa does have the legislative framework – and I think reforms are underway to give effect and also to multilateral ratification that we have of the ILO [International Labour Organisation] Convention on Forced Labour.

DUDUZILE RAMELA: This institutional uniformity you speak of, what is it?

AYABONGA CAWE: Well, the sense that we got as we went to the hearing – and even in the reports that preceded the hearing, so you would know that this matter came to light earlier in the year – was that the United States Trade Representative would have picked out about 60 or so countries constituting over 99% of their trade, and would have said to these countries, you folk do not have an import prohibition akin to the one you find in the United States that has the following:

A designated enforcement authority, a public entity list or a list of entities of concern, a mechanism of rebuttable presumption, remediation requirements, and a clear evidentiary standard that would then allow for the border authorities in the US – its Customs and Border Protection as they’re called, which is quite similar to our South African Revenue Service.

And then, of course, they would also have the Department of Labour and a few other agencies who would enforce such a system.

So in a sense, everyone was brought through the same hoop – whether you were the Republic of South Africa, Angola, Australia or whomever – and those, from our reading, it seems, are the elements from an institutional uniformity vantage point that they would have wanted.

DUDUZILE RAMELA: Got you. What changes? What is exempt and what is tariffed?

AYABONGA CAWE: Our reading is certainly that there’s some slight ambiguity. And you would know, to do that, you’ve had since the IETA [International Emissions Trading Association] Tariffs’ International Emergency Economic Powers Act, another series of tariffs, ostensibly on balance-of-payment grounds – Section 112 tariffs, which, we understand, are set to lapse in the next few days.

And so one would imagine that these tariffs would come in their stead.

And many of the exemptions we would have sought, we certainly haven’t received all of those.

But from what we are looking at, we’re still studying what they’ve put together, because what one might read doesn’t always come across as self-evident when it comes to these things, and I think there’s a bit of strategic ambiguity regarding what would fall under these tariffs and what would not.

The reason for that is the following. It is that you do have certain products where we have agitated for exemptions that are already covered by a series of other tariffs. Take for instance Section 232 tariffs that we have on aluminium rolled products that go into the US, on steel – and some of those tariffs have also been extended to vehicles.

So I think it’s cold comfort to say people have been exempted from these tariffs when they are also confronted by some of the national security tariffs as well.

DUDUZILE RAMELA: 100%. Just to expand on the latter, how have we so far weathered the tariff storm that swept through the country last year?

AYABONGA CAWE: Well, I think there are two main elements of what has constituted a response on the part of South Africa.

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I think the first has been to try and understand the sectoral incidence of the shock.

This is an export demand shock that makes it difficult for South African produced goods to make it into the United States – a market where we have enjoyed preferences under the general systems of preferences, the GSP [Generalised Scheme of Preferences] and of course, the Africa Growth and Opportunity Act, Agoa.

I think that work occupied much of our time around April 2025, when the first set of tariffs came into play.

And the second phase of that – and you would have heard [Trade, Industry and Competition] Minister [Parks] Tau speak to this at length – has been around assisting firms to diversify their export market.

How do you weather the shock in a way that allows you and begins to reward those who seek out alternative markets and, as they do so, begin to really deal with whatever concentration risk we would have had?

But I also think the other element, Dudu, if you take the automotive sector, for instance, is that we would have heard when the tariffs came into play that …

There were also offset mechanisms for American importers, which softened the blow somewhat.

We issued a survey sometime last year, and we have another one coming up with Naacam [National Association of Automotive Component and Allied Manufacturers], the component producer body.

Many of their members export into the US. And what became clear to us was the impact was not as extensive as we would have anticipated, and that’s because the Trump government for an 18- to 24-month period gave some of their importers some offsets.

But in some value chains – because South African product has a particular quality profile – many of the importers have actually smothered the shock, paid the duties, and of course in some instances passed that on to consumers in the United States of America.

So we haven’t had this wide-scale contract and supply renegotiation that all of us would have expected. But that’s not to say that still is not yet to come.

DUDUZILE RAMELA: Fair enough. Very quickly, two questions before we let you go. Just going back on to the ambiguity on the detail, when it comes to timelines and when this comes into effect – the 12.5% – is it a correct assumption to say we don’t have that as yet?

And the second question, before we let you go, Itac has recommended higher customs duties on imported peanut butter.

What economic case supports this decision and how do you safeguard the protective tariffs and balance the need to support local manufacturers without placing unnecessary cost pressures on consumers and food producers?

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AYABONGA CAWE: A quick one – I know you don’t have too much time. On the first one, the 12.5% tariffs came into play last week, on the 24th of July. Anyone who has shipments or consignments destined for the United States will have some of their customers on the other side paying the duty.

Then, on the peanut butter matter, the commission recommended a few months ago to the ministers of finance and trade an increase in the duty from around $0.99 per kg to around 20% of the value of peanut butter consignments.

This was on the back of an application by RCL Foods, which is one of the producers of peanut butter in South Africa.

I think the economic case rests on two fronts. The one is that you had a tariff disparity in the supply chain for peanut butter. We have duties on groundnuts, which are input material into making peanut butter. But we actually had less than a 1% duty on peanut butter.

So effectively, when you go to the shelves, for many exporters from other countries it would have made more sense for them to export finished and complete peanut butter into South Africa, because we’re relatively unprotected compared to the protection we would have afforded to some of the groundnuts as a key input product. So there’s that rationalisation of the tariff structure.

But then the second argument is really we’ve seen significant investment and deep price disadvantages if we compare with producers of peanut butter who have much greater scale in economy in other parts of the world with our own producers who’ve made considerable investment in the last while. And so the economic case had to also balance that.

For you and me, this might mean much more expensive pricing for spreads or whatever people put into their smoothies.

I think we’re a bit worried, and that’s why we had to model the incidence and the consumer welfare implications of this.

What we began to find was that there were those challenges from a price-raising effect – but on an objective balance of the evidence, it was the right thing to do.

The applicant had asked for more and we only came in at around 20% of ad valorem. But really, our task now is to monitor this and ensure that we also monitor peanut butter prices – which for us concerningly have been on an upward trajectory since the end of the Covid lockdowns.

And so that’s something we will continue to do, making good use of the National Agricultural Marketing Council, which tracks South African retail food prices, and other and other metrics that we look at.

DUDUZILE RAMELA: Yes. And how – on those peanut butter prices.

Ayabonga Cawe is chief commissioner of the International Trade Administration Commission of South Africa, the country’s regulatory body responsible for administering international trade, including tariffs, trade remedies, import and export controls.

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