Why restricting Chinese imports won’t fix SA’s trade deficit

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DUDUZILE RAMELA: In March this year, Trade, Industry and Competition Minister Parks Tau issued a directive to implement a pre-export verification of conformity programme on unregulated Chinese imports, which was meant to be effective this month.

The directive aimed to protect consumers and businesses and targeted products including aluminium, cookware and cooking pots, hair relaxers, sanitary towels, office chairs and more.

Such a directive is aimed at protecting consumers, as well as local businesses, and would need to meet quality standards of South African national standards.

But days before its implementation, it was pulled back.

The dtic (Department of Trade, Industry and Competition) has abandoned those plans following pushback from its largest trading partner. Donald MacKay is CEO of XA Global Trade Advisors, he joins us now for more.

Donald, thank you very much for your time this afternoon. What was the vision? How would these checks have taken place?

DONALD MACKAY: The original thinking was that the checks would happen in China before the goods were even placed on the vessel to come to South Africa, and they’d be looked at to see if they complied with South African standards, and if they didn’t, that they would never be allowed onto the vessel in the first place.

In other words, they’d never enter the local market.

DUDUZILE RAMELA: That would have been a little bit difficult to enforce, wouldn’t it? Unless there would be a South African on the other side who would be checking that these goods meet South African standards.

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DONALD MACKAY: There are independent verification agencies. Think of companies like Bureau Veritas that will independently check against the standard, and these are used for certain other products that could be dangerous and so on. So there is infrastructure to deal with this.

I think the bigger problem that arose here is isolating China, which is a breach of our WTO (World Trade Organisation) obligations.

So if you have a standard, you have to apply it equally to all your trading partners and in fact to your domestic industry. You can’t isolate one country and say we’re only going to do this against China. My guess on this is that is the reason this plan got abandoned.

DUDUZILE RAMELA: Oh, so that explains the intervention by the World Trade Organisation following China’s complaint about the scope.

DONALD MACKAY: Yes, exactly.

DUDUZILE RAMELA: Is it clear at this point whether this will resume or whether it has been scrapped?

DONALD MACKAY: I don’t know if it will resume. I think there are a couple of issues with how the list is made up. Countries are, of course, allowed to restrict trade, which they think could be dangerous to their citizens, that sort of thing. But they can’t arbitrarily restrict trade.

One can understand, for example, female sanitary products being on the list, but it becomes far harder to understand how aluminium cookware ends up on the list, or whether that is there to just protect the South African cookware industry.

Read: Safety certificate requirement for Chinese imports withdrawn

So it could also be that but so far, we simply don’t know. If they did want to implement it, they would have to do it the proper way, as they’ve done, have your compulsory standard, as we do on cement, for example.

Then every country that wants to ship cement to South Africa has to comply with that standard. But for that matter, so do our own domestic cement producers, and then that could work.

DUDUZILE RAMELA: I think you alluded to an answer to my question that popped up in my mind about the timing. So this was initiated back in March, and I’m wondering why now after all these years this didn’t start now?

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DONALD MACKAY: Yeah. It’s a very peculiar action for the minister to have taken, in my view. There’s very little information around what drove it. I’m a little sceptical that all of this was just out of concern for consumers, because then the country list would have been broadened.

I suspect that there might have been some lobbying behind the scenes to try to get the products closed out of the market, but I certainly have no evidence of that.

DUDUZILE MACKAY: Right, fair enough. In terms of our trade relationship with China, we run a trade deficit – we’re speculating and I will put it out there, but just some questions that are in one’s mind – maybe this would have been done to try and align that, if you will, for lack of a better expression.

DONALD MACKAY: It is possible. I don’t think that is the case. This would not even get close to addressing the trade situation with China and that is because somewhere around 70%, 75% of what we export to China is simply minerals, which means all of the value is added in China, and then we bring the iron ore back as a fridge or whatever the case might be.

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This is not even going to put a dent into that situation because South Africa’s whole manufacturing infrastructure has largely collapsed in the last 15 or so years.

So in order for the whole trade balance to look better, not just in terms of whether we have a surplus or deficit, but whether we trade higher value goods out of South Africa, would require fixing the fundamentals of why our manufacturing sector has collapsed.

Think here of Eskom, dysfunctional ports, crime, and we can all go through the list of why nobody wants to have a factory here.

Then when you look at that, you say, okay, that is why on manufactured goods, we perpetually run a trade deficit with most of the world, for that matter.

DUDUZILE RAMELA: Thank you so much, Donald. Unfortunately, that’s all the time we can afford for today. Donald MacKay is CEO of XA Global Trade Advisors.

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