An assessment of the trade measures proposed as part of the Department of Trade and Industry’s Draft Rescue Package for the clothing and textile industryPosted on Wednesday, June 17th, 2009 by Woolfrey, Sean in Trade Briefs
One of the South African government’s latest responses in its ongoing and thus far unsuccessful effort to assist the country’s ailing clothing and textile manufacturing industry was the drafting of a rescue package by the Department of Trade and Industry (DTI) in consultation with industry stakeholders. In addition to several industrial policy measures, such as programmes for skills development and investment in capital, the package also contains certain trade policy measures. Notably, the package proposes raising applied tariffs on imported clothing to bound levels, and implementing an investigation into the use of safeguard measures, with higher temporary duties to be levied on imports of various clothing lines.
Partly in response to the rescue package, and partly as a follow up to previous work on the quantitative restrictions levied on clothing and textile imports from China, tralac has produced a working paper which addresses the value of the new trade measures proposed by the DTI. The paper begins by providing a brief overview of the clothing and textile industry in South Africa, including an analysis of the recent quota experience. Next it highlights the industry’s weaknesses, posing the important question of whether it has a sustainable future. Leaving this question open, the paper examines the trade measures mentioned above, looking in particular at a number of issues that need to be explored when considering an increase in import tariffs, including the scope that exists for such a move, the nature and coverage of the proposed tariffs, and the impact that such an increase would have on the South African Customs Union (SACU), as well as on South Africa’s trade relations with developing country exporters of clothing. After addressing the proposal to implement safeguards and highlighting the legal issues involved, the paper concludes with remarks on the future prospects for the clothing and textile industry in South Africa.
Given the lack of policy space for increasing tariffs on clothing imports and the political and economic costs that such a move would likely entail, the paper argues that raised tariffs would be of little benefit to the local industry and to South Africa as a whole. If a viable future for the industry is envisaged and if the government is committed to providing the industry with breathing space to adapt to increased competition, then the safeguards proposal makes far more sense than raising tariffs. Not only are safeguards inherently conditional and temporary, thereby forcing the local industry to undertake much needed restructuring, they are also likely to be more palatable to the international community than an increase in tariffs.
The local clothing and textile industry shows many of the hallmarks of an industry in potentially terminal decline, and it is difficult to see how it could become internationally competitive in the future. The government however, seems determined to assist the industry and has already committed significant resources to it. In addition to the inappropriateness of increased tariffs as a measure for assisting the industry, another important issue raised by the paper is whether government resources would not be better utilised elsewhere. If the government is concerned with the effects of widespread job losses for instance, it could address this issue more directly instead of supporting a chronically inefficient industry with largely ineffective policy tools such as tariffs.
Copyright © tralac 2009: Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.