South Africa’s cash-strapped consumers are facing a potential 40% increase in the price of tyres should an application to impose anti-dumping duties on tyre importers come into effect. Four tyre manufacturers applied to the International Trade Administration Commission (ITAC) to impose additional duties of up to 69% on passenger, taxi, bus and truck vehicle tyres imported from China. The application is being opposed by the Tyre Importers Association of South Africa, the National Taxi Alliance, and the Road Freight Association. Ivo Vegter, writing in the Daily Friend below, explains how Minister Ibrahim Patel’s priorities appear to hark back to a bygone era of isolation and autarky – a system of self-sufficiency and limited international trade. – Michael Appel
By Ivo Vegter*
Ivo VegterThe Department of Trade Barriers, Inflation and Collusion is working on a new scheme, this time to raise the prices of car, taxi, bus and truck tyres by up to 41%. This is bad for consumers, and bad for road safety.
Ebrahim Patel’s campaign to turn the clock on South African industry back to the heydays of P W Botha’s isolation economy is not letting up.
A court battle is brewing to fight an application by a cartel of domestic tyre manufacturers to impose ‘anti-dumping’ duties on brands brought in by tyre importers.
As usual, the local cartel – consisting of Continental, Bridgestone, Goodyear, and Sumitomo, who together make up the South African Tyre Manufacturer’s Conference (SATMC) – argues that imports undercut their prices, and that this threatens employment in the sector.
The truth is that the imports threaten their profits, as they should do. Price gouging is supposed to attract cheaper competition.
They’re being hypocritical to boot. Because they cannot supply the entire market, the manufacturing cartel imports about 80% of the tyres they sell. They’re not disclosing any of the details, however, intending that their own imports are exempted from the tariffs.
It’s no surprise, then, that the Tyre Importers Association of South Africa (TIASA) is going to the High Court to force the SATMC and the International Trade Administration Commission, Patel’s tariff-raising agency, to disclose critical information being withheld with respect to the import duty application, and to challenge the manner in which the investigation is being conducted.
‘We are operating in the dark when it comes to this application for additional duties, and the stakes are high for South Africa,’ says Charl de Villiers, Chairperson of TIASA. ‘If ITAC decides to impose the maximum duty percentage requested by SATMC, we could see price increases range from 41% for taxi tyres, 38-40% for passenger tyres and an average of 17% for truck and bus tyres. These increases will have dire consequences for commuters, the transport sector, and consumers, who are struggling with climbing inflation. Last week, Stats SA announced that consumer inflation had accelerated to a new 13-year high of 7.8%, saying that the usual suspects of food, fuel and transport costs were the main drivers.’
The cost of transport is baked into so many other prices, from mining and construction to agriculture and consumer goods, that these duties will have a powerful inflationary impact.
Yet Patel is pursuing the localisation effort with a vigour that his predecessor, Red Rob Davies, could never match, and that means the consumer’s interests are last on his list of concerns.
The difference between Patel’s preference for local industry and that of P W Botha is that the apartheid-era leader had no choice. The international community isolated South Africa, so autarky – a system of self-sufficiency and limited international trade – was forced upon Botha. Patel, on the other hand, seems to think it is simply a marvellous idea to impose sanctions on ourselves, because it will force domestic industry to pick up the slack.
The notion of raising the price of imports to benefit local producers seems to make sense on a populist level. A Bachelor of Arts graduate like Patel might believe it to be true, as do many lay people.
The Proudly South African campaign is just as popular now as Koop Suid-Afrikaans was in the days of Vorster and Botha. The pop-economics reasoning is that less money leaves the country, and more money is spent at home, which will strengthen local industry and, ultimately, create more jobs.
It doesn’t work that way, however.
Imagine the same argument at a smaller scale. If, in a household, the family grows their own crops, makes their own furniture, and sews their own clothes, they will indeed spend less money. However, they will also have less time available to produce things that other people will pay for, and others who might have supplied them with some of their needs will make less money they could use to create jobs. Having fewer products to sell, or less labour to trade, means the household will earn less, too.
This is a peasant life; a medieval life.
Now imagine artificially raising the price of food, furniture or clothes at the market. Perhaps the landlord levies a tax on everything the household buys from other people.
Does that make the self-sufficient family better off? At best, it will have no impact, if the family really can provide all its own needs. More likely, however, is that it will make them worse off, since they might still need to buy food or clothes they cannot manage to produce themselves. They might suffer a bad crop year, or disease among their livestock, or the sewing hand might become arthritic. A tax on market purchases levied by the landlord would in every eventuality make the household worse off.
It would also make market vendors worse off, because the household can now afford even less than before. The only person who would benefit in this scenario is Patel the landlord, who would gain unearned income.
History shows that a better division of labour, in which working household members specialise in what they’re good at, while outsourcing tasks to others who can at a larger scale produce better goods more cheaply, makes everyone richer.
It also shows that the intervention of tax collectors, be they landlord or emperor or democratically elected government, invariably makes people poorer, on aggregate.
Scaling that up to village level, say imports from the next village were taxed by the local lord in order to protect the local blacksmith, grocer and furniture maker. This would induce them to raise prices to ‘import parity’, forcing villagers to pay more for their goods. The extra profits would certainly fatten the wallets of the protected producers, and the taxes would enrich Lord Patel, but the money villagers would have saved from lower prices now cannot be spent on alternative products. This leaves the village’s tinker, tailor and candlestick maker with less revenue and a reduced ability to grow their businesses and create jobs.
The ability to buy all goods and services at the best possible combination of quality and price, according to each person’s individual requirements, is how the general prosperity rises. That is what increases demand, and hence, what generates more economic activity and more employment.
That free trade, both domestic and international, is harmful to developing economies is an idea firmly stuck in the 1960s. The rise of the Asian tigers, and in particular South Korea, along with the failures of more protectionist and even socialist countries, have proven that free trade raises prosperity and employment even in poor countries.
There’s another reason, besides pure economics, why imported tyres should not attract duties. Those duties will inevitably raise the prices of tyres, both imported and locally manufactured. That is a core purpose of import duties: to enable local manufacturers to make higher profits.
More expensive tyres means road users will face higher costs to replace tyres. That means they will postpone replacing tyres until the last possible moment. Many will be forced to let their tyres wear smooth, simply because they cannot afford new tyres this month, or next month.
The police will catch a small number of them, but most will get away with it. Until, of course, they aquaplane their car headlong into oncoming traffic, or burst a taxi tyre, or delaminate a truck tyre, or fail to stop a bus when a child runs into the road.
Making tyres unnecessarily expensive not only costs consumers money, but it makes our roads less safe. Perhaps Ebrahim Patel ought to think of the consequences of his misguided efforts to pad the profits of local manufacturers.
If he is not concerned about the fate of importers – who also generate economic activity and employ people – perhaps he might recognise that the special interests of producers do not trump the interests and safety of the general public.
The views of the writer are not necessarily the views of the Daily Friend or the IRR. If you like what you have just read, support the Daily Friend.
Read also:
(Visited 945 times, 1 visits today)