Jun 08, 2012
A weaker rand will offer protection against importsBack
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The argument one hears frequently is that, as a consequence of its strength, the rand exposes South Africa to cheap imports, while impacting on South African exports’ competitiveness – a double whammy, if you will.
This has resulted in calls from certain quarters, particularly the manufacturing industry, for the weakening of the rand against the major international currencies, which, it is argued, will decrease the com- petitiveness of imported goods and increase the competitiveness of South Africa’s exports.
My intention is not to be involved in this debate and to deliberate on the merits or demerits of a weakened rand; rather, it is to question whether calls for the weakening of the rand are not masking the fact that the increase in the ‘general’ rate of customs is not possibly the result of South Africa’s participation in the World Trade Organisation (WTO) by explaining certain aspects of the organisation.
Prior to the creation of the WTO – on January 1, 1995 – the imposition of customs duties as a protective function or as a revenue generator was the sole domain of governments. The WTO, however, introduced ‘bound rates’ following negotiation of the ‘general’ rate of customs duty. In essence, a bound rate is the ‘ceiling’ of the rate of customs duty – the highest rate of customs duty that can be imposed on a given tariff subheading, of which there are more than 7 000.
As a consequence, should the ‘general’ rate of customs duty be set at the bound rate, then a higher rate of customs duty cannot be imposed, thus nullifying customs duty as a measure of protection. (The prevailing rate of customs duty is called the applied rate. The difference between the bound rate and the applied rate is called the ‘policy space’ or the ‘water in the tariff’.)
If there is no policy space, then the only measure available to South African manufacturers to tackle competition, including unfair competition, is the impo- sition of trade remedies, namely anti- dumping duties or countervailing duties (antisubsidy duties). As for fair competition, there is no protective measure avail- able other than safeguard duties. At present, no safeguard duties are imposed, and the reasons for this is could be the subject of an article for another day. Weakening the rand against major international currencies could provide what is referred to as ‘natural protection’. So, in essence, a weak currency could also serve as a protective measure.
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