On June 3, the Department of Trade and Industry (DTI) announced that it had identified the need for South African export promotion and development legislation and that it was preparing a White Paper (no mention of a Green Paper) and a National Export Development and Promotion Bill that is in line with, besides others, the National Development Plan and the New Growth Path.

The DTI has invited interested parties to comment on this issue by July 21.

According to the department, the White Paper and Bill are envisaged to contribute to improving South Africa’s export culture, export environment and international competitiveness and coordinate efforts to drive the country’s export agenda. They are expected to lead to an increase in South Africa’s export volumes and to the diversification of export markets and products.

This implies that current exporters must be retained and while new ones are simultaneously developed. According to the DTI, it is critical that the increased exports contribute to economic growth, increased net foreign currency inflows, job creation, an improvement in equity and poverty alleviation. While it is important to remove all the obstacles that prevent the growth and diversification of South Africa’s exports, it is essential to improve the drivers that will contribute to achieving these objects. Although the identification of any obstacles or barriers is valuable, the DTI has requested that those submitting comments also propose realistic solutions that are sustainable in the long term.

Since the DTI intends to subject the White Paper and the Bill to extensive consultation, it requires input on the following proposed themes: the setting of strategic export goals, or smart targets, for sectors and regions; strategic leadership and monitoring and evaluation; border-in or supply-side issues, including the development of an export culture in South Africa, exporter development, domestic and foreign direct investments, cost of inputs, productivity, quality, innovation, special economic zones and industrial parks, skills and other border-in issues; the border or business environment, including infrastructure, trade facilitation, the cost of doing business and other border issues; border- out or demand-side issues, including market access, in-market support, strategic export promotion and other border-out issues; developmental issues, including job creation, transformation efforts, regional development and other developmental issues; export structures, including policy and strategy, implementation and advocacy; and export-specific legislation.

In its concluding remarks, the DTI indicated that comments need not be constrained by these themes, as all inputs would be considered.

An obvious question is: What becomes of the DTI’s own National Exporter Development Programme (NEDP), which was launched on April 3, 2013?

The purpose of the NEDP is to increase exports, particularly of products and services that add value and contribute to employment and the green economy. The target group is small, medium-sized and microenterprises, which are generally drawn from the ranks of the previously disadvantaged, while still taking into account the needs of larger potential and established exporters.

An obvious observation is that, for any export promotion and development legislation to have any chance of succeeding, it should be realistic about elasticity and electricity.

In the instance of elasticity, just because there is demand for a primary product does not mean that there will be similar demand for the secondary product, or even the final product. A partial explanation is that importers tend to want to add value in their country rather than to indulge the exporting country to add such value.

Any process of value addition or beneficiation is heavily electricity intensive, which South Africa simply does not have in abundance currently. The increasing cost of electricity has burdened the South African economy, incapa- citating and impeding its international competitiveness.

I wish our policymakers would not engage in rhetoric, but rather offer a conclusive plan. A ‘plan’ is a detailed proposal for doing or achieving something measurable and defined, otherwise it is no more than a ‘wish list’, even though it is titled otherwise.

Ignoring Customs Valuation
The South African Revenue Service (Sars) commissioner said on June 3 that the service would be appointing 24 additional tax specialists in its transfer pricing unit to deal with base erosion and profit shifting. But why is there no similar increase in the staffing levels of the customs valuation unit?

Over the years, numerous column centi- metres have been devoted to exploring the link between customs valuation and transfer pricing. But in South Africa this link is seemingly and inexplicably being ignored. This is perplexing, considering the openness of the South African economy and the structure of the country’s merchandise trade. If anything, South Africa’s merchandise trade patterns are static. This implies that the contracting partners – importers and exporters – tend to remain the same. Internationally, cross-border trade is more prevalent between what is termed ‘related parties’ – in other words, there is a defined relationship between the contracting partners, whether through shared ownership or through other relationships.

The extent of South Africa’s merchandise trade between related parties is unknown. Considering that internationally, merchandise trade is estimated to be in excess of 60%, it is quite possible that South Africa’s merchandise trade is of similar magnitude. Thus, Sars is ignoring customs valuation to the country’s disadvantage.

Direct and Indirect Tax
I stated in last week’s instalment of this column, titled ‘The incidence of taxation’, that the advantages of direct and indirect taxes would be dealt with this weak. What makes this issue highly relevant is that the Davis Tax Commission is currently reviewing South Africa’s tax system with the intention of recommending possible amendments, the most plausible of which is expected to be a value- added tax amendment.

The advantages of direct taxes include economy, since the cost of collection is low, and certainty, given that the taxpayer knows exactly what amount is payable. The other advantages are equity (the incidence of a direct tax is not difficult to judge), elasticity (direct taxes are very elastic) and social effect (the taxpayer is made to feel the impact of his or her personal contribution).

The advantages of indirect taxes include convenience (payments are generally made at the time of purchase or at source of manufacture), elasticity (they are generally inelastic, difficulty of evasion (contribution is made by all consumers) and social benefit (they attempt to restrict consumption).

I will look at the disadvantages of each of these taxes in next week’s instalment.